Editor's Choice: The mix becomes increasingly global

Middle Eastern investor Investcorp is the latest in a long line of high-profile, inter-regional capital sources to be attracted to Europe's vibrant real estate sector over the last 12-24 months.

This week the Bahrain-based alternative investment product manager announced its European initiative is being spearheaded by Neil Hasson, a property veteran with three decades of experience in the industry. In one of his more recent positions, he served as senior managing director at Macquarie Group, where he was responsible for the firm’s European real estate lending business.

Based in Investcorp's London office, Hasson will initially focus on core-plus opportunities in residential and commercial properties across the UK, Germany, France, Italy and Spain. He won't come back into the market empty-handed. Investcorp has $10 bn (€9 bn) of assets under management across a range of asset classes on behalf of high net worth individuals and institutional clients.

Investcorp's long-established US real estate business provides a clue as to how things could develop on this side of the Atlantic. The Middle Eastern investor describes itself as one of the biggest foreign buyers of US real estate. In the past year alone, it closed student housing, residential and commercial property deals, valued at $1.5 bn. ‘Investcorp has long served its client base with global and diversified investment products - entering European real estate is the next logical strategic step,’ Investcorp executive chairman Mohammed Al-Ardhi said.

More non-European investors
As prices rose further and the spectre of bubbles appeared in some segments and cities, Europe saw a record of €300 bn of real estate transactions during 2015, according to Real Capital Analytics (RCA). Of that figure, investors based outside of Europe were responsible for a record-breaking €95 bn - or 32% of the total.

Interestingly, that division is roughly in line with PropertyEU's latest ranking of Top 100 Investors, based on 2015 European transaction volumes. Due to be published at the Mipim real estate fair in Cannes next week, the ranking captures €182 bn of investment and €120 bn of disposals - with non-European players claiming no less than 40 places in the list. North American investors account for the largest share of non-European investment, with 32 firms generating €55 bn of acquisitions and almost €45 bn of sales. Five Asian and three Middle Eastern investors make up the rest of the non-European group.

In recent weeks, we learned that Europe’s attraction extends even further and has now drawn the South African rand into the mix of global capital targeting real estate in this part of the world. Unlike most non-European investors that head first for the UK, South African REIT Redefine Properties went straight into Central and Eastern Europe. In March, the Johannesburg-listed company took a 75% stake in Polish developer Echo's €1.2 bn portfolio.

The deal was record-breaking on several levels: it was the single largest offshore property transaction by a South African property company; the largest-ever real estate investment deal in Poland, and the largest-ever single deal of income-generating real estate assets in CEE. Redefine is not the only South African company that has recently arrived on European shores. Earlier this year South African firms Hyprop, and Atterbury Group and Attacq carried out shopping mall deals in Serbia and Montenegro.

Given the rush of South African deals so far this year, it seems safe to assume that it won't be long before South African players will penetrate our annual Top 100 Investors. The ranking has already changed colour this year as the Asian delegation moves into a new phase of European investment. Take Fubon Life for example which features in 88th place in our latest Top 100 Investors ranking for 2015 thanks to acquisitions in London last year. The Taiwanese insurer has now landed in continental Europe and in February bought the Ellipse building in Brussels.

M&A deals
Another trend that has emerged from our latest Top 100 Investors publication is the high level of platform building through corporate merger and acquisitions. Key examples include Klépierre’s €7 bn takeover of its smaller Dutch shopping centre peer Corio and Deutsche Annington incorporating Gagfah to create a new German residential landlord giant called Vonovia.

The M&A trend appears set to continue in 2016. On 8 March Stockholm-listed property firm Castellum confirmed reports it is considering a bid for company Norrporten and its €2.7 bn portfolio of Swedish office and retail properties.

The move appears well-timed. Norrporten is owned by AP2 and AP6, two of Sweden’s buffer funds that are fuelled by national pension contributions and which tend to be long-term holders of investments. However, there are rumours Norrporten is in the process of preparing an initial public offering. A sale to Castellum would give its owners a quick exit without the risks associated with a public listing.

The AP funds – oddly there are only five, numbered 1-4 and then 6 – have already become more active on the platform-building front and a sale of Norrporten rather than an IPO could be a real option.

Last August, AP2 and AP1 agreed to roll up Cityhold, their pan-European office investment platform, into a new joint venture with US investor TIAA-CREF. AP 1 and AP2 established Cityhold in 2011 - with a little help from Catella - to acquire up to €1.1 bn of core office properties in Europe and hold them for up to 40 years. It therefore came as a surprise to many when the tie-up with the Americans was unveiled last summer. On the other hand, the new joint venture - Cityhold Office Properties - allows the Swedes to move far beyond their original ambitions. The new company, managed by TIAA’s property platform TH Real Estate, is seeking to build up a €4 bn-plus pan-European office portfolio.

While it is still too early to say whether 2015 marked the peak of the current European real estate cycle, one thing has become very clear in the past 12 months. The big players that are building long-term platforms will dominate the European real estate landscape well beyond the current cycle.

Cormac Mac Ruairi,
Deals Editor