Global financial services firm Barings has revealed that it is targeting €3 bn of European real estate investments across debt and equity for 2021, as it looks to respond to Covid-19 related market disruption and deploy the capital raised in 2020.
The firm completed around €2 bn of real estate transactions in Europe in 2020, marking the first time in four years that Barings acquired more assets than it sold. Some 78% of disposals took place in Germany, followed by both France and Italy with 11% each.
A number of these divestments were completed significantly ahead of business plan, including the sale of a Paris office property that had been completely refurbished and let to a well known fashion brand; and the sale to a French institutional investor on behalf of a value-add strategy produced an IRR of more than 40%, Barings said.
Having surpassed €2 bn gross asset value during the year, this approach helped Barings’ flagship core strategy outperform the INREV and MSCI benchmarks. In the latter it was ranked number one on a quarterly and three year basis.
Some 94% of Barings' deals in 2020 were off-market, with Germany accounting for 53% of total acquisitions, across €612 mln of equity investments. Meanwhile 21% of purchases were made in Sweden, marking further interest in the Nordics.
Compared to 2019, Barings noted an increased risk appetite amongst its client base, which is reflected in a noticeable shift from pure core investments comprising just 14% of the total acquisition volume in 2020 (2019: 40%), to core+ and value add, which accounted for 57% (2019: 40%)and 28% (2019: 21%) respectively.
Conviction calls for 2021
Industrial and logistics remains one of the company’s long term conviction calls, with the social and technological drivers accelerating in 2020 due to the pandemic. Although just €38.8 mln was invested in residential in 2020, compared to €125 mln in 2019, Barings’ living portfolio now comprises some 1,130 residential units and 267 student beds completed or in development. The asset class will become a key target in 2021 with about €350m to be invested in this sector over the next 12 months.
Barings completed €375 mln of senior and whole loan investments in 2020, while its existing loan portfolio of €2.6 bn performed well, benefitting from minimal exposure to sectors like retail and hospitality. Around 90% of the loans originated in 2020 were in the student accommodation, logistics and office sectors.
With €850 mln ready to deploy across Europe, Barings has a further pipeline of €450 mln of opportunities that are already at advanced stages for 2021.
Charles Weeks, head of real estate equity – Europe and Asia-Pacific at Barings, commented: '2020 was an unprecedented year that started well but was soon heavily impacted by Covid-19, which led to a number of highs and lows as the pandemic took hold.
'With the vaccine now being rolled out, we ended 2020 with a sense of optimism and light at the end of the tunnel, albeit under no illusions as to the heavy impact the measures undertaken to control the virus will have on the global economy.
'Our expectation is that 2021 will be an extremely busy year for the transaction teams. All our capital sources are looking to deploy fresh capital into real estate markets across Europe across core, value add and opportunistic returns spectrum, as well as into most market sectors but especially industrial and logistics; transitional offices; and residential.'
Gunther Deutsch, head of real estate transactions – Europe at Barings added that alongside 'offices and logistics... we will place an additional focus on the 'everything with beds' sector, including build to rent, student housing and micro/serviced living. We will be looking to make these acquisitions in our preferred European geographies: the Nordics, the Netherlands, Germany, the UK, Italy, France and Spain.'
