Resilience, Leadership and Future-Proofing Real Assets: SFO Capital Partners – Mohamad Abouchalbak (CEO)

Welcome to the second instalment of our Real Estate Private Equity interview series. Amanda Floyd from Beaumont Bailey’s Investment practice speaks to leaders from across the private equity space to learn more about the importance of personal and business resilience in the face of tumultuous and unpredictable market conditions.

Throughout 2023 it has been a challenging and turbulent time for real assets investors. Overall, there has been a slowing rate of deal activity over the first 6 months of 2023 mainly because of rising inflation and interest rates affecting the sector. The uncertain future of the market has led to increased competition among managers for fundraising and ESG credentials have become a major factor of investing across multiple asset classes.

Despite the well-reported challenges, we are expecting activity to pick up towards the end of the year and into early 2024. A driver behind us releasing these interviews is to share insights from leaders who have navigated different cycles and this experience has given them the resilience and confidence that real estate is cyclical and the market will come back. As one of our leaders eloquently summarised: “you don’t want to sit on the side-lines and miss that opportunity to invest at or around the bottom, you need to have the bravery to invest.”

About Mohamad:

Mohamad is the CEO of SFO Capital Partners, a London-based global real estate investor and investment manager. He is a member of SFO’s Board of Directors and its ESG Committee and chairs the firm’s Executive and Investment Committees. Throughout his 18 years in industry, Mohamad has been involved in more than $15 billion of transactions and advisory roles across the real estate, hospitality and financial services sectors.

Why is business resilience important? What does it mean to you? What qualities do you think embody resilience?

Over half of our team of 25 employees have been at the company for 7-8 years, so I think having long tenure really benefits us in terms of resilience. As a team, we understand each other’s strengths and weaknesses and we’re able to work collaboratively during difficult times. In addition, one of our strengths has always been our agility and ability to adapt to changing market environments. I would go even further and say that our resilience during downturns creates opportunities for us as well.

How do you build resilience into your team and business culture?

What we like about our organisation is it is more or less flat, so we are performance driven across the board. We’ve recently nominated a C-suite in order to create verticals that will cover a spectrum of various functions as well as create a more stimulating environment. We took the decision to go into a functional leadership structure to pave the way for future growth, without impacting our agility, and empowering inter-function collaboration. Ultimately, we feel this will allow us to grow further and each part of the investment cycle, from acquisition to exit all the way to portfolio management, will be well covered.

Despite the well-reported challenges, where do the biggest opportunities currently lie for real estate investors?

The e-commerce consumer demand is growing, and consumer behaviour is also changing, which adds to the shortage of availability in the logistics space, thereby creating a significant demand. We’ve been seeing a lot of activity in specific European markets, and we’ve been actively investing in this space because the rates remain low. Within the US, traditionally we’ve been heavily invested in the multi-family assets space across Florida and Texas and have comprised a portfolio of over 7,000 units. We’ve also found there’s a short-term dislocation in the market driven by rising inflation which has created opportunities for groups like ours to act as lenders and to bridge this gap between traditional banks and equity holders, specifically in the mezzanine space.

What are the most valuable learnings / takeaways from previous downturns. Tips and guidance to best position business to capitalise on improved market conditions and rebound strongly from a downturn?

We understand the importance of location in real estate, especially during market downturns that affect secondary markets the most. Our core principle remains unwavering: we never compromise on the quality of our deals. When we encounter real estate risks, we tackle them strategically with a clear plan for mitigation. In 2023, we proved this by patiently waiting for the right price reductions instead of chasing suboptimal risk-adjusted returns.

Assets in prime locations tend to exhibit greater resilience compared to those in secondary locations. Moreover, we focus on ensuring that our assets are future-proof, capable of meeting future demand, not just current needs. This is why we prioritize energy-efficient investments in real estate.

What key investment themes have you been focusing on in 2023 so far?

Transactions have been down significantly since last year, so a big portion of our focus has been on the asset management of existing portfolios to make sure they are covered from a finance perspective in terms of being properly leveraged and protected. Additionally, we’re also looking at acquiring and we’ve found there is a large gap between buyers and seller’s expectations, so we’re shifting towards financing quality developers, owners, and assets whilst we wait for this gap to narrow. Since inception of the company, we’ve only done value-add opportunistic investments and we have since developed capability and are more comfortable taking on developer risk.

As we enter the second half of 2023, where do you envisage the key areas of opportunity?

We’ve seen a significant increase in the second half of 2023 with more private credit demand as a result of the maturity of some of the existing senior loans. The drop in valuations have resulted in developers, owners and landlords wanting to source funding which is under the mezzanine of private credit. I would expect that trend to accelerate even more next year. There’s also been some price correction and more attractive yields to acquire especially as rates become more stable, so there’s more opportunities to invest. On the sustainability front, we’ve made our own ESG commitments and put policies in place. Sustainability is a trend we want to be a part of, we believe in less carbon polluted assets and the entire eco system is driven by ESG. So, this is now a core principle in our investment decision making.

If you would like to discuss any of the topics raised in this piece or if you need support with your leadership resourcing strategy, please get in touch with Amanda Floyd on amanda.floyd@beaumontbailey.com.