Covid-19 crisis will create more investment opportunities in the long-income real estate sector, says Alpha Real Capital

Alpha Real Capital (Alpha), a specialist manager of secure income real assets believes that the impact of Covid-19 will create attractive investment opportunities for investors in this market.  

Over the next six to 12 months, it expects a significant growth in refinancing and M&A activity where ground rents may offer an attractive financing option. Although challenges remain, in a new paper published by Alpha entitled ‘Commercial Ground Rents: Investment opportunity in a time of adversity’, it says there are several supply-specific factors behind this predicted trend. 

Hugo James, Partner and Head of Long Income, says: “The more defensive and resilient structures utilised in the long income real estate market such as high quality commercial ground rents, social real estate and quasi-public income strips, have so far weathered the financial storm caused by Covid-19 storm extremely well, and the recent resilience of valuations across these structures provides a good example of this.

“There are a number of factors that will mean there are even more attractive long-income real estate investment opportunities available to institutional investors to choose from over the next few months, and alongside these drivers, for certain deals we also expect improved terms when it comes to pricing and security. This will be based on current market conditions and increased credit spreads. Furthermore, improved security can be attained by setting the quantum of the ground rent at a lower proportion of the market value of the asset and setting the rent at a lower level of EBITDA.

“In conclusion, the expected increase in supply and potentially enhanced terms, presents an opportune time for existing investors to increase their exposures, and for new investors to establish allocations to commercial ground rents within their portfolios.”