Private Equity Real Estate & Coronavirus: the end of business travel as we know it?

Working closely with real estate investment managers across Asia Pacific, I spend a lot of time speaking with those involved in acquisitions, asset management, portfolio management and capital raising for real estate GPs and LPs. Inevitably, over the last six months, this had led to one topic of conversation (certainly not peculiar to the PERE sector): Coronavirus, and its effects on our lives and our businesses.

One of the most marked changes to our lives, and the one that has affected real estate acquisitions and investment teams keenly, has been the inability to travel.

At the beginning of the pandemic in Asia, amidst travel bans, businesses were able to continue with transactions that were already underway. They had already travelled to the site and held comfort over the asset or transaction. From there, people were happy to take meetings over video conference, and work through the due diligence of a deal to completion without the need to travel.

The difficulty came once these deals were completed and funds were in a position where they could not travel to see a new pipeline of potential investments. This has been harder to reconcile than the later stages of a transaction, where investment managers have been able to transition from face-to-face meetings to VCs and home working.

Real estate investment is about an asset, how it looks and feels, and also its surroundings. The people you see walking around the site, the community it is within, even the journey you took from the hotel or airport to get to the destination. These factors all affect its value to the potential investor.

Different solutions were suggested – virtual tours or sending a third party to view the asset – but it seemed that most people found these solutions unsatisfactory. Transactions are the lifeblood of any investment management business and ultimately this has proven the biggest reason for slowdowns within real estate funds.

Funds with a decentralised model fared better. Most countries in Asia experienced a lockdown, so were unable to leave their homes or could only leave for very specific reasons. Once this was eased, businesses with several satellite offices around Asia – a few colleagues in Shanghai, Sydney, Seoul, Tokyo, etc – began to make site visits domestically. This has been seen most keenly in China, where national travel has re-opened and pipelines are filling up once again. Having a trusted colleague in-country has certainly been an advantage to businesses.

Many investment managers spend their lives on planes, attending meetings, visiting assets and projects. Coronavirus has given many an opportunity to slow down, and to work out what truly requires us to get on a plane. Often, we can work efficiently from our homes or offices, with the advantage of spending evenings with our families rather than in a business hotel room with a club sandwich. And, of course, less frequent business travel has a positive impact on a company and an individual’s carbon footprint.

As humans, we need to build relationships, and this is better done face-to-face. Those within the real estate investment industry also need to understand buildings and communities, how they work and feel, to ascertain whether it is a good investment. So travel will continue to be an essential part of life for many within real estate funds.

Hopefully this period has given us time to reflect on what travel is necessary and will enhance the work that we do, and when such work is simply “transactional” and can be done from the comfort of our home or office.

Once we are able to travel again, perhaps we will strike a new balance and think twice about travel and its effect on our quality of life and the environment, but also where it complements and adds to the success of the businesses we work for.

Alice Hunt | Principal Consultant, Asia Pacific | [email protected]