Property Values & Pensions

[Megaflow]

This thought keeps occurring to me and it is not doing my anxiety any good at all…

Lots of, if not all, pension funds have a significant investment in property, mostly commercial property as I understand it.

In my head the value of the fund is therefore dependent on the value of the property.

Surely the value of the property is based on its usefulness and how much business need that property.

Given how many town centres are verging on derelict waste grounds, with so much of it empty and unwanted, surely this has a knock on effect to the value of the property and in turn the pension funds?

Have I missed something?

I know for a fact I am over thinking it

[Caddyshack]

Megaflow said:

This thought keeps occurring to me and it is not doing my anxiety any good at all…

Lots of, if not all, pension funds have a significant investment in property, mostly commercial property as I understand it.

In my head the value of the fund is therefore dependent on the value of the property.

Surely the value of the property is based on its usefulness and how much business need that property.

Given how many town centres are verging on derelict waste grounds, with so much of it empty and unwanted, surely this has a knock on effect to the value of the property and in turn the pension funds?

Have I missed something?

I know for a fact I am over thinking it

Many pension funds invest in long leases on quality retail such as big offices or out of town shopping centres etc. they go for the fixed monthly income so the underlying value of the property doesn’t affect the income the pension funds receives or pays out.

[Mr Whippy]

Eh?

If the underlying becomes worth less, the rental yield is likely to be lower too.

And if the ROI falls and the asset price has fallen, then you suffer a capital loss to move on.


I know there is lots in the news now about pensions invested into usurious rents on leasehold property portfolios…

The system really does stink and amazingly, despite ESG and a decade+ of ‘ethical’ talk, while rafts of money end up in these ‘investments’, no doubt through blind index/ETF/tracker type funds, or actively too.

[Caddyshack]

Mr Whippy said:

Eh?

If the underlying becomes worth less, the rental yield is likely to be lower too.

And if the ROI falls and the asset price has fallen, then you suffer a capital loss to move on.


I know there is lots in the news now about pensions invested into usurious rents on leasehold property portfolios…

The system really does stink and amazingly, despite ESG and a decade+ of ‘ethical’ talk, while rafts of money end up in these ‘investments’, no doubt through blind index/ETF/tracker type funds, or actively too.

Not if the tenant has signed a 15 yr contract to pay that rent. The property value is not relevant.

[BoRED S2upid]

Couple of things. A SIPP you can invest as you see fit can’t you? Don’t fancy property or oil and gas invest in Tech. Secondly you need to get out more towns and cities are bouncing back in not seeing derelict waste grounds that you are. You are definitely overthinking it.

[Puzzles]

You’d hope the pension funds have a mix of investments and commercial property is only one part, and that’s further broken down into different property types, offices, warehouses, central, out of town etc

[Mr Whippy]

Caddyshack said:

Mr Whippy said:

Eh?

If the underlying becomes worth less, the rental yield is likely to be lower too.

And if the ROI falls and the asset price has fallen, then you suffer a capital loss to move on.


I know there is lots in the news now about pensions invested into usurious rents on leasehold property portfolios…

The system really does stink and amazingly, despite ESG and a decade+ of ‘ethical’ talk, while rafts of money end up in these ‘investments’, no doubt through blind index/ETF/tracker type funds, or actively too.

Not if the tenant has signed a 15 yr contract to pay that rent. The property value is not relevant.

What if the tenant, you know, goes bankrupt/out of business?

[Countdown]

Puzzles said:

You’d hope the pension funds have a mix of investments and commercial property is only one part, and that’s further broken down into different property types, offices, warehouses, central, out of town etc

They do. Our company DB scheme is diversified across equities, bonds, infrastructure and property. Property is a relatively small proportion of the overall portfolio, the biggest chunk is in equities, and the biggest part of that is a tracker fund.

[Caddyshack]

Mr Whippy said:

Caddyshack said:

Mr Whippy said:

Eh?

If the underlying becomes worth less, the rental yield is likely to be lower too.

And if the ROI falls and the asset price has fallen, then you suffer a capital loss to move on.


I know there is lots in the news now about pensions invested into usurious rents on leasehold property portfolios…

The system really does stink and amazingly, despite ESG and a decade+ of ‘ethical’ talk, while rafts of money end up in these ‘investments’, no doubt through blind index/ETF/tracker type funds, or actively too.

Not if the tenant has signed a 15 yr contract to pay that rent. The property value is not relevant.

What if the tenant, you know, goes bankrupt/out of business?

Some will, some won’t. Often there are personal guarantees. The pension fund will invest in a massive range of properties and if they are getting a 10% return and paying out, say 5% they will have this factored in. Most investment funds have huge reserves of cash to smooth out the rough…it obviously works as many funds will have some commercial in there. There are very well paid actuaries working out this stuff.

[Mr Whippy]

I do appreciate there are actuaries working out all this stuff.

Weren’t there also lots of actuaries working out the LDI pension stuff.

Or the shuttered Woodford property reit?

[Caddyshack]

Mr Whippy said:

I do appreciate there are actuaries working out all this stuff.

Weren’t there also lots of actuaries working out the LDI pension stuff.

Or the shuttered Woodford property reit?

I think that was more a fund manager with too much autonomy?

[Countdown]

Mr Whippy said:

I do appreciate there are actuaries working out all this stuff.

Weren’t there also lots of actuaries working out the LDI pension stuff.

Or the shuttered Woodford property reit?

Actuaries wouldn't have advised on LDI, it would have been Investment managers.

