AEW Europe plans string of funds in 2016

European real estate asset and investment manager AEW Europe is gearing up for a bumper year with several new funds in the pipeline. Here the company's CEO Rob Wilkinson tells PropertyEU why its investment base is broader than ever and why value-add and opportunistic deals are on his radar.

PropertyEU: How much do you plan to invest in European real estate this year?
Wilkinson: We invested slightly above €4 bn in real estate across Europe last year, broadly double what we invested the year before. This year, we’d like to invest at least €3 bn. I think this year will be as busy as last year – the real question is pricing, which may be starting to ease off. However the rental market has been subdued for some time and this may compensate.

PropertyEU: How has your client base evolved in recent years?
Wilkinson: Two years ago, things started to change – we raised more capital for funds and secured a number of new mandates. As a result, we have a much wider range of capital sources today. For example, three years ago, we didn’t have any Asian or Australian clients and only one in the UK. Today, we have 70 UK clients. This increased diversity allows us to be active in any size of deal or market.

PropertyEU: When do you plan to have the first closing for your new European debt fund, Senior European Loan Fund 2 (SELF 2)?
Wilkinson: In September, we started to market our €750 mln European debt fund, SELF 2, which will primarily underwrite office loans in key European markets. We expect to have the first closing by the end of February this year and would like to raise between €150 mln and €200 mln. We’re also looking at launching a pan-European value-add fund this year and maybe even a resi fund. We already have 14 existing funds under management.

PropertyEU: How has your investment strategy changed in recent years?
Wilkinson: We’re investing in a much broader range of countries than we were three-to-four years ago. We’ll see an even greater spread going forward. We’re investing more in different sectors, such as senior housing and residential. We’re also looking at student housing but it is a very different proposition in the UK and continental Europe. We’re still investing a lot in the UK, Germany and France but we would also like to increase our investment this year in Spain, Italy and the Nordics. There was an increase in value-add and even opportunistic deals last year and that will continue this year.
We typically expect an annual target return of between 6% and 8% for core, depending on the country, and 10% for core plus assets, with value-add generating returns of about 12% and opportunistic assets around 15%. If you focus in the right way, these opportunistic returns can be more achievable than you might think, especially given the low cost of debt in Europe, which can enhance returns. For example, interest rates in Germany can be as low as 2% and we are typically targeting a net initial yield of around 8% for our opportunistic programme in Germany.

PropertyEU: What have been some of your biggest deals in the past few months?
Wilkinson: Our biggest deal last year was the acquisition of the Celsius Portfolio for €1.3 bn. (AEW Europe acquired the portfolio of 10 shopping centers in France and Belgium from the CBRE Retail Property Fund France Belgium in July in partnership with an unnamed institutional investor. The portfolio comprises 221,000 m2 of retail space.) It’s hard to predict whether we’ll do another deal like that this year!
Also, in December, we acquired Festival Place in Basingstoke, a 192,190 m2 shopping centre in Hampshire, UK, from TH Real Estate. The acquisition was on behalf of a partnership between AEW Europe and the Teacher Retirement System of Texas. The Teacher Retirement System of Texas is a long-standing client of our US platform but this marks the first deal that we have done with them. At a yield of circa 6.25%, the deal represents good value in our mind. It’s right in the centre of Basingstoke and there’s a John Lewis department store being built close by, which is a major plus. We plan to improve the part of the shopping centre near to the station, so this is a good example of a deal that we like whereby we can add value.

AEW Europe – fact file
Assets under management: Total AUM across funds and separate accounts is estimated at €19 bn as of 31 December 2015.
Country of origin: UK
CEO Europe: Rob Wilkinson