Round Hill Capital is to establish a long-term platform in the Nordic region following the acquisition of an 18-asset industrial and logistics portfolio, Isobel Lee writes in this Deal of the Month.
When European investment and asset manager Round Hill Capital acquired a Nordic logistic and industrial portfolio for $200 mln (€180 mln) the transaction also marked the regional debut for the real estate arm of StepStone Group, which partnered with Round Hill on the acquisition. StepStone is a global private markets specialist overseeing over $91 bn (€82 bn) of private capital allocations, including approximately $24 bn of assets under management.
The acquired portfolio comprises six aggregated portfolios holding 18 assets spanning 326,000 m2 across Norway, Sweden and Denmark. The portfolio was sold by a group of companies of NLI Eiendomsinvest, a real estate investment business based in Oslo. Round Hill founder and CEO Michael Bickford indicated this was not going to be a one-off foray into the Nordic markets.
New platform
‘Round Hill has been evaluating the Nordic markets for several years and is pleased to have acquired the NLI Eiendomsinvest portfolio, which provides stable rental income and positive risk-adjusted returns consistent with our overall investment strategy,’ he said, adding: ‘We’ll continue to look in the market for other portfolios and assets with similar value characteristics. We believe the Nordic region benefits from positive macroeconomic trends, attractive yields for commercial, industrial and logistics properties
and strong rental growth.’
Per Morten Kiil, CEO of NLI Eiendomsinvest, said that the sale marked the final disposal by the fund and that it was in line with its strategy of a portfolio-wide exit. ‘We continuously worked towards optimising the portfolio and this sale meets the strategic objectives and targets of the fund as it approaches maturity. The fund seized upon the opportunity of the strong interest from international investors to enter the Nordic logistics and industrial market.’
Colliers International in Norway advised Round Hill, including introducing NLI Eiendomsinvest to Round Hill in an off-market transaction. Colliers in Sweden and the UK also co-assisted on the deal.
Time is right for Nordics
A source close to the deal said of Round Hill’s introduction to the region: ‘The Nordic market continues to be an attractive investment location for international real estate investors due to the strong underlying fundamentals, availability of financing and a favourable currency environment. The Nordic industrial and logistics sector provides particularly compelling investment opportunities while there is constrained supply due to the high replacement costs, and strong demand; therefore, it is forecast to have a stable growth trajectory. The deal is in line with Round Hill’s investment strategy of focusing on acquiring quality real estate assets across Europe, building local management teams and creating value through asset management.’
NLI Eiendomsinvest was advised on the sale by Nordic corporate finance and transaction advisory firm, Pangea Property Partners. Erik Høvik, director and partner at Pangea, told PropertyEU: ‘There were a lot of funds in Norway that were set up around 2005-2007, typically aiming at retail investors or smaller institutions that didn’t have a big enough capacity to invest directly in real estate. For example, NLI Eiendomsinvest has 400 shareholders, ranging from very small to medium sized. So many of those 10-year old funds are now reaching the natural end of their life-cycle, when fund managers have to decide to sell or extend, and this was one of those portfolios.’
Høvik adds: ‘Typically, there is more interest from international buyers to go in and acquire these kinds of portfolios, than from local players.’
Value-add in logistics
In terms of value, yields are not necessarily the prime mover for investors. ‘I don’t think for core assets the Nordics represents a significant yield spread, although it’s slightly cheaper than core Europe,’ says Høvik. ‘A German fund which buys a core investment in Oslo, for example, doesn’t really do it for the yield spread – it’s more to get some Nordic exposure in its portfolio.’
Høvik adds: ‘There seems to be a growing interest in logistics and industrial assets, which are less analysed markets, which also requires speciality knowledge. It requires more focus to prepare a business plan and work out a strategy sometimes with this kind of real estate. If you have the knowledge and asset
management skills, there is potential to add value as well. Not necessarily everyone is able to see that.’
Our source close to Round Hill said that the firm was particularly interested in the value-add potential of logistics and industrial properties in the region.
‘Industrial and logistics is a sector which is not as popular with domestic institutions and private investors in the Nordics as it is elsewhere in the rest of Europe. A lot of existing properties have incredible locations close to city centres and long-term tenancies. Some of the tenants in the Round Hill portfolio deal have been in place for 10, 20 or even over 50 years and they have become very rooted. Because of the restrictive costs of new build, opportunities are scarce so tenants don’t have a lot of growth options. The Round Hill portfolio has the potential to meet tenant needs in the shape of additional land, potential for extensions, and with the right investment, these tenants can flourish while also remaining in their current premises. This is a value-add portfolio requiring plenty of work, but also offering plenty of opportunity for growth.’
Post-Brexit race
Round Hill’s joint venture with StepStone means more investment in the region in the coming year to make the most of current opportunities. The source added: ‘Round Hill thinks there’s a window of time of about 1 year to 18 months to go in and capitalise on additional investments. With the fallout from Brexit they don’t think they’ll be the only investors looking beyond the Eurozone.’
PropertyEU understands that after this initial €180 mln buy, the partnership would be interested in spending another €300-400 mln in the region over the next 12-18 months. While StepStone is a relatively new face in European property investment, it does have some third-party history with Round Hill Capital. StepStone is understood to be backing most of the deal with equity but Round Hill will have a very important role in terms of asset management and the evolution of the portfolio. With plans in the works to set up a Stockholm office, this will definitely not be Round Hill’s last foray into the region.
Entering new markets
Round Hill manages more than €4 bn of real estate and has offices in the UK, Germany, Luxembourg, the US and the Netherlands. The Nordics is just the latest step in Round Hill’s strategy to expand its European footprint. After focusing on German residential and student accommodation in the UK for several years, Round Hill entered the Dutch property market in June 2014 when it acquired a 1,500-unit residential portfolio from CBRE Global Investors for €180 mln.
Several additional acquisitions took place over 2014-2015, including the 3,786-unit WIF portfolio for €365 mln. Round Hill then started buying into the nascent student accommodation sector in the Netherlands. ‘We are committed to our investment approach in the Netherlands, where we expect to continue to acquire similar assets and to expand our residential platform across Europe,’ said Round Hill’s Kirk Lindstrom. In the summer of 2015 Round Hill moved eastward and acquired RPG Byty, the largest privately owned residential landlord in the Czech Republic, for an estimated €500 mln. The portfolio consisted of 43,083 units with a total area of 2.6 million m2, concentrated in Ostrava, the former industrial and mining heartland of the Czech Republic.
