It will come as no surprise to many of our investors that we have found it immensely difficult to find value in markets in the last few years. Falling interest rates and a weight of global capital looking for a home conspired to push up asset prices. In many cases this resulted in prices well in excess of what we felt were fair, risk adjusted returns.
We have always said our business is at the intersection of patience and opportunity, and for some time we have had to exercise patience. We feel however that opportunity is just around the corner. To take advantage of the dysfunctional market conditions we expect to arise, we launched the Forza Priority Framework, or FPF, in May 2020. The FPF is a novel concept whereby investors could make non-binding, undrawn equity commitments to participate in a range of opportunistic transactions.
In our experience, speed and certainty are essential in turbulent markets and that is why ultra-wealthy private investors excel during downturns. With the FPF, we sought to replicate this “private investor” advantage and take full advantage of expected market conditions.
In some ways, launching the FPF was a leap of faith. We did so during the depths of the COVID pandemic and frankly we were unsure what the response would be. Nevertheless, we believed it was the right concept for the conditions and we pressed on. We are truly delighted with the response. We have not only received equity commitments of over $240 million for the FPF, but the concept clearly had appeal beyond our business and we have now seen another 2 direct copies of our Framework.
When combined with debt, the capital commitments under the FPF provide around $450-500 million of investment firepower at a time when cash is likely to “be king”. We are humbled by the support we have been provided and we relish the opportunity before us all.
From the beginning of the COVID-19 crisis we have felt confident that the dysfunction created by COVID-19, particularly in relation to both office and retail leases, will throw up opportunities. As markets everywhere suggest, not all investments are equal, and whilst some assets may perform well during this period there will be pockets of value. Assets with short WALEs, high vacancy or a combination of both will be punished by the investment markets. Additionally, we will focus on income producing land rich sites that have reduced in value or alternatively investment properties where building upgrades and active leasing strategies can improve the property cashflow and in turn the capital value.
Banks have been patient with both landlords and tenants since March 2020, however that patience will not last forever, and many clients will be asked to bring their loans back into order. If those conversations are not already happening, they won’t be far away. Borrowers without capital solutions will be required to repay debt, if not later this year, almost certainty some time in 2021. There will be many borrowers that do not have sufficient cash resources to remedy their loans and forced asset sales will result.