Market Commentary September 2024

It took three years for real estate funds (Swiit Index) to regain their price levels from the summer of 2021. At that time, the SARON rate was at -0.70%, and the yield on 10-year government bonds was at -0.30%. With the current premiums of 35%, many funds, primarily in the residential sector, have once again reached high levels. In 2021, refinancing mortgage debt was easy, but today this task has become much more difficult. The UBS-CS merger and the situation with cantonal banks are not helping improve the environment. Financing margins, which were at 0.5% in 2021, have since risen to around 0.8%. Rental income has increased after two hikes in the reference interest rate and adjustments for inflation, although this rate could fall again in the spring of 2025. Given the rising demand for real estate investments, some managers are seizing the opportunity to carry out new capital increases. But will they actually invest or simply reduce debt? It has become more difficult to find AAA properties at attractive prices, forcing investors to focus on assets where value can be created through active management. In 2021, Olivier Metzenthine (JLL) published an article on the conversion of office buildings in Geneva, emphasizing the importance of operational and economic feasibility for the success of such projects. AXA AM is trying to follow this approach and will present its strategy at the "Breakfast Immobilier" hosted by MV Invest in Geneva. Another strategy is to hold land, as the housing shortage in Switzerland becomes increasingly critical. INA Invest has shown how this can work. Together with major investors like Implenia and the Buhofer family, INA and the Cham Group are discussing a potential merger. Combined, their portfolio would reach over CHF 3 billion. With active management, no capital increase would be needed to complete the projects. However, INA and Cham are currently being traded at prices that are 10 to 20% below their NAV, despite significant value potential. Why are so many investors pouring money into funds with no potential and premiums over 35%, especially when this example is not unique? It remains a mystery.

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