I know the fireworks of the Zürifest are not meant for us. Nevertheless, Macro Real Estate AG celebrates its third anniversary this weekend. We can already say that 2023 will be by far the best year of our existence. This is a good moment to look back. But as an advisor who always lives from new mandates, you also always have to question yourself critically. What worked well yesterday can be the death knell tomorrow. This is especially true in the current challenging times for the real estate industry.

I did a recount today and I get to thank twenty-two institutional clients. These are Swiss and international investment managers, internationally active REITs, family offices, larger banks, and insurance companies. It was not a matter of course that I could enjoy the trust as a start-up. However, over the past few years I have been overwhelmed by the interest and support I have received and am incredibly grateful to everyone who has given me the chance.

Why I believe in the need for a research-based setup

At the time, it was not an easy decision to leave the security and high salary level of Credit Suisse AM in order to realize his own ideas. My working hypothesis is still the same today as it was then: I believe in the need for a research-based set-up for real estate investments for both Swiss and international real estate. Those investors or managers who do not have this will be left behind in the medium term.

As the Swiss real estate markets have been on an upward trajectory for twenty years, the development of in-house research capabilities has been much neglected. Unfortunately, many real estate investment managers and investors are too bottom-up instead of top-down oriented regarding real estate investments. Also, the vast majority of larger investment managers have not made the necessary investments in research and data analytics capabilities in recent years. Exceptions prove the rule, but I have observed how very good research teams in Switzerland and abroad have fallen victim to the axe of cost-cutting.

Many think that the scope of research stops at the publication of reports or slide presentations. I would strongly disagree. According to my assessment, good research equipment of the investment manager contributes to the fact that the investment manager can successfully survive even in a demanding environment. Research can lead to a more professional appearance of the investment manager. As a result, pitch presentations are better and improve the chances of raising capital.

I am also a strong advocate of closely integrating research into product development. New products are to be created in anticipation of structural trends. Last but not least, integration into the transaction processes is essential. Good research can contribute to the investment manager’s “superior” track record. In my opinion, new purchases must be able to be reviewed independently of research. I believe that according to best practice, research should even have veto power to stop deals.

It should also be emphasized that real estate research has an even more critical role in indirect real estate investments. One of the significant advantages of an indirect setup over a direct one is, a much faster response time to changing trends. One current example is that the Swedish real estate market is correcting sharply. An indirect approach is to allocate capital now in this market, even if no investments were made in Sweden. This is much faster indirectly than directly. Therefore, good research that identifies opportunities and risks between markets can contribute to better performance in such a set-up.

A brief look back

I launched Macro Real Estate to bridge such a lack of internal research capabilities among investors and investment managers in a timely and efficient manner. We have provided the following services to our clients over the past three years:

  • Outsourcing of global real estate research for internationally active real estate platforms
  • Quarterly updates on the Core European real estate markets
  • Quarterly updates on the Swiss real estate markets
  • Presentations on the real estate credit markets (subordinated loans Switzerland)
  • Strategic consulting for the development of a European institutional real estate platform
  • Competitor and fee analyses during product conception
  • Manager selection for mandates: Due diligence with long and short lists
  • Strategy presentation Real Estate Switzerland: What to do in view of the anticipercent rise in inflation
  • Presentations to internal committees and boards of directors
  • Compilation of professional pitch presentations for real estate funds and co-investment slidepacks.
  • Modeling of return ratios/calculation of multiples/IRRs, yield on development costs, etc.
  • Product development presentations for Real Estate Europe and Real Estate Switzerland
  • Macro/Inflation Forecasts/Estimates on Interest Rate Markets Switzerland and Internationally

In most of the engagements, it was critical that we could bring very timely analytical skills and expertise that were complementary to the client’s internal resources. I am also very grateful that I can also count on the support of Nicolas Voelin. With his transactional background, he brings complementary skills to me. And he almost guesses my thoughts already, since we’ve written some research reports together before. In recent years, we have therefore been able to take over the modeling and calculation of key investment metrics for a number of clients, thus expanding our services to include transaction analytics.

Challenges in Switzerland and abroad

I have not always been taken entirely seriously over the past three years when I have warned that valuations are too high in Switzerland, too, and that the low net returns I compared with Japan at the end of the 1980s cannot be justified. When I pointed out at Immo23 the trend towards lower NAVs for Swiss investment foundations and funds for 2023 and 2024, people said I was a real estate bear. In the meantime, the Swiss real estate capital market has also entered a more difficult phase. The perpetuum mobile of capital increases a go go will no longer work in the coming years. There is a need for strategic change in investment manager models. Stronger performance-based systems are needed. Furthermore, we have too many real estate funds and investment foundations in Switzerland that pursue similar strategies without any unique selling points. Unfortunately, consolidation in the industry is probably still ahead of us.

International real estate investments have become more complex. We believe the traditional focus purely on core strategies will severely underperform as core valuations lag developments in transaction markets. Counterintuitively, we currently see lower risks in value added and opportunistic strategies than in certain core funds. The right strategy for a long-term investor now is to increase the international real estate quota and take advantage of the current market weakness abroad. In the indirect set-up, this is done by subscribing to new vintage value added or opportunistic funds, targeted co-investments or secondary transactions.

Unfortunately, too few investors are currently doing this. On the contrary, we continue to observe strongly procyclical behavior among investors, as we did during the last international real estate crisis, which is unfortunately reinforced by the behavior of some advisors.

Whether for Swiss real estate or international strategies: We remain committed to helping clients navigate through the increasing complexity. Our credo is to help avoid procyclical behavior. Switzerland continues to lag behind international trends. However, I think that a research-based, analytical approach is likely to become more important in the coming years. In any case, I will continue to advocate such an approach with all my might.