Investor appetite for retail assets has been strong since the onset of the global financial crisis and so far this year they have been flying off the shelf across Europe - and increasingly in more far-flung locations.
Investor appetite for retail assets has been strong since the onset of the global financial crisis and so far this year they have been flying off the shelf across Europe - and increasingly in more far-flung locations.
Orion Capital Managers is one of the latest players to snap up a regional mall in the UK with the purchase of the Trinity Walk centre in Wakefield for its new opportunistic fund. The financial details of the acquisition by Orion’s European Real Estate Fund IV were not disclosed, but the transaction volume is believed to be around £150 mln (€180 mln).
Headed by Van Stults, Aref Lahham and Bruce Bossom, London-based Orion is spearheading a new wave of opportunistic investment by pan-European boutique firms after raising €1.3 bn at end-2013. The number of larger or mid-sized opportunistic funds raised by home-grown players has been very thin in recent years. Another notable exception is UK-based peer Tristan Capital Partners which recently capped the final equity raise on its EPISO 3 value-add/opportunistic fund just short of the €1 bn mark. Tristan’s new value-add/opportunistic fund generated €950 mln, exceeding its original fundraising target by 25%.
So far, US players of the likes of Blackstone, Lone Star and Starwood have dominated the opportunistic real estate arena in Europe and their numbers continue to grow. Earlier this week, US investor Sentinel Real Estate announced it is opening a new office in Amsterdam, which will be led by Dutch-born Max Berkelder, the former director of fund manager Ibus.
UNDERCAPITALISED OPPORTUNITIES
Despite the growing number of opportunistic initiatives, the European real estate arena remains seriously undercapitalised given the scale of the distress in the region, claims Joe Valente, head of global research at JP Morgan Asset Management. ‘The degree to which the opportunistic segment of the market remains under-capitalised in Europe is quite extraordinary given the set of economic and market circumstances that have come together,’ he told PropertyEU in a recent interview.
Citing a study by EREI, Valente pointed out that there are currently 26 opportunistic players in Europe which together have raised about €14 bn. ‘Let us assume that they are all equally successful with leverage, say 60% on average. This implies a total firepower of around €20 bn. That is €20 bn chasing an investment opportunity of around €250 bn!' The €14bn which opportunistic funds are looking to raise in Europe also pales into insignificance compared to the €84 bn currently targeted for core funds in Europe, he added. ‘And that is a segment of the market which is already fully priced.'
If local investors are too weak in the knees to snap up the opportunities in Europe, others will no doubt do it for them. As Jan Willem Bastijn, head of EMEA capital markets, Cushman & Wakefield, pointed out in a recent PropertyTV interview, real estate investors from all corners of the globe are eyeing European markets in 2014. As a result, the huge weight of money will likely drive more than a 13% increase on last year's volume of about €178 bn, he said.
Last year’s figure was already up 23% on the previous year, and according to C&W's latest International Investment Atlas, there is a lot more to come. 'This is a global report but clearly if you look at Europe you can see the markets have caught fire again. The investment climate has really changed in the last four to five months.' Bastijn claims that the money is coming into Europe from all sources around the globe: Asia-Pacific, the Middle East, North America, South America and even South Africa. 'The European markets are back in liquidity at a level not seen for many, many years.'
ASIAN WAVE
Interestingly, one of the waves of Asian investment heading for the UK and Europe has a strong focus on development, according to Terence Tang, managing director of Colliers International in Singapore. Due to cultural and tax reasons, most investors from Hong Kong and Singapore initially target London which is by the most transparent market in Europe in their search for residential-led mixed-use schemes on fringe locations.
Speaking at a recent PropertyEU Investment Briefing at Mipim hosted by Colliers International, Martin Wright, real estate partner at London-based law firm Mayer Brown said he foresees a number of Taiwanese investors arriving in London this year while more established Asian investors may move further out into the UK regions and cities such as Edinburgh, Leeds and Manchester. He claims a lot of Asian money looked at Germany last year, but noted that a lot of cities don’t have the liquidity Asian investors are looking for. However, his firm has noted an increase in enquires about more opportunistic markets such as Spain, Italy and the Netherlands. ‘Investors are in the process of looking at these markets,' he said.
With availability of stock currently being seen as one of the biggest challenges facing the European real estate industry in the next 12 months, it is easy to understand why the likes of the recently formed TIAA Henderson (from TIAA-CREF and Henderson Global Investors) and AEW Europe feel relatively upbeat for the prospects of the fund management industry. Asian investment in European real estate funds is set to grow massively in the next few years, Rob Wilkinson, the incoming CEO of AEW Europe, told PropertyEU in a recent interview.
Up to now, most of the sovereign and institutional capital coming out of Asia has followed the direct real estate route, either through a third-party investor or via a joint venture and there has been just limited activity in funds. But as the market matures and smaller players enter the fold, structured vehicles will become a more evident choice, Wilkinson said. ‘What we have seen so far is just the tip of the iceberg. We’re only at the beginning of what we will see in the fund sector in the next 5, 10, 15 and 20 years.'
Judi Seebus
Editor in chief
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