The right moves: Is research up to standard?
Published 30/04/2015 | 02:30
Credible research is a foundation for any market and allows buyers and sellers to base their decisions on thorough analysis of the market.
Ireland has suffered for decades through a lack of national databases and that failing may have cost the taxpayer dear by reducing the prices which overseas buyers pay for assets, in the absence of evidence to support a purchase. The situation however shows signs of improving and CBRE's head of research, Marie Hunt told me of developments in the sector:
Ms Hunt told me that US private equity firms in particular rely heavily on data to "underwrite" a deal they are considering. Several overseas purchasers have expressed surprise to her at the lack of national property databases and while she feels that "purchasers probably went ahead and did the deal anyway, we might have got better prices for bank portfolios with better information." That is a view I support as in any deal, less information equals more risk, equals lower price.
Ms Hunt made this point recently when she appeared before The Banking Inquiry, an experience she describes as "stressful". "Commercial property is considerably more diverse and complex than residential and this proved a challenge to explain to the Inquiry."
She cites Paris as a good example of how a centralised database can be maintained. On a quarterly basis, all agents provide data on their deals to a "central clearing house" which aggregates the information, removes commercially sensitive material and provides overall reports back to the agents. This saves the agents time and money by removing the need for each agent to be independently researching every deal-"all you have to do is make sure your own information is correct." The big advantage is that the database is independent and transparent and is trusted in the market.
Ms Hunt heads a research team of four and she is atypical in that her qualification is as a surveyor, rather than an economist. She is one of a team of 500 researchers in the CBRE group and she says that a lot of effort goes into analysis of trends worldwide. She has recently returned from a conference in Warsaw where 70 Heads of Research met to ensure that their standardisation of "definitions" continues to be robust. It is vital to ensure that everyone is comparing "apples with apples" and definitions of types of buildings, what constitutes a prime location, lengths of leases etc are standardised and reports have the same format.
One benefit is that the group classifies purchasers e.g. new entrants, private equity funds and REIT's and tracks who is buying and selling. The big trend now she tells me is the impact globally of Asian and Middle-Eastern money."We haven't seen that impact here yet, apart from some money going into hotels and it will probably take an asset of the scale of Dundrum Town Centre to bring in a big Asian player."
In Ireland her research team works closely with the valuation department, which incorporate her information in reports and even more so with the agency departments. Ms Hunt's team regularly produces information to support the firm when pitching for an agency instruction and she regularly attends pitches herself. She is a regular speaker at conferences and the day after we met she was speaking at an event in London for investors into the REIT's active in Ireland.
The state's "commercial lease database" she feels needs modifications to improve it and many entries do not include basic information such as floor areas. More positively, there are moves by the agents to share information which might reduce the "raft of reports available, which sometimes contradict each other because firms use different definitions." For example when is an office deal regarded as "take-up?" When it's agreed, or signed, when the building is built or when the tenant moves in?" Office agents are already meeting quarterly to pool resources and investment agents have also recently begun similar meetings.
There is always a potential conflict for researchers in that most firms act for landlords and tenants and developers and institutions and research findings do not always suit the agendas of all clients at all times. Ms Hunt strongly asserts the importance of a firm's research being independent and credible and says that she has never once been told what to say or not to say.