Gaw Capital to invest €1.4b in Europe this year

Hong Kong-based real estate private equity group Gaw Capital is on a drive to invest £1 bn (€1.37 bn) in European real estate this year, with the UK accounting for the lion’s share of investment, according to Goodwin Gaw, chairman and managing principal of Gaw Capital.

‘We have invested around £1 bn in Europe in the past 12 months via our own accounts and separate mandates. Given the low interest rate environment, we are hoping to invest at least as much again this year, of which at least 50% is likely to be in the UK,’ he told PropertyEU.

Gaw Capital’s interest in the UK is driven by its strong economy as well as growth in the tech sector. ‘I think growth in the UK will outpace the rest of Europe this year,’ he said. The UK economy is expected to grow by around 2.4% this year, compared to growth of around 1.2% in the eurozone.

Gaw Capital has helped a number of Asian investors to make the leap into European real estate investment in the past two years, most notably Chinese insurer Ping An. In January, it advised Ping An on its acquisition of Tower Place, an office complex in London’s EC3 insurance district for around £327 mln.

It marked the second significant deal in London for China’s second-largest insurer in the past 18 months. In July 2013, Gaw Capital also advised Ping An on its acquisition of the iconic ‘inside-out’ Lloyd’s Building in London for £260 mln. The deal reflected an initial yield of 6% and marked the first real estate deal in the capital by a Chinese insurer.

First port of call
London is an obvious first port of call for Asian investors because it is one of the easiest markets in the world to buy into because it’s so liquid. ‘For core investors, such as Asian insurers, the key markets are liquid, gateway markets, such as London and Paris. London still ticks all the boxes,’ Gaw said.

Nonetheless, some Asian investors are also starting to hop aboard the regional cities bandwagon as competition in London intensifies, says Gaw. ‘Investors are starting to move outside gateway cities to some regional cities in the UK although they tend to still focus on prime assets there,’ he said. ‘Trophy assets in core locations are always going to be a hit, though. Outside big cities, liquidity falls off quickly and I am very mindful of that.’

As befits a private equity group, Gaw Capital has high target returns. The firm’s separate mandates typically have a target annual IRR of between 9% and 12%. Its funds, however, have a target annual return of between 15% and 20%, according to Gaw.

Germany on the radar
Unsurprisingly, Germany is also increasingly on the radar, although Gaw notes that prices are getting ‘too high’ in some of the ‘Big 6’, including Munich. ‘We’re a big fan of Berlin, though, and have been growing our presence there over the past five years. The city has a great vibe and it’s very international. We like offices, retail and residential assets there because they offer great returns.’ Gaw Capital is less interested in hotels in the German capital because hotel prices are the cheapest in any capital city in Europe, ‘so it’s hard to make money from them, especially given that the workforce isn’t cheap’, said Gaw.

However, Gaw Capital is targeting hotels elsewhere, notably in London and Paris, he said. ‘Hotels in gateway cities such as London and Paris are very attractive to Asian investors because they allow them to deepen their European hotel footprint whilst providing services that they know appeal to Asian visitors.’

Asian investors took Paris’ hotel market by storm last year, accounting for almost half of all deals, just two years after their first foray into the market. They accounted for 47% of the €734 mln in hotel deals in Paris in the first 11 months of 2014, according to JLL, compared to just 17.1% of deals involving European investors.

Spain and Italy
For investors prepared to go higher up the risk curve, Spain and Italy are firmly on the agenda, according to Gaw. ‘Value-add investors have different priorities, so they are looking at markets such as Spain and Italy because they offer good opportunities. However, they are smaller markets, so we prefer to do deals with local partners.’

In general, Gaw Capital is keen to invest in the office sector in Europe because it is a sector it knows well. ‘We also acquire retail assets but we prefer high street retail to shopping centres because we think the dynamics are better. We are looking at residential development both in the UK and continental Europe,’ Gaw said.

Gaw Capital also manages three Gateway Real Estate Funds in Asia with around $6.2 bn of AUM as of end-December 2014 in markets such as China, Hong Kong and Vietnam. In total, the group had around $8.7 bn of AUM globally as of end-December 2014.

Sara Seddon Kilbinger
Correspondent German-speaking countries