Despite a shortage of quality product investment managers are gearing up for a spending spree after securing new funds and mandates over the summer, Senior Deals Editor Cormac Mac Ruairi writes in his monthly analysis.
Korea is staking a claim to one of the largest single-asset real estate deals in Germany this year as a group led by Samsung SRA emerged over the summer as the preferred bidder to acquire Commerzbank Tower in Frankfurt for €730 mln. It will, however, take several transactions of this calibre, or a plethora of mid-price deals, to make up some of the shortfall incurred by the muted investment activity in the first six months of the year.
Germany’s investment volumes ended H1 2016 on €18 bn, a 28% decrease on the same period the previous year. However, market watchers do not believe this slackening was primarily caused by the investor uncertainty engendered by the Brexit referendum in the UK. Indeed, now that Brexit is a reality Germany should be able to capitalise on its enhanced ‘safe haven’ status. The main drag on volumes has been a shortage of the kind of core product institutional investors want rather than any weakening of demand.
Capital speed-dating
It may seem perverse to respond to a lack of product by throwing more capital into the mix, but that is what is happening this month when a large number of investment managers converge on Expo Real with an assortment of new funds and mandates that they need to fill. The mother of all cash pots is Blackstone’s new fund BREP V Europe. It has reportedly raised €5.7 bn but has a target north of €7 bn.
Although Blackstone is keeping mum, observers expect the majority of the capital will end up in the five largest western European markets: the UK, France, Italy, Spain and Germany. UBS Asset Management will no doubt also have Germany in mind as it seeks to place the €300-500 mln pan-European office mandate awarded over the summer by Posta Vita, part of the Poste Italiane Group.
Paris-based asset manager La Française has a €400 mln German retail real estate fund to invest, while Quantum Immobilien has launched a €500 mln German residential property fund.
Domestic dominance
It will be interesting to see whether these funds manage to shake more product loose from its current owners. The evidence of recent months indicates that domestic investors have so far done best at matching capital to bricks and mortar. Their broader palette in terms of asset type and quality, as well as geographic location may go some way towards accounting for the fact that this group claimed almost 60% of the H1 volume. Residential and its offshoots are particularly popular.
The second largest transaction in July-August saw Deutsche Wohnen diversify its holdings by shelling out €420 mln to acquire the 28-asset Pegasus care home portfolio from former bad bank Berlinovo. ‘This portfolio is one of the largest transactions in the German market for nursing homes in recent years,’ says Dirk Richolt, head of real estate Finance at CBRE, who advised Berlinovo. ‘For us as a transaction advisor this benchmark deal is anomalous for this asset class.’
Altogether in the first half of 2016 about €863 mln of care homes was transacted in Germany.
Patrizia Immobilien was also notably active in Germany during the summer. The listed sector all-rounder and fund manager claimed the third largest German deal of the summer with the purchase in August of nine office and commercial properties from Allianz Real Estate Germany for more than €400 mln. A month earlier Patrizia purchased an 110,000 m2 portfolio comprising more than 10 retail properties for over €200 mln. And in September Patrizia’s new pan-European logistics business, which is run from Amsterdam, acquired four German sheds for €22.5 mln, adding to the €200 mln in seed assets.
Although the latest transaction was in Germany, the key point is that the logistics business has a pan-European focus. This is also the case for a number of the funds and mandates which will be doing the rounds at Expo Real. UBS’s Italian business is leading the charge. Aside from the Poste Vita mandate, it has a €400 mln pan-European commission from Zurich Investment’s Italian arm. The 15-year fund will be Zurich’s primary platform for real estate investment in Italy and, residually, across the eurozone.
UBS-ZIREF will seek to acquire offices, retail and industrial assets with the potential to provide stable rental returns.
Love of Lombardy
PropertyEU Research has detected a sizable number of transactions in the northern Italian city of Milan in recent years. Samsung SRA arrived on the scene in 2014 by acquiring one of the so-called ‘Diamantini’ office schemes in the Porta Nuova development. Two years on and the Lombard capital keeps giving, with no let-up over the summer. In late July, AXA Investment Managers – Real Assets completed the acquisition of Via della Chiusa 2, an office complex in Milan’s historical city centre, via a share deal, for €120 mln.
Although the name of the vendor was not disclosed, it is believed to be US real estate firm Northstar, which bought the asset in December 2014 as part of a larger €1.1 bn, 11-property strong portfolio acquisition from SEB Asset Management, now part of Savills Investment Management.
Weeks earlier, US developer-investor Hines completed the acquisition of a retail and office building on Milan’s central Piazza Cordusio for a fund managed on behalf of German pension giant Bayerische Versorgungskammer (BVK).
At the start of the month Coima Res, the new Italian REIT, completed the planned acquisition of Milan’s so-called Vodafone Village for €200 mln, while Hines secured its fourth investment in Italy this year with the €50 mln off-market purchase of an asset at Via Broletto, Milan’s upmarket office district.
Coima, backer of the new REIT that bears its name, and Hines have a long history in Milan as they developed Porta Nuova. But for many investors Milan is simply one component of a wider pan-European strategy.
Encouragingly, the deal data for the summer shows that large multi-country portfolios are coming to market and are trading. In July, French asset manager Amundi emerged as the buyer of a European office portfolio from the KanAm grundinvest Fonds in liquidation for €875 mln. The portfolio includes three assets in Paris – a 9,000 m2 Art Deco building at 53 Quai d’Orsay, Tour Egée at La Défense, and Le Stadium in Paris, as well as the Espace Petrusse building in Luxembourg and PwC’s Rotterdam office.
The story does not end there, as KanAm grundinvest Fonds – which is due to be transferred to the custodian banks for liquidation by the end of the year – still owned 11 assets after the completion of the deal, including three that were under final negotiations.
French specialty
Pan-European portfolios appear to be a French speciality. Amundi was the buyer of the main tranche of Union Investment’s €1 bn Aqua pan-European office portfolio late last year. And this July Eurazeo Patrimoine – another French investor – closed the purchase of a portfolio of 85 European hotels from Accor. Of course, pan-European portfolios do not fall out of the sky; they have to be put together asset by asset. TH Real Estate, for instance, is currently on the hunt for property in strong metro areas for European Cities, a new, diversified, core, open-ended fund that had its first close on €500 mln at the beginning of July.
‘The founding principles of our strategy are to look through market cycles and focus on those European cities where people will want to live and work in the future,’ says fund manager Andrew Rich. He will face strong competition from a number of peers. Deals for pan-European mandates in July-August include Patrizia picking up a 9,000 m2 office in central Helsinki, Cornerstone entering Spain with the acquisition of prime retail in central Madrid, and AGC’s €242 mln purchase of the office property One Spencer Dock in Dublin for Middle Eastern investors.
No doubt investors will be on the look out for more choice deals at Expo Real in Munich. Should they succeed, there may well be a rally in terms of investment volumes by the end of the year.
