The Swiss real estate sector has not been spared from the current market volatility. The SXI Real Estate Broad Index has come under heavy pressure, which has manifested itself in discounts on the net asset value of the funds – including the Helvetica real estate funds. In an interview with Andreas Benz, Special Projects at Helvetica, we discuss the impact of these turbulent times and the strategies Helvetica is using to tackle these challenges.

Interview: Patricia Neupert, Head Marketing and Communications

Real estate markets around the world are reacting to changes in the interest rate environment and financial markets. The otherwise very stable Swiss market is also feeling the dislocations and uncertainties. What specific steps is Helvetica taking to protect the interests of investors in these turbulent times?
Our main focus is on risk management. Specific measures include the sale of properties to reduce the debt ratio, optimizing the maturities of bank liabilities and maintaining open and transparent communication with our investors.

How does the performance of the Helvetica funds compare with the overall market?
Our funds have consistently delivered a robust performance. Our relatively high leverage ratio and reliance on short-term financing were a consequence of the growth strategy that allowed us to build a high-quality portfolio of assets. We are now in a consolidation phase with a strong focus on risk management and are making conscious changes to improve our products and their performance.

What are the main reasons for the discounts currently being seen in Helvetica funds?
The cautious mood on the market is a major factor, coupled with rising interest rates, which are diminishing the general appetite for real estate. Added to this are the rather low trading volumes, the slightly higher debt ratio compared to our competitors and the often short-term financing.

Can you tell us more about the strategies Helvetica uses to eliminate the discrepancy between the net asset value and the market price of the Helvetica Swiss Commercial Fund (HSC Fund)?
Our strategy to eliminate the discount includes expanding our investor base, reducing leverage through strategic real estate sales and converting a significant portion of our mortgages to longer-term financing. Added to this is the planned merger with the Helvetica Swiss Opportunity Fund (HSO Fund), which will give the new HSC Fund a stronger weighting in the SXI Real Estate Broad Index with around one billion Swiss francs.

Can you explain long-term plans to increase fund performance and attractiveness for institutional investors?
Improving communication to provide clear insights into portfolio performance is key. We are aware of past shortcomings and have taken steps to improve, including hiring an external communications company and introducing one-on-one meetings with investors for regular exchanges. In addition, we are aligning our long-term interests with those of our investors by making substantial and lasting investments.

How do you think the market will develop in the near future and what could this mean for the Helvetica funds?
Indicators such as the 3-year swap rate, which is below SARON, suggest that the market expects interest rates to fall, which favors the real estate sector. We are seeing the first signs of positive movements in real estate investments in other markets, which is promising.

Based on your experience, how does the current market compare to previous cycles?
Real estate cycles are repetitive and familiar, although the pace of rate hikes has been remarkably fast this time around, indicating a slowing economy and potentially cheaper capital down the road.

What recent successes or milestones has Helvetica achieved despite the market volatility?
We are pleased that our valuations have remained conservative and realistic and have held up in this market.

Are there any new investment opportunities that Helvetica is considering, especially in light of current market trends?
Certainly, such market conditions always offer opportunities. We remain optimistic about the residential sector, which I believe currently offers an attractive entry point. Our Helvetica Swiss Living Fund (HSL Fund) is achieving a gross yield of around 4 percent, which is 3 percent above the risk-free 10-year interest rate in Switzerland - this is an absolute novelty on this scale. Our commercial funds even have a yield spread of 5 percent or more. In my view, this is a good time to invest in real estate.

How do you see Helvetica growing given the ongoing challenges in the market?
We are refining our processes to emerge stronger from this phase. While we are focusing on the Swiss market, we are also looking at other opportunities to make the qualities of Swiss real estate attractive to a global investor audience. The Swiss real estate sector is a great market that will remain stable and reliable in the long term.