Origins of Deal Flow
Deals can originate from many sources and Moorfield’s teams dedicate a significant amount of time and energy towards finding these sources. We believe there are five primary areas where we will find opportunities:
Assets needing active asset management
Investment opportunities differ in their appeal to investors dependent upon the rationale for investment. Some investors are very risk averse whilst other will determine the degree of risk they are prepared to take, often according to the overall investment returns they are seeking to achieve. Many investors, such as institutions, will sell an asset as it becomes higher risk and/ or more dependent on active asset management to maintain or enhance value. Some investors will be selling their asset as a result of an immediate or imminent difficulty they feel unable to resolve, or perhaps do not have the time to tackle, or there may be the need for capital expenditure of a quantum that they do not possess. There can, of course, be many issues that relate directly to the asset and the profile of the asset owner that results in a disposal. The asset or opportunity in need of active asset management is one of the types of opportunity that we look for. After a period of intense asset management and measured capital expenditure, the improved investment can be re-offered to the more passive and risk averse investor market at a premium to the acquisition (plus expenditure) price.
Assets sold as part of a corporate disposal programme
Since the mid-nineties, many organisations have come under considerable pressure to enhance shareholder value through corporate restructuring and by returning the business focus to stated core activities. Speed to market and the flexibility to change to suit market circumstance is a premium rated ability. One of the fall-outs of this activity has been the disposal of real estate held as fixed assets on the balance sheet. The capital released from asset sales can be re-invested in the core activities and directed toward improving business proactive and financial returns. These assets can offer us significant investment appeal from a number of perspectives, ranging from lease-backs to refurbishment/ redevelopment.
A second fallout from changing business practice and corporate reorganisation has been the shorter more flexible leases demanded by the occupier. The opportunity is to embrace this change where necessary and not fight against it. As long as space vacancy (hence income loss) can be kept to a minimum, income levels can be greatly increased through an actively managed flexible lease programme. Higher rents are paid by the tenant for this freedom. A focused leasing team with an active tenant relationship will start the process of looking at the investment as a business needing active management.
Assets resulting from reorganisation and consolidation of businesses and funds
Company take-overs, privatisations, insolvencies and refinancings can result in opportunities arising, particularly if it is the real estate sector or involves asset rich businesses. In addition, substantial portfolio acquisitions and leveraged real estate funds reaching maturity are also a source of interesting potential. Furthermore, given the shorter debt maturities of many debt-driven investors, the need for refinancing may result in significant acquisition opportunities. This is an ideal area for us as many of these portfolios invariably require large amounts of capital and involve complex tax structuring and corporate finance knowledge.
Assets in emerging real estate markets
Emerging real estate markets can also offer opportunistic fund returns. A great deal of research and caution is required prior to making an investment, with the intent of not being ‘first to market’ but instead being ‘early to market’. First to market will test demand and normally highlight errors that can be seen and later avoided. Examples of this activity where we have strategically and actively participated are; student and key-worker accommodation (Domain), limited service hotels (Kew Green Hotels) and retirement village development (Audley Court).
Asset exposure through corporate or debt investment
Investing in a business through financial, strategic and corporate support, thereby enabling it to grow, is an area that is of considerable interest to us. We encourage management teams with successful track records to develop their strategic business plan with us to create or grow, distressed or otherwise a dynamic business with critical mass.
Acquisition of corporate asset debt enables us to give our funds direct or indirect exposure to companies and/or assets through means other than equity investment.
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