By Dennis Lidis
Founder and Chief Executive of LIDIS®
2023 will be a pivotal year for LIDIS® and for the Real Estate market. A year to remember. Great fortunes will be made on the seeds sawn this year.
It was January 1998, when I recall together with my team analysing the effects on Real Estate of the profound new digital invention called the Internet discovered just 2 years earlier.
Back then we tried to imagine how our lives would be affected and what that meant for our real estate assets and future investments and developments. We were mostly right about our predictions, mistaken about some, although mostly about the timing rather than the effect.
History was telling us that each major new invention takes 20-25 years to become part of mainstream for society. Would it be the same this time we wondered?
We knew that for the Real Estate asset class the impact of these new technologies is both a time of unprecedented opportunity and of terrible loss.
The modern cycle started with the invention of the steam engine and the migration of people to the big city centers (to work in gleaming new factories) and the start of the glory days for city assets and the unprecedented devaluation and degradation of the country assets. Narrow and tall factories build to the steam engine requirements eventually worthless were demolished and replaced by flat single level efficient factories build to electricity requirements. The invention of building lifts in the late 1800’s by E. Otis (first safety lift) and Werner von Siemens (first electric lift) and of the Air Conditioning in 1902 by Willis H. Carrier changed office buildings for ever and allowed skyscrapers to be constructed, bringing in a new era of efficiency in management and business.
Fortunes made and fortunes lost, the theme repeating itself again and again.
Looking at today, efficient producing farmland with secure water rights is highly sought after the world over and more expensive than ever. We have finally come full circle.
Premium office buildings offering user prestige and staff experience will probably rise in value, but all other office class buildings are being deserted on mass globally with values falling by 20-40% over the past year alone. We believe these assets will never recover and many owners will cling on for the death spin to the bottom of the barrel. Finding a viable solution for these unloved buildings is shaping up as a great opportunity.
Well located retail (eyeball catchment) is already flourishing and will break all records as machines replace people and rents steadily rise to unprecedented levels. Not so with retail shopping centers whose glory days we believe are far behind them.
After the black swan event of the pandemic, tourism assets are doing great and likely to continue to do so as consumers have been reminded that life experiences matter while still breathing!
Big City Residential proved unequivocally the king of all asset classes having performed during and after, the pandemic. No other asset class except healthcare and supermarkets managed that. World-wide the Build to Rent asset class is growing, bringing together under one roof real estate development and property management expertise. Large corporates will dominate housing within 20 years, offering an unparallel quality of housing and service. Game over.
Another lesson history taught us, is that new inventions need a catalyst to explode onto the day-to-day mainstream. This happened each and every time starting with rising inflation and interest rates in the 1920’s. Today in 2023, the real estate sector is feeling the impact of major digital disruption in the way we work, shop, interact and live, unprecedented construction inflation, lack of leadership as the past 20 years were soft and managers did not develop the skills required, rising interest rates and reduced money supply.
Even well operating assets are revalued downwards, from 5-25%. Factor in leverage and investors just lost 20-50% of their capital investment. Will values recover? It’s complicated but the short answer is we don’t believe so. We believe interest rates will remain high as central banks attempt to manage the inflation risk. We also believe that demographics will play a major role in the future as Europe and Asia are aging fast. REITs will become takeover targets after June next year when the new pricing reality settles in and many development projects will fail to start or stop.
Greece specifically will benefit from the strong tourism recovery and expanding credit supply after years of limited banking activity. The country will not however escape the asset revaluations and higher return expectations of equity investors. As always in the Greek market, the market adjustment affect will be delayed with effects expected in 2024 rather than this year.
LIDIS® can appear to the untrained eye as an opportunistic player but we are nothing of the kind. We are deeply conservative, strongly analytical, painfully detailed, and passionately creative. So far, these principals have delivered 42% IRR since 1995 and we hope to do better in the future. Following the company focus shift over the past 5 years to Greece, 2023 finds LIDIS® completely debt free but also with no funds under management.
Our Real Estate portfolio is fully leased and consists of prime retail shops (Kolonaki Athens) where we believe rents and values will grow strongly over the next decade, our impressively performing Athens based residential building portfolio and Paramattas’ (Sydney Australia) best entertainment centre with over 2,500m2 of prime riverfront retail space which we just leased to a major tenant.
We are scaling up our residential platform business with over 2,000m2 of pipeline and kicking off our build to sell program in Greece, focusing on prime and major tourism and residential opportunities. Over the past 6 months we have been active in raising dry powder and we look to be in a position to purchase assets that fit our criteria from government, NPL managers and market. We are actively pursuing joined fund management opportunities as we seek to leverage our firm and team strength with a strong capital team.
2023 will be a pivotal year for LIDIS® and for the Real Estate market. A year to remember. Great fortunes will be made on the seeds sawn this year.
Disclaimer: Any expression of opinion is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied. The authors and LIDIS® are not responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained here. The information and publication are not intended to be and do not constitute financial advice, investment advice, or any other advice or recommendation of any sort offered or endorsed by LIDIS®.
