Why recession can be a golden opportunity for the brave

The recent article in EG, “Real estate ‘in crosshairs’ as recession nears” and the editorial comment in the same edition, forecasting a bleak economic outlook for days ahead, struck a chord with us at Coyote Software.

Our own assessment of current market conditions matches the conclusions of Berenberg, and the gloomy outlook for the wider economy threatens the confidence of the real estate industry; we have already seen the gears of investment inflow shuddering. Time will tell if we are in for a long-term recession in real estate, or perhaps once the evenings draw in we will see deals begin to pick up.

Investment confidence is ephemeral and fragile and often recessions can become self-fulfilling prophecies as inevitable anxious conversations in the office, the media or the pub can unwittingly fuel market uncertainty. A slowdown in deals follows as nobody wants to make, or perhaps, more importantly, be seen to make, an ill-timed move.

However, the smartest investors are often the bravest. By brave, I don’t mean gamblers; astute investors are the ones who are best prepared for rougher times, with cash in the bank, long-term opportunities previously identified during times of economic growth and readiness to move swiftly for the right assets at a sensible price. We have already seen asset managers such as Brookfield stating that they invest through the cycle – the best-prepared investors reap the greatest long-term returns.

More comprehensive understanding

During the last major recession in 2009, the newly established team at M7 Real Estate (of which I was a part) did just that. From the outset, the focus was on digitising the way that landlord and tenant data was collated, visualised and analysed; tenancy schedules and rent rolls became considerably more manageable. A first in the real estate industry, that approach allowed a much quicker and more comprehensive understanding of what was happening in the market, during a particularly turbulent period.

Eight years later, M7 Real Estate had some £8.5bn of assets under management, and that proprietary software was launched as a separate venture, Coyote Software. We now work with a number of investment managers, following the same principles we founded while part of M7.

What Coyote can say with full confidence is that recessions and uncertainty present a great opportunity to accelerate the use of technology in the real estate sector. The potential downturn in real estate investment over the coming months provides companies with the chance to fine-tune their portfolios and create efficiencies in the way they manage their assets, discover new methods of actively managing assets and ultimately become more effective.

Granular data

The availability of granular data creates greater opportunities for future investment; rather than having to rely on periodical research reports and inaccurate comparables, investors can tap down into local market data to seek opportunities, find mispriced assets and take advantage of lower competition from less well-prepared, nervous managers. 

It is often commented upon that real estate has been slow to adopt technology, particularly relative to other sectors in the wider financial industry. While the sector is beginning to see the benefits, we are still seeing outdated methods of investment analysis and management. Economic uncertainty magnifies the existing problems of outdated technology, with slower deals and inaccurate data further undermining confidence, and in the worst cases killing deals as costs spiral and investment managers are unable to make the right calls without the right data. Caution over the next few months is understandable; with the right tools and right strategy, some companies will look back on 2022 and 2023 as a golden opportunity.

This article originally appeared in EG on 9 September.

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