ANALYSIS: US investors leave a mark

Three key trends emerge from PropertyEU’s latest survey of the top investors in Europe.

Investors are becoming more global, deals are increasing in size and dealmakers are spreading their wings further in search of more attractive yields. But while investors from as far afield as Brazil, China and Abu Dhabi landed some of the most iconic trophy assets in Europe’s major cities last year, it was the American contingent that really left its mark in 2014.

No less than four US-based investors dominate the top-5 of PropertyEU’s Top Investors ranking in terms of the most active investors in Europe over the 12-month period with a trio of US loan portfolio buyers in the top 3. US private equity firm Cerberus Capital Management emerged as the biggest dealmaker in Europe in 2014 after affiliates invested a staggering €17.7 bn in European NPLs, accounting for 22% of all closed commercial real estate and real estate-owned transactions.

The firm was particularly active in the fourth quarter, when six transactions made up 41% of the entire European NPL deal volume. Major deals concluded by Cerberus affiliates in 2014 included the purchase of the Project Eagle loan portfolio from Ireland’s bad bank National Asset Management Agency for €1.7 bn, at a 70% discount to face value. The firm also acquired UlsterBank’s Project Aran portfolio for €1.1 bn, a 77% discount, and the €660 mln Project Avon loanbook from the UK’s Lloyds Banking Group for €434 mln, at a 34% discount.

Record volumes of loan sales
Lone Star came a close second after forking out €16 bn for loan portfolios including Coeur Défense, the largest office complex in Europe, from the note holders of the busted CMBS supporting the tower. The purchase price of €1.2 bn represented a 40% discount to the €2.1 bn it traded for at the peak of the market in July 2007.

An end-of-year flurry of deals included a mix of traditional retail and office real estate and hotels, residential and student accommodation in the UK for €1.3 bn in an off-market transaction from two 2005-2007 vintage private equity funds managed by UK-based Moorfield Group. At end-2014, the US firm was also picked as the buyer of Neinor, the property management arm of Spanish lender Kutxabank, as well as about 50% of its real estate assets for €930 mln.

US peer Blackstone likewise ranked prominently in our annual review of the leading dealmakers in Europe after spending more than €8 bn on loan portfolios and another €7 bn on real estate assets. Indeed, it seemed as if Blackstone was going at full throttle last year with a string of office acquisitions in virtually all major cities in Europe including London, Paris, Frankfurt, Madrid, Barcelona, Hamburg, Luxembourg as well as retail assets in Milan, Rome and other Italian cities. It was also active on the logistics front with a string of major portfolio acquisitions by its European logistics platform Logicor.

Blackstone spent just over half of its European investment volume on loan portfolios last year which are becoming increasingly popular with investors across the board looking to diversify and commit big chunks of capital, whether they be performing or non-performing. There were more than €80 bn of closed European commercial real estate (CRE) and real estate owned (REO) loan sales in Europe last year, according to Cushman & Wakefield, which is forecasting that there could be as much as another €70 bn to come to market across Europe this year.

The size of loan portfolios also rocketed in the past year as lenders took advantage of growing investor demand to shift ‘mega’ portfolios. While many US and UK banks are already coming to the end of such disposal programmes, Germany is only just getting started. Subsequently, of the €70 bn in potential loan sales this year, as much as 20% could come out of Germany, according to Frank Nickel, chairman of corporate finance for the EMEA region at C&W.

Another US player active in big-ticket deals as both a buyer and a seller was Starwood Capital which acquired about 100 assets in two portfolios in Norway and Sweden for €1.2 bn as well as a portfolio of three office properties from Ghelamco Poland for €192 mln. Its major sales were in the hotel sector where it spun off the Louvre Hotels to Chinese group Jin Jiang for €1.2 bn and the St Regis Grand Hotel in Rome to another non-European newcomer – Constellation Hotels which is indirectly controlled by the Qatari Investment Authority.