[MarcelM6]

Mr Whippy said:

What if the tenant, you know, goes bankrupt/out of business?

Or goes down the CVA route and agrees a rent reduction. Not unusual.

Appreciate there are actuaries looking at this as well as cash reserves, but commercial property income does feel less certain now compared to 5 years ago. Will probably come back, but may be a few years. The big commercial property companies, eg Hammerson, are stabilising and resuming a gentle rise back to pre-Covid valuations.

[Mr Whippy]

https://publications.parliament.uk/pa/cm5804/cmpub...

Doesn’t seem like pensions are as well insulated as they suggest if they’re wanting to have a soft touch on this from government.


I’m amazed why people think actuaries and investment experts have all this wrapped up when clearly they don’t.

They react to the prevailing conditions as best they see them. But the prevailing conditions aren’t stable.

[Mr Whippy]

Caddyshack said:

Mr Whippy said:

I do appreciate there are actuaries working out all this stuff.

Weren’t there also lots of actuaries working out the LDI pension stuff.

Or the shuttered Woodford property reit?

I think that was more a fund manager with too much autonomy?

It was an example of the illiquidity risk of property and subsequent fire-sale risk , as was LDI of leverage and fire-sale risk.

The point is an actuary can’t see every risk. Plenty is just probabilistic based on historical data (with lots filtered out to make it usable).
Thus, Russia invading Ukraine, and Covid19 pandemic, and Brexit, weren’t even represented as risks in the risk assessments.

[Caddyshack]

Your article is about ground rents. This will be only a % of properties involved. Much of the assets are in massive freeholds over large retail units, offices, shopping centres, big sheds and the like.

[Mr Whippy]

MarcelM6 said:

Mr Whippy said:

What if the tenant, you know, goes bankrupt/out of business?

Or goes down the CVA route and agrees a rent reduction. Not unusual.

Appreciate there are actuaries looking at this as well as cash reserves, but commercial property income does feel less certain now compared to 5 years ago. Will probably come back, but may be a few years. The big commercial property companies, eg Hammerson, are stabilising and resuming a gentle rise back to pre-Covid valuations.

Well yes. But do businesses usually get in trouble only to the level a bit of a rent tweak will resolve?

Ie, Debenhams Harrogate has sat empty for years, and will no longer be a commercial concern, because ‘internets’

https://www.yorkshirepost.co.uk/heritage-and-retro...


Ultimately anything can go tits up for any reason at any point.

Just interesting to look at some of the current risks/going’s on in uk property.

[Caddyshack]

Mr Whippy said:

MarcelM6 said:

Mr Whippy said:

What if the tenant, you know, goes bankrupt/out of business?

Or goes down the CVA route and agrees a rent reduction. Not unusual.

Appreciate there are actuaries looking at this as well as cash reserves, but commercial property income does feel less certain now compared to 5 years ago. Will probably come back, but may be a few years. The big commercial property companies, eg Hammerson, are stabilising and resuming a gentle rise back to pre-Covid valuations.

Well yes. But do businesses usually get in trouble only to the level a bit of a rent tweak will resolve?

Ie, Debenhams Harrogate has sat empty for years, and will no longer be a commercial concern, because ‘internets’

https://www.yorkshirepost.co.uk/heritage-and-retro...


Ultimately anything can go tits up for any reason at any point.

Just interesting to look at some of the current risks/going’s on in uk property.

That article says that the Debenhams will become housing by developers, that will probably be a nice cash in for the pension fund when they sell to the developer. The developers buy options on the properties and they may even be paying rent in the empty property before build. It might be a JV. I have seen developers pay large % funding to pension funds instead of borrowing from the banks.

[Mr Whippy]

Caddyshack said:

Mr Whippy said:

MarcelM6 said:

Mr Whippy said:

What if the tenant, you know, goes bankrupt/out of business?

Or goes down the CVA route and agrees a rent reduction. Not unusual.

Appreciate there are actuaries looking at this as well as cash reserves, but commercial property income does feel less certain now compared to 5 years ago. Will probably come back, but may be a few years. The big commercial property companies, eg Hammerson, are stabilising and resuming a gentle rise back to pre-Covid valuations.

Well yes. But do businesses usually get in trouble only to the level a bit of a rent tweak will resolve?

Ie, Debenhams Harrogate has sat empty for years, and will no longer be a commercial concern, because ‘internets’

https://www.yorkshirepost.co.uk/heritage-and-retro...


Ultimately anything can go tits up for any reason at any point.

Just interesting to look at some of the current risks/going’s on in uk property.

That article says that the Debenhams will become housing by developers, that will probably be a nice cash in for the pension fund when they sell to the developer. The developers buy options on the properties and they may even be paying rent in the empty property before build. It might be a JV. I have seen developers pay large % funding to pension funds instead of borrowing from the banks.

Ok everything is perfect in commercial property.

No issues here move on. Close the thread.


Ooor. Back in the real world, no one will want it (Debenhams) because it’ll cost too much. Plus social housing. Plus heritage. Plus s107.
GDV won’t be good enough.

The idea that everything is worth a ton of money and everyone is hedged/covered/back stopped/optioned is a dream isn’t it?

If no one can lose then why are pensions worrying about gov v regulation killing their yielding ground rents?
They’ll either kill the return or kill the value to sell it on.

But they’re all covered/optioned/hedged, so why worrying about a few % at most?

[Caddyshack]

I don’t think the commercial property market is particularly healthy but I don’t think the funds are in the st either.