Partner Content: Breaking the cycle – unconventional real estate investing to preserve and expand family wealth

The first rule is not to lose money 

Risk, return. Simple terms that everyone talks about, but not everyone takes seriously. Or at least, not everyone has the required discipline to properly safeguard against loss as the first, and most important,  rule. 

Getting your investment back is hard. We know that through basic maths. If we have 100 and lose 50,  we need to double our money to recover the losses. The chart below shows the damage losing capital can do.  

Using a margin of safety provides a strong mitigating factor against this dynamic. 

This is embedded into Europa’s investment approach and why we feel so strongly about investing, never speculating.  

“People tend to forget that investing is a positive net present value activity; screening the market and  seeking mispriced risk is the start of a successful strategy.”  

– Russell Chaplin, Europa’s Chief Investment Officer 

Breaking the cycle 

Overwhelmingly, investors are procyclical, actively pursuing the things that are currently doing well. But, often, when a strategy or theme does well, assets become over-priced. 

With capital preservation at the centre of our approach, following the crowd pro-cyclically will rarely achieve this. It’s important to maintain the control – and courage – to break from convention. 

Consensus 

Consensus-heavy market trends usually translate into higher prices, making buying opportunities scarcer. 

In the context of real estate, this sometimes means avoiding the prevailing market sentiment and, for example, identifying sectors, regions or individual opportunities where pricing has been driven lower to a level where all the risks are more than priced in. 

At Europa, we focus on long-term intrinsic value rather than the momentum of short-term valuation changes. 

The Market 

We understand the market as a mix of rational calculus and human behaviour that is often irrational and cannot be predicted. However, we can prepare for potential future outcomes.  

Real estate markets, just like other investment markets, are driven by humans and are subject to volatility. Understanding the narratives – and constraints – causing this volatility enables pricing divergences to be identified.  

By doing this, and doing it well, it’s possible to find opportunities that orthodox approaches might miss.  This is how we identify mispriced risk.

Mispriced risks 

Seeking mispriced risk in this way serves as a risk management tool. It helps to navigate market volatility with resilience, protect wealth against sudden market downturns, and enhance the likelihood of sustained financial success across cycles.  

We start by quantifying the risks and then embedding a margin of safety. We scan the market as one level playing field, seeking investments that are fundamentally mispriced in the long term. 

Wealth Preservation, in the long term 

Identifying mispriced risk, for example, during market contractions, can provide a platform for strong performance when the market begins to price that risk more accurately. Investors can benefit from both rental income during the holding period and appreciation when fundamentals improve. 

This approach requires a commitment to preserving and growing family wealth over generations, transcending short-term market fluctuations. 

Summary  

Private equity real estate has become crowded, but an orthodox, more conventional investment approach often fails to deliver what investors expect and require. 

When entrusted with safeguarding and growing generational wealth, investing in real estate using a more thoughtful, sometimes contrarian approach helps minimise risk and ensure the longevity of financial legacies.

Such an approach positions an investor to weather economic storms more effectively, avoid excessive exposure to inflated markets, and capitalise on subsequent recovery phases. 

Successful value investing approaches require discipline, robust processes and a deep understanding of local market dynamics. 

For more details on this investment strategy, visit Europacapital.com/famcap. 

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About Europa  

The benefit of experience through different real-estate cycles across Europe generates the confidence to navigate both challenging and favourable markets. Europa’s investment approach was borne from this experience. Seeking mispriced risk in real estate helps generate reliable returns whilst protecting and growing clients’ capital on behalf of their beneficiaries.  

Since its formation in 1999, Europa has raised 11 real estate funds, and completed over 150 transactions totalling more than €12.5 billion across 21 European countries. 

Europa is an affiliate business of Mitsubishi Estate Co. Ltd., one of the world’s largest real estate groups and a strategic investor. 

Europa Capital LLP is authorised and regulated by the Financial Conduct Authority.  More information can be found at europacapital.com.