Historically, Real Estate is a “Safe Haven” for Investors During Crises
Earlier this month, the announcement of Bondstone’s launch was made. Bondstone is a Portuguese investment firm (private equity) and asset management company focused on the Portuguese real estate sector. The firm aims to invest a total of €400 million by the end of 2021 in partnership with major international investment groups, primarily targeting repositioning and new construction projects. Paulo Loureiro, a Portuguese entrepreneur and former executive director of Morgan Stanley investment bank in New York, is the founder of Bondstone, bringing extensive experience in this market. Aware of the current pandemic’s impact on real estate, Diário Imobiliário sought to understand how major real estate investors will respond to this situation.
Paulo Loureiro admits recession but believes in opportunities. What will happen to the real estate market after this pandemic?
The negative effect of the COVID-19 crisis will last until the market rebalances and its real impact on clients and investors can be understood. It is often said that markets “use the stairs to climb and the elevator to descend,” so recovery will never be as fast as the decline. However, we believe that Portugal’s “fundamentals” will remain, and historically, the real estate market has been a “safe haven” for investors during crises. Additionally, we are confident that excellent medium-term investment opportunities will arise in different segments, which could reward well-prepared companies with investment capacity and the ability to adapt to a new context. Interestingly, there is a Chinese proverb that says, “May you live in interesting times!” The near future will undoubtedly be an interesting period, but as Sun Tzu said in The Art of War, “In the midst of chaos, there is always an opportunity.”
What is the impact on your company?
Given the inability to accurately predict demand in various segments over the next twelve months or the evolution of rents, exit prices, and operation costs, coupled with the uncertainty regarding banks’ and international investors’ willingness to finance new operations, we decided to temporarily suspend the closing of some transactions that were underway. However, we will continue to analyze new projects and remain alert to interesting opportunities that may arise in the near future. Additionally, we decided to postpone the launch of two new developments we planned to launch soon to the second half of the year.
What measures are necessary to mitigate this situation?
The real estate sector currently contributes about 15% of the national GDP annually and can once again be the engine of the country’s economic recovery. In our specific case, the greatest support we could receive would be the approval of urgent urban processes, specifically the issuance of occupancy permits for two buildings we completed in Lisbon in October 2019, which still cannot be occupied by the respective families. Beyond the human cost of this situation (with families living in hotels and friends’ homes), this delay prevents the receipt of nearly €14 million in deeds, which would be essential for our short-term cash flow management. This amount would greatly help maintain the company’s current activity level and all its commitments (employees, suppliers, architects, designers, builders, bank financing, tax obligations, among others).
Additionally, more broadly for the entire sector, suspending all tax obligations for six months, exempting IMI, AIMI, and IRC payments (due in July), and granting treasury support lines would be crucial. Regarding bank financing, the payment of interest and principal on real estate investment loans should be suspended for the same six-month period. In the medium term, to avoid halting new projects for the Portuguese middle class, it is essential to resume discussions on reducing VAT from 23% to 6% on new construction, reducing urban rates and compensations (which reach exorbitant levels in some municipalities), and simplifying and dematerializing bureaucratic processes.
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