Europeans were biggest sellers
Other notable sellers in 2014 included SEB Asset Management which disposed of 11 European offices in London, Paris, Hamburg, Milan, Brussels, Rotterdam, Amsterdam and Gothenburg to another relatively new name US-based North Star Asset Management. German open-ended fund manager SEB also sold a diverse pan-European logistics portfolio to Blackstone while London-based Tristan Capital Partners spun off two major logistics portfolios it had acquired during the global financial crisis in big-ticket sales to P3 and Segro.

Other notable newcomers included China Life Insurance in yet another sign that Chinese equity has well and truly arrived in Europe with the acquisition of 90% of Clifford Chance’s HQ in London’s Canary Wharf together with Qatar’s sovereign wealth fund. Another iconic trophy asset in London went to Brazilian billionaire Joseph Safra who acquired the Gherkin for €927 mln – or a yield of 3.8%.

The traditional stable of German fund managers accounted for four of the largest deals, according to our survey. Deutsche Asset & Wealth Management was responsible for two of these: the joint acquisition with ECE of the PalaisQuartier in Frankfurt for €800 mln, and the purchase of Warsaw’s Rondo 1 tower for €300 mln.

The record volume of loan portfolios that was sold last year in Europe has skewed our dealmakers ranking compared to previous years in favour of the big three US private equity giants, but transaction activity was up across the board. For 2014, PropertyEU counted 79 dealmakers who exceeded the €1 bn mark in terms of total transaction activity compared to just 34 last year.

These findings are also in line with brokers’ figures for 2014. ‘We saw a great performance pretty much across the board in 2014 but Q4 was very very strong,’ JLL’s head of Europe Christian Ulbrich told PropertyEU. ‘The last time we saw that sort of stunning performance was in 2006-07. We are also very certain that we will see another very strong 2015. At the same time we are aware that this is not the new normal. This type of growth won’t continue forever.’

The usual suspects – London, Paris, Berlin, Frankfurt and Munich – accounted for around 49% of the aggregate volume of over €115 bn recorded by RCA for more than 100 European cities last year. London tops the ranking with an unassailable €33 bn, more than three times that of Paris, the number 2 city. Paris, in turn, had twice the volume of Berlin, the nr 3 in our ranking. Interestingly, no less than half – or eight – of the top 16 deals were carried out or facilitated by equity from outside of Europe. The largest deal was the acquisition by Kuwait’s St Martins of MoreLondon for over €2 bn.

Among the top 5 cities all except Berlin – ranked 2nd last year – saw more activity in 2014 than the previous year, according to the RCA data. This can in part be explained by the large residential portfolio transactions occurring outside the German capital last year, rather than investors cooling on the city. In fact both domestic and foreign investors are becoming more active in Berlin.

The same could not be said of Moscow which fell to 7th place from nr 4 last year after real estate volumes plunged from €6.1 bn to €3.5 bn. As Moscow always accounts for the majority of deals in Russia it is clear that the combination of economic woes and geopolitical concerns has had a severe effect on the real estate market there.

But while Russia is at a low ebb, a number of cities in central and eastern Europe are making a splash – and the trend is not confined to Warsaw. The Czech capital, Prague, for instance, jumped from €940 mln, or 23rd place, in 2013 to €1.4 bn, or 17th place, in the ranking for last year.

The Nordics are very much on everyone’s radar, evidenced by a strong increase in activity in Stockholm, the main real estate market in the region. The Swedish capital, according to RCA, saw some €3.5 bn of transactions in 2014, up from €2.8 bn the year before.

Stunning rally in the periphery
Perhaps even more interesting in 2014 is the stunning rebound of some of the markets on the fringes of Europe – or PIIGS – which suffered the most from the global financial crisis. Ireland came roaring back to life last year, with the capital, Dublin, turning in a volume of €3.4 bn, up from €1.5 bn in 2013. Similarly, Madrid jumped from €1.2 bn in 2013 to €3.3 bn in the 2014 ranking.

For the coming year, JLL’s head of EMEA Christian Ulbrich believes 2015 will see more of the same across Europe. ‘There won’t be a massive difference to 2014. Just that the geopolitical context has worsened.’

Judi Seebus
Editor in chief

For more on the leading investors and dealmakers in Europe last year, check out our Top Investors, Dealmakers and Investment Locations report and Top Investors app at test.topinvestors.info