Dutch pension fund giant PGGM and its smaller peer Bouwinvest expect to spend less on real estate this year after strong investment volumes in 2014.
Dutch pension fund giant PGGM and its smaller peer Bouwinvest expect to spend less on real estate this year after strong investment volumes in 2014.
PGGM had a ‘super active’ year in 2014, Guido Verhoef, the fund's head of private real estate, said during a panel discussion at INREV’s Amsterdam Investor Intentions seminar last week. 'In total we invested €2 bn in real estate last year, this is partly committed and partly invested.'
Approximately half of this figure - or €1 bn – was invested in European countries, he added. ‘We were underweight in Europe and last year we invested in all the favourite countries on the list, including Spain and Dutch resi. We also invested quite heavily last year in logistics and the UK.'
For the coming year, Verhoef expects to increase the allocation to real estate from 11% to 12% with a 50-50 split between direct and indirect. In volume terms, however, the amount will be somewhat lower than last year, he added. 'Altogether, we expect to invest about €1.5 bn this year.'
PGGM is a ‘dull investor’, Verhoef said. ‘We’re in there for the long term. That is one of our key drivers as a core investor. But if you talk about moving up the risk curve, I don’t believe some of the deals we’ve seen coming by meet our criteria long term. The figures may work on the spread sheets, but I foresee some problems in the longer term. For some investments, the question is: where is the exit five to seven years from now?’
As for PGGM’s own investments, so far, so good, Verhoef said. ‘We won’t be changing our risk strategy.’
While PGGM works with just under a dozen or so fund managers and operators, the trend is to avoid the overheads of fund structures and to invest via joint ventures and club deals, Verhoef said. This is not always easy, he conceded. ´The key is to have a global network. If you’ve been in the market for some time, it’s possible to realise things in a relatively short time.’ Overall, however, the real estate asset is key, he added. ‘The structure is a wrapper.’
While PGGM does invest in fund structures, the options in Europe are more limited than in the US, Verhoef said. PGGM is happy to invest in open-ended multi-sector funds in the US, but this type of structure does not work for PGGM in Europe, he noted. 'In general, we would welcome an open-ended fund which is active in various countries. In Germany, there’s a lot of investor appetite for this type of product which is not a bad structure at all to invest in Europe. But for us they are often too small to move around in Europe. We expect a fund to be sizeable, with AUM of €3 bn or more. For us there’s no need
to go down that route in Europe.’
One of the potential pitfalls for pan-European open-ended funds is that the market is so diverse, Verhoef added. ‘Each market performs differently so it is difficult to get a homogenous product. We have a preference for single sector, single country funds.’
BOUWINVEST ALSO SET TO LOWER INVESTMENT
Dutch peer Bouwinvest also turned in a strong year in 2014, reported Stephen Tross, managing director of international investments. '2014 was a record-breaking year for our international portfolio in terms of performance and acquisitions. We invested €1 bn last year, of which €600 mln was in the Netherlands, in particular residential, office and retail. We also invested in healthcare and see good prospects for this segment going forward.'
Internationally, Bouwinvest forked out €400 mln last year, but the smallest portion was in Europe, Tross said. 'We bought some UK retail investments, but we spent the majority in Asia-Pacific, on Australian logistics, Chinese resi development and Japanese logistics.' The Dutch investor was also active in the US, with investments in mezzanine debt.
For the coming year, Bouwinvest has downgraded its investment target to around €600 mln compared to 2014, Tross said. ´That amount will be more evenly spread between the Netherlands and international investments. Our international focus is on the US and Asia-Pacific and less on the rest of Europe. 'But,' he added, 'the way we invest comes second. First we look at the opportunities, and how we invest depends on the availability of product and the strategy.’
While Bouwinvest invests in both listed and non-listed real estate via fund vehicles, joint ventures and club deals, in general it prefers to have more influence over its investments, Tross said. ‘In general, we have a preference for clubs or JVs. But for certain strategies we like seeded portfolios. This can be a better option than a JV sometimes if the JV does not have a seeded portfolio.’
In terms of risk profile, Bouwinvest is ‘very defensive’, Tross said, and opportunistic investment accounts for just 10% of the portfolio. In the past year, the Dutch investor added more core investments to its portfolio, Tross added. ‘Will we move up the risk curve? We won’t move up by adding more leverage. The average for our international portfolio is 34-35%. We will invest in development and niche strategies. We see some growth in Europe, which we haven’t seen it for awhile here, but for most countries it’s still quite a distance away. There is growth, however, in the US and Asia, and we will be investing in opportunistic investments there.’
SYNTRUS ACHMEA AIMS TO EXPAND MORTGAGE PORTFOLIO
Syntrus Achmea Real Estate & Finance likewise had a ‘busy’ year in 2014, reported Jaap van der Bijl, managing director of investor relations. The Dutch asset manager has over 50 real estate lines and invests primarily through joint ventures and club deals, he said. In 2014, Syntrus Achmea invested €600 mln in German and Dutch resi, French retail and logistics in Australia, Van der Bijl said. 'We also made acquisitions in healthcare and sold offices and retail to reposition the portfolios of our clients. I expect we will continue to invest internationally, but possibly at a slower rate.’
Syntrus Achmea is also a big investor on the debt side in the Netherlands, Van der Bijl noted. ‘We invested €1 bn on the residential mortgage side in 2014. We will continue to invest in this category in 2015, and possibly at a faster rate,’ he said pointing at 8% returns. The Dutch investor is set to remain a big buyer in the Dutch residential market, in particular development projects, Van der Bijl added. ‘We have €1 bn to allocate to Dutch residential. In Amsterdam, there’s a strong need for new mid-range rental apartments.’
As is the case for its Dutch peers Bouwinvest and PGGM, the ultimate goal of any development project is to get access to core product, Van der Bijl said. For many plain vanilla core assets, the returns are not always satisfactory, he pointed out. In that sense, Germany, France and the UK – the top picks for respondents to INREV’s Global Investor Intentions survey – may not necessarily offer the best risk-rewards, he said.
'Investors need to be prepared to take some risk. In some countries the economic fundamentals are still vulnerable. We remain very cautious and will not go broadly into value-add and opportunistic investment, but we like development to core. We look at it on a deal by deal basis.’
As in previous years, respondents to INREV’s Global Investor Intentions cited alignment of interest as the most challenging obstacle for investors when investing in non-listed real estate funds. This is a serious complaint against the industry which needs to be addressed, Van der Bijl noted. ‘Alignment of interest has been an obstacle for the last seven years of the survey. And what is the industry doing to solve the problem? INREV has taken all sorts of measures to improve transparency, in the field of reporting, online data availability, dialogues with investors and investment guidelines. Maybe it’s not a technical matter. We need to find out what’s bothering investors.’