News analysis: CBRE GI highlights shift towards separate accounts
CBRE Global Investors and Invesco Real Estate both revealed new separate account mandates from Asian investors last week. Many of the larger investment managers in Europe have spent recent years adjusting their businesses to capitalise on the expected influx of new, large institutional investors that invariably prefer to go direct rather than through funds.
The transition was laid bare in numbers last month when the wider CBRE group released its earnings report. Its investment management arm reported an operating loss of $45.3m (€32.5m) in the last three months of 2013 (by comparison, it operating income of $7.3m during the same period in 2012) due to a $98.1m non-cash write-off of intangible assets associated with the European open-end fund business.
“The non-cash impairment charge is related to a decrease in value within one part of the European business – open-end funds,” according to the earnings statement. “These funds have experienced a decline in assets under management, as the business mix shifts toward separate accounts, consistent with market movements following the extended financial crisis in Europe, which has resulted in project sales and planned liquidations of certain funds.”
While changes in Europe trimmed results, the investment management group overall remained strong. Without the impairment charge, CBRE Global Investors’ operating income would have been $149m for 2013, an increase of approximately 240%. CBRE said that the investment management business in Europe has “remained at or above the level” its creation in 2011 through the merger of CBRE Investors and ING Real Estate Investment Management.
Management changes within CBRE Global Investors’ European business continued recently with the appointment of Michael Clarke, formerly of Schroders and Mesirow Financial, and the departure of Jean Lamothe. Clarke will be responsible for investor relations, equity raising, targeting new investors and contributing to the development of investment strategies. Lamothe, who was president of CBRE Investors before its merger with ING REIM, was most recently head of value-add investments.
The shift towards separate accounts in Europe reflects the increasingly global nature of institutional real estate investment. As clients seek to optimise returns, the expected performance of a property or market segment takes precedence over geographic location. With investment resources in 26 countries “we have a unique advantage to migrate capital across borders efficiently and effectively, CBRE said.
Last week’s announcement was certainly not the only cross-border separate account to be won by the firm. It also recently added a $169m mandate from Korea Post to acquire a trophy asset in Chicago, as well as a €500m mandate for global investment from German pension fund BVK.
“Development of our separate accounts platform in all global regions is an important strategic focus for us,” said CBRE, “with a particular emphasis on cross-border capital.”
That said, CBRE Global Investors continues to invest on behalf of its pooled funds in Europe, as does Invesco. In December it acquired the StadtCenter Düren Shopping Centre in Germany for €57m, taking assets under management at its CBRE European Shopping Centre Fund to €400m. Invesco, meanwhile, has increased the size of its open-ended European shopping centre fund to €1.3bn following acquisitions in the UK and Poland.
The shopping centre market in Europe might well support the business case for open-ended funds. During a panel debate at MIPIM in Cannes last week, Patrick Kanters, managing director for global real estate at APG, suggested a role for long-term “semi-open-ended” funds focused on retail markets.
Kanters, who heads up the real estate investments of the Netherlands’ largest pensions investor, said “large scale” funds could be useful for those sectors where a strong operating platform was important, such as retail, logistics and hotels.
And while the European open-ended fund business is transforming, the region may well become a preferred destination for institutional real estate capital this year. Upcoming liquidations of German open-ended funds will create significant investor opportunities in Europe, according to DTZ.
During 2013, the value of assets sold by German open-ended property funds in liquidation sold “shifted from an average 7% premium to a significant discount of 13% across Europe,” said Magali Marton, head of EMEA research at DTZ. Discounts in Benelux and southern Europe reached as much as 20% in 2013, and may well rise to 30% this year, as assets slated to be sold in 2014 are concentrated in those regions and Germany.