EDITOR'S CHOICE: Alternative is the new mantra

Investment in alternative real estate assets is the new mantra for return-hungry institutional investors which are having a hard time amid a prolonged period of record low interest rates.

In the largest deal of the past few weeks, French asset manager Primonial Reim led a group of investors including asset manager Amundi and insurers Aviva and Suravenir in the acquisition of Gecina’s entire healthcare property portfolio for €1.35 bn. The price paid reflected an attractive net yield of 5.9%.

Also in France, La Française Real Estate Partners has just completed one of its first student housing deals with the purchase of a development in Paris on behalf of a French institutional investor.

‘We strongly believe in investing in managed residences, for both students and seniors, as they respond to fundamental demographic trends in our western societies and offer an attractive alternative to investing in traditional housing,’ commented Patrice Genre, chairman of La Française.

HOT MARKETS
Until now, France has lagged behind in Europe in terms of alternative investment but these deals indicate the market is now catching up fast. Traditionally, the UK and Germany have dominated investors' shopping list, resulting in the creation of several dedicated platforms for this type of investments.

A fast growing player is student housing investment manager Deutsche Real Estate Funds (DREF) which earlier this week purchased student residences in Germany with a market value of €85 mln.

DREF, which is led by CEO Felix Bauer, was the first firm to launch an institutional bond in the student housing sector in late 2015 and recently secured €150 mln of capital from Chenavari Investment Managers. 'We are looking forward to an exciting 2016 in German student housing which we think is one of the least volatile asset classes at the moment,' he told PropertyEU.

DREF is looking to 'at least' double its portfolio of 3,000 student residences across Germany over the course of this year. ‘There’s a number of portfolios above €100 mln and five or six buildings. There's movement now in the German market with insurance, pension funds, institutional money moving in.'

NEW ALLIANCE
Meanwhile, the UK last month saw the launch of the second largest student housing platform in the country. US investment bank Goldman Sachs announced in January that it is joining forces with the British charitable foundation Wellcome Trust in a £2 bn (€2.6 bn) student accommodation joint venture which will initially hold a portfolio of 23,500 beds in 25 towns across the UK.

The somewhat odd alliance of an investment bank with a charitable trust was Europe’s largest real estate transaction for the first month of the year. According to market experts, the new vehicle is likely to be listed through an initial public offering in the near future, a move aimed at benefiting from the growing appeal of alternative asset classes to global institutional investors.

The UK was also the venue for another major alternative investment last month. M&G Investments, which has built up a £1 bn portfolio of alternative real estate over the past two years, agreed to acquire 44 health and racquet clubs in the UK from David Lloyd Leisure for £350 mln (€472 mln). According to Ben Jones, manager of the fund, the purchase is a result of pension schemes’ need for long-lease property investments providing attractive cash flows that are inflation protected.

HOTEL SPREE
Alternative real estate is not the only niche sector experiencing strong growth. Indeed, it is fair to say that the hotel market is witnessing an ever more remarkable resurgence, and is now set to transition into mainstream property investment.

Eurazeo, a French private investment firm, entered into exclusive talks in January to acquire 85 hotels with a value of €504 mln as part of a sale and franchise-back deal with French group AccorHotels. In another interesting deal this month, Asian investor Minor International (Mint) entered the European market by acquiring Portuguese operator Tivoli Hotels & Resorts for €294.2 mln.

One of the key drivers behind the growth in hotel investment - as a predominantly operational asset class - has been a strong 2015 in terms of trading performance across Europe. Operators are finding the opportunity to drive average room rates owing to robust level of occupancy and continued growth in demand, according to broker CBRE.

As the outlook for operating performance in 2016 looks largely positive based on forecast economic growth and low inflation, the momentum is set to continue throughout the year, with volumes only potentially limited by a reduced availability of stock.

Virna Asara
News Editor