Editor's Choice: Creative retail partnerships

With Mapic looming, the PropertyEU editorial team took a look at how institutional investors are tapping retail expertise - and discovered they are becoming more creative.

Munich-based insurer Allianz Real Estate has in the past few years become the poster boy for the growing number of alliances in the European retail sector where equity is married with operational expertise.

At end-September it emerged that the German heavyweight investor had joined forces with UK REIT Hammerson to acquire the Project Jewel portfolio of loans secured against a number of retail assets in Dublin, including the Dundrum Town Centre, Ireland’s top shopping and leisure destination. Under the long-term joint venture structure, Hammerson will own 50% of Dundrum Town Centre and Dundrum Phase 2 alongside Allianz, and act as asset and development manager. In addition Hammerson will own 100% of the remainder of the collateral assets – the Dublin Central Development site, 50% of the Ilac Centre, and 50% of The Pavilions.

‘Allianz has been one of the most prolific retail investors in Europe in terms of its appetite for marrying up with operational expertise,’ according to Jeremy Eddy, international director of retail capital markets at JLL. ‘If you look at the kind of operators they have been partnering with, it really shows the way.’

In addition to Hammerson, Allianz has partnered with a host of European retail specialists including ECE in Germany and Poland, Klépierre (via Corio) in Italy and Altarea in France. JLL advised Allianz on the Project Jewel portfolio deal in Ireland.

According to Eddy, the trend first became visible around 2010 when Europe’s listed retail companies were struggling with large debt burdens and high loan-to-value ratios. ‘Teaming up with a REIT was an obvious and even compelling way for institutional equity to access the market, the marriage of equity and expertise worked well for both parties.’

Public markets are open
The market has changed since then, however, Eddy continued. ‘In 2010, everybody wanted equity, but REITs are now able to raise money very cheaply. The public markets are open, they can raise bond issues at record low coupon rates and they don’t really need equity partners anymore. Institutional investors looking for expertise need to be more flexible when they look for a partner. The value now lies more in the expertise, not the money. Listed retail companies are being run over by potential partners.’

As competition for investment tightens, investors are increasingly looking for alternative ways to enter the market, Eddy pointed out. ‘They are doing this in a number of different ways,’ he added, ‘through equity and expertise joint ventures but also entity deals and M&A. There is a wave of joint ventures and funds backed by major international equity aggressively seeking the right managers and the right operators to partner with.’

While Allianz was one of the first to partner with listed companies, it is by no means the only one staking out new alliances. Over the past few years, the retail market has seen a host of new platforms and joint ventures springing up across the UK and the Continent with Norwegian heavyweight sovereign wealth investor NBIM pioneering the trend through a joint venture in the UK with the Crown Estates in 2010.

North American capital is also making waves in the European retail sector. Canadian pension fund giant CPPIB has been one of the most prolific investors to cross the Atlantic by taking a stake in Helsinki-listed Citycon and teaming up with Paris-listed Unibail-Rodamco in its German development arm Mfi. Canadian pension capital is also backing UK-based Grosvenor’s European high street fund as well as its acquisition earlier this year of the Skärholmen Centrum, one of the largest shopping centres in Sweden. And in another of the biggest retail deals so far this year, a joint venture between Canada’s Hudson’s Bay Company (HBC) and US shopping centre giant Simon Properties acquired 40 department stores in Germany for €2.4 bn.

Chinese capital
Chinese money has likewise found its way into the sector. In July, a partnership of China Investment Corporation (CIC) and asset manager AEW Europe emerged as the winner of the 10-asset Celsius shopping centre portfolio from CBRE Global Investors for €1.3 bn. Also last summer it emerged that Chinese private conglomerate Fosun Property has taken a stake in London-based asset manager Resolution Property to launch a new investment platform focused on value-add opportunities across Europe.

In recent weeks, Amsterdam-based retail specialist Redevco has also joined the fray. At Expo Real, the pan-European retail real estate specialist announced it has teamed up with Hermes, the investment manager owned by the BT Pension Scheme, to acquire €250 mln of retail assets in the largest markets of western continental Europe and the Nordic region. The news came hard on the heels of Redevco’s announcement in September that it had set up a €500 mln retail real estate joint venture in Spain and Portugal with funds managed by Ares Management. Dubbed Redevco Iberian Ventures, the new vehicle will invest in shopping centres, retail parks and high street properties in the two countries.

The Redevco-Ares joint venture may well signal the start of a new trend, Eddy said. ‘Until recently, most partnerships were targeting prime assets at the core end of the market. But as we see a greater pursuit of more return, I think we will see more ventures in the core-plus and value-add sector. The Ares-Redevco joint venture is an indicator of that trend.’

The question we are now asking ourselves is: who's next? If we hear about any new creative retail partnerships in Cannes, we'll report back next week.

Judi Seebus
Editor in chief