We do not follow the crowd, preferring to select investments on their individual merits and performance prospects. We challenge the traditional pricing of real estate assets based on historic values.
Our strategy is to select those segments of the market which we believe will provide the best performance with low volatility.
Seven Dials monitors current real estate market conditions and develops its own view of the direction of travel for investment which informs our assessment of future performance of the market.
We start with the analysis of the sector of the market, using standard techniques developed from the wider investment industry, beginning with the demographics and dynamics of that market, and the ability to deliver future proofing for the underlying assets.
Our analysis includes the ‘Investability’ of funds and vehicles, determining whether in practice investors can participate in these opportunities as many are not open for investment or have prohibitive conditions for entry.
Seven Dials Financial analyses the details of a selection of indirect real estate investments segments, assessing the initial proposition and monitoring performance.
We evaluate the quality of management and measure their success through a matrix of key performance indicators including consistency and delivery of target performance.
We have built a shadow portfolio model and back test our selection of investments to demonstrate the benefits of our selection process.
Real estate remains attractive to investors because: it delivers stable contractual cashflows; it compares well with the other asset classes providing higher income returns than bonds and being less volatile than shares; it provides a degree of protection against inflation; and it has the security of bricks and mortar.
The UK real estate market is nearing the end of the cycle and there is heightened risk of a correction of asset values in the traditional sectors of office, retail and industrial. Market forecasts point to weak returns from these sectors over the next 5 years.
In contrast, investments in real estate alternatives, such as student accommodation, senior housing, build-to-rent residential and hotels, offer better prospects for income growth and risk adjusted returns. The key drivers in these segments are supply and demand imbalances arising from demographic and structural change which contrasts with the economic and property cycle drivers of the traditional sectors.
Access to direct investments in the real estate alternative segments is complex, which is why for the smaller investor we favour indirect investments, including non-quoted vehicles, collective investments, shares and unit trusts.
Seven Dials undertakes detailed and in-depth analysis of funds and companies to identify those investments which will outperform their peer group, often because of the dynamic and entrepreneurial style of their managers.
The advantage of indirect investment is:
Access – access to markets otherwise the domain of big institutions
Liquidity – indirect investments can be more readily purchased or sold than direct investments
Transparency – provides full details of investments, and their past performance
Pricing – in current markets, many listed companies and unlisted funds trade at a discount to NAV
Divisibility – indirect investments can usually be acquired in smaller parcels than direct investments
Information – supports tactical investment into preferred segments
Speed of execution – the structure of indirect investments allows faster transactions
Risk management – smaller parcels allows greater diversification of the portfolio
Cost – the cost of transfers is considerably lower than the cost of similar transactions of direct investment
Real Estate Alternatives are investments in segments of the market which lie outside the traditional offices, shops and industrial sectors and are generally based on a combination of property and operating businesses.
Taking a longer term view it is clear that certain segments of the market will outperform the rest and that there are advantages for the early mover investor.
The Advantages of the Alternatives Sectors:
Best performing segments of the market
Returns higher than bonds, less volatile than equities
Operating businesses supported by bricks and mortar
Maturing market, seeing escalating demand
Offers an opportunity to gain an early mover advantage
Offers strong income growth potential
Diversity from main commercial sectors
Underpinned by strong demographic trends
Diversifying risk of location and buildings
Access to specialist asset management
Seven Dials has wide ranging skills and experience and an extensive understanding of alternative investment sectors, which are not widely covered in the UK market
The Alternative Sectors include:
Health and Care Sectors
Hotel and Hospitality
Anest.uk provides data analytic consultancy in the residential property sector based on repeat sales indices, factor risk model, and a dynamic cyclical model for capital gains based on quantified ‘ripple effect’. Data products include monthly performance indices at the postcode area, district, and sector level, custom weekly indices on price bands or regions, and performance attribution between systematic and idiosyncratic risk.
Software products include packages in the R language for portfolio analysis, risk attribution, scenario forecasting, and stress testing. Anest offers bespoke projects based on these and related technologies.