Hermes extends its horizon to Europe with Redevco alliance

UK investment manager Hermes is seeking to boost the share of its global real estate assets to 30% in due course together with international partners, according to the company’s head of private markets Chris Taylor.

Taylor was speaking during a meeting with journalists at Expo Real earlier this month. His comments followed an announcement that the investment manager owned by the BT Pension Scheme has teamed up with Redevco, the pan-European retail real estate specialist, to acquire €250 mln of retail assets in the largest markets of western continental Europe and the Nordic region.

‘At present 85% of our assets are located in the UK, but the aim is to get to a 70-30 split,’ Taylor said. In mainland Europe, the company has just a few retail assets from a deal with Metro in France under which it acquired 43 cash & carry stores on a sale-leaseback basis. ‘We have limited exposure in Europe. For the last two or three years we have been looking more at the US, but we think now is the right time to invest in Europe.’

In total Hermes has real estate assets of some £7 bn (€9.5 bn).

Moderate risk profile
The new 50/50 partnership with Redevco will pursue a core+/value-add investment strategy with a moderate risk profile, Taylor said. ‘Fundamental changes and ongoing developments in retailing present interesting opportunities for a core+/value-add strategy. Teaming up with Redevco gives us a partner that is a like-minded, long-term investor with the intense retail insight locally to deliver the added value from our target markets. I spend a lot of time scouring the world for partners and we feel very aligned with Redevco.’

The two partners will start from scratch without a seeded portfolio, Redevco’s CEO Andrew Vaughan said. He added that there were ample opportunities for repositioning or redeveloping retail assets such as high street stores, retail parks and shopping centres in Europe. The partners would not shy away from development either, he added.

‘We have local teams that can source assets and a lot of contact with retailers at a high level. There’s an awful lot of change going on in the retail industry today and we believe there’s an opportunity for someone like us to find value and use our skills for improvement or repositioning.’

Vaughan told PropertyEU at Expo Real that the partnership would focus principally on Germany and France as Tier 1 countries, as well as the Benelux and Nordics.

‘What we’re really looking at is underlying occupier retailer demand