CBRE has created a unified pan-European capital markets division for real estate’s alternative sectors for the first time.
Responding to the growing appetite for operational assets, the group has brought its investment expertise in sectors such as hotels, healthcare, senior living and student housing under one umbrella.
The new operational real estate (OPRE) team also includes other operational asset classes like data centres, leisure and educational property and will take on board more sub sectors as they evolve.
Hotels had previously been run separately from other specialisms at the firm, but now Keith Lindsay, CBRE’s EMEA managing director for hotels, will also head OPRE.
Executive director Stephen Miles has moved to head of OPRE Investment, continental Europe. Miles has 20 years experience across European capital markets with a focus previously on buying and selling offices.
UK head of OPRE is David Batchelor. Adolfo Ramirez, a member of the CBRE European board, will add chairing OPRE EMEA to his role as CBRE’s CEO of Spain.
Miles said investors increasingly see a commonality across different operational asset classes. Target allocations to these types of real estate have shot up to 30% in the UK compared to just 13% in the early 2000s.
European alternatives investment volumes climbed to €25 bn in the nine months to the end of Q3 2019. ‘For this reason we felt it was a disservice to call the sector ‘alternative’ any more and we chose ‘operational’ real estate’, said Miles.
The €25 bn represents 13% of total investment volume in the period. This was equal to retail at 13% and more than industrial/logistics at 11%. Offices accounted for 40% and multifamily for 17%.
CBRE says operational assets are rapidly becoming a cornerstone for many investment portfolios and are attracting large sums of global capital. At the same time, investors have developed improved OPRE sector knowledge and more sophisticated lease underwriting than before and so demand has increased both from general core funds and private equity as well as specialists.
The final impetus for establishing OPRE is that clients are focusing at this point in the property cycle on income rather than further yield compression. ‘Operational real estate provides a nice, running, underlying income stream in a balanced portfolio,’ Miles said.
‘This word operational is all about the fact that you’ve got multiple tenants or customers in a building and that is very attractive when you put it with an office portfolio. In that case, because leases are now shorter, every five or 10 years you have a significant outcome when you need to negotiate with a significant tenant.’
Multifamily investment will continue to be run as a separate team across Europe at CBRE, headed by Amsterdam-based Thomas Westerhof. But the two divisions’ obvious synergies mean they will work closely together, CBRE said.
The OPRE team will also work with corporate finance and debt specialists in CBRE Capital Advisors. Last month CBRE advised Marathon on the sale of 17 UK Hilton hotels and the operating platform to Thailand-based DTGO Corporation, with capital advisors arranging debt for the buyer with Goldman Sachs and managing the loan.
This year, CBRE predicts that pricing of prime operational real estate investments will continue to harmonise across all jurisdictions where significant stock is available.
