Doughty Hanson keeps powder dry

Doughty Hanson & Co Real Estate's acquisition in January of Old George Mall in Salisbury, UK for £60 mln (EUR 67 mln) should not been seen as it calling the bottom of the market, according to the seasoned fund manager.

At a time when many peers are working feverishly to raise equity for opportunistic funds to take advantage of what has been seen as the advent of once-in-a-decade buying opportunities, Doughty Hanson has an established mid-market fund which has been keeping its powder dry.

Julian Gabriel, senior principal at Doughty Hanson says prices, which had been far too high, are starting to come down, but the firm is weighing other factors too.

'Timing and the yield are important, of course. But we also look at the opportunity in its entirety. We are looking in all the 10 markets in which we operate for potential deals that make sense in light of the local market conditions,' says Gabriel.

He says the acquisition of Old George Mall shopping centre after a 12-month investment hiatus was an example of investing for the longer term. Consumer spending is falling at the moment due to the global financial crisis, but the deal fits into the firms' strategy of focusing on assets with significant value creation potential and defensive characteristics. This was the 11th acquisition by Doughty Hanson’s EUR 590 mln European Real Estate Fund II.

The fund was raised in 2006, a year after Marc Mogull, the then head of Doughty Hanson's real estate division, called the top of the market. Gabriel says the fund still has 40% to invest and can go back to investors if necessary. Any decision on raising a new fund depends on what happens during the rest of 2009.

'It is very hard for everyone to get deals done at the moment due to the financial situation. I don’t believe this is going to change very quickly,' says Gabriel.

Large auction processes, he says, are out of the window and real estate is once again a face-to-face business. 'We would like to get deals done in 2009, and in 2010 and 2011, but we are in no rush'. Gabriel says there is a lot of talk at the moment about the big liquid markets - the UK, Spain and Germany, but knowledge of the local market conditions is vital.

'We have, for instance, always done very well in the Nordics, due to the fact that we have always had a team on the ground in the region, as we have in all of our other markets,' he adds. In all, Doughty Hanson & Co Real Estate has completed 32 transactions in 10 countries since January 2000 with a total portfolio value of more than EUR 4.5 bn.