BRIEFING: 'Big beasts' leave space for niche property fund players

The ‘big beasts’ of the real estate fund industry are taking the lion’s share of investments in the current buoyant market but there is room for smaller boutique firms to make their mark, an expert panel has agreed at PropertyEU's briefing on the industry.

Huge global firms are making the most of investors’ renewed appetite for real estate, but the market is large enough – and investors’ needs are varied enough – for the successful coexistence of both large and small companies, provided they can deliver the returns.

‘Large firms will get bigger and bigger, but small entrepreneurial firms can give investors what they want,’ Ian Laming, chief operations officer at Tristan Capital Partners, told PropertyEU’s Future of Real Estate Funds Briefing, which was held in London this week.

Big or boutique
Duncan Owen, head of real estate at Schroders, agreed. 'Larger managers find it easier to raise capital and get operational leverage, but there is definitely a role for boutique specialists, who are focused and often get good returns.’ The risk successful small firms run is that of becoming mid-sized, he warned, as growth brings varied investors and then regulations bind them and makes life difficult for them.

‘There is demand for niche strategies and there is a place for smaller managers,’ said Tiziana Galassini, chief operations officer and head of product development of the client capital group at LaSalle Investment Management. Sectors that were niche until recently, like student housing or residential, have now become mainstream, she pointed out: ‘It has been one of the big changes of the last few years, and to manage these assets you need real expertise.’

The market is fast evolving and ‘multimanagers have already turned into deployers of niche strategies,’ said Philip Cropper, chairman of CBRE Capital Advisors. Whatever the size of the firm, there must be a happy marriage between target returns and risk profile, according to Cropper: ‘Learn the lessons of the last cycle and do not choose a structure that drives you to take on more risks. Do not fall into the trap of chasing 20% returns and moving up the risk scale.’

Regulation
‘Smaller managers are coming to the fore but regulation can be a problem,’ said Galassini. ‘Regulation is making things more challenging instead of creating harmonisation, which was the purpose of the exercise.’

‘In future rules will create large barriers to entry and make it even more difficult to run an asset management business,’ said Laming. ‘People coming into the market now will have to work with a large player.’

Joint ventures can be a solution, said David Ryland, partner at law firm Paul Hastings Europe, which hosted the briefing at its City of London offices: ‘Large investors are interested in JVs with external managers who offer what they do not have in-house. There are advantages to having operating partners and a common model, with the fund controlling exit decisions and the like. There is no one fund model for the future, but the menu of opportunities is bigger.’