Updated: Mar 8, 2019
Ludgrove Newsletter (January, 2019)
"London is London; you buy when there's blood on the streets"
Hussain Sajwani (23.01.19)
In our December 2018 Newsletter we outlined why we expect 2019 to mark the low point of the Prime Central London (PCL) real estate cycle. The Newsletter was one of the most widely read articles in the Prime Resi Journal. In brief our reasoning was as follows:
1. Widespread capitulation from distressed vendors typically points to a market bottom.
2. The PCL Bear Market is mature (at 54 months) & the withdrawal of development capacity is a long-term price positive.
3. There is c1.4 Years of pent-up demand that is likely to return once the Brexit gloom lifts.
4. PCL is good value relative to Bonds & Equities and the mainstream London property. Our proprietary Indicator suggest positive returns lie ahead.
5. Around 30% of PCL buyers are from Overseas & with the depreciation of Sterling, PCL is highly attractive. (USD Buyers enjoy a -43% discount vs 2014 in local currency terms).
6. Brexit: Our worst case scenario is a ‘Managed No-Deal’ with the impact being far less than many assume.
7. The political situation surrounding PCL is unlikely to get worse and could improve.
Having experienced a number of real estate cycles over the last 25 years, a typical cycle low tends to see a handful of barely noticed deals by shrewd property investors that in retrospect marks the bottom. Years later when one looks back at these moments and with the benefit of hindsight we commonly hear words such as "Do you remember when X invested in Y? ... now I know why he's a billionaire!"
And so it is to January 2019 where we have witnessed some significant moments that in retrospect may well mark the bottom of the market. First was the acquisition by Ken Griffin, CEO of Citadel Capital of No 3 Carlton Gardens reportedly paying £95m, some £55m below the original asking price. Thirty years ago Griffin started a Hedge Fund from his Harvard dormitory with $275,000 of capital from friends and family. Today his Fund is $25bn and he has a net worth of $10bn. When Griffin makes a splash we all need to sit up and listen:
Then came news from Davos that Hussain Sajwani, Chairman of Dubai’s Damac intends to make a sizeable investment in Central London. From modest beginnings working in the catering industry, Sajwani switched to real estate when Dubai opened up to foreign buyers in 2001. Today his real estate company is capitalised at AED 7.2bn and his personal net worth stands around $4bn. Sajwani expressed his plan to invest between £500m to £1bn on “big ticket” property investments in Central London. Echoing Warren Buffett's famous words "be greedy when others are fearful" Sajwani stated:
“London is London; you buy when there is blood on the streets ... with Brexit we think there are opportunities ... You buy when the market is down… When there is a weaker pound, and the asset prices are down, you buy.”
In this context we have heightened conviction that Q1 2019 will mark the low point in the Prime London real estate cycle. As the chart below shows a USD Buyer now can acquire at a -52% real terms discount when compared to the 2014 peak:
Furthermore Ludgrove is experiencing this burgeoning appetite real-time with strong interest in our pre-appraised $100m portfolio of Development & Bulk-Purchase Opportunities showing a c20% return. After all if an Investor can achieve a 20% return an asset that has fallen -55% in real terms, there is a considerable "margin of safety" on offer. A margin of safety that we believe hasn't gone unnoticed by the likes of Messrs Griffin and Sajwani.
If you have any questions on this article or would like to find out more about how we can help you access the Prime Central London market, feel free to get in touch. As well as executing searches and acquisitions on behalf of individuals Ludgrove acts on behalf of large Investors, Family Offices and Institutions.
Ludgrove Property Ltd
Friday 4th January, 2019
Tel: +44 (0)207 889 2860
Biography: Fraser Slater is the CEO and Founder of Ludgrove Property. Prior to Ludgrove Fraser spent 20 years in The City. In the course of his career he was a Real Estate Analyst, the Fund Manager of a £6bn Equity portfolio for USS Ltd and the Founder and CEO of WDB Capital, a London based Fund Management business. In 2008 WDB Capital outperformed its peer group by +52% making Fraser's portfolio one of Europe's best performing Funds during the Financial Crisis. In the same year his Fund was nominated New Fund of the Year by EuroHedge. After leaving The City, Fraser developed property in Chelsea. He started Ludgrove with an ambition to be Prime London's leading Property Buying agency with an emphasis on original research and delivering a highly value-added service to clients.
Disclaimer: Ludgrove Property Limited is not authorised or regulated by the Financial Conduct Authority (FCA) and we do not provide any financial or investment advice. We recommend that any property investor seeks appropriate professional advice before entering into any contract, and we would also advise that the value of any investment can go down as well as up and that you might not get back what you put in. You may have difficulty selling a property investment at a reasonable price and in some circumstances it might be difficult to sell at any price. We would urge you not to invest unless you have carefully thought about whether you can afford it and whether it is right for you, and if necessary to consult with a professional advisor in accordance with the Financial Services and Markets Act 2000. All information is provided strictly as a guide only, is subject to change without prior notice and does not constitute an offer of investment. The Ludgrove website should not be regarded as an offer or solicitation to conduct investment business, as defined by the Financial Services and Markets Act 2000. Investors who are resident in or citizens of countries other than the United Kingdom may be subject to local restrictions. In particular, no offer or invitation is made to any US persons (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof), who are excluded from the services offered in this site. The information on this website and our publications has been obtained from sources which we believe to be reliable and accurate, but without further investigation this cannot be warranted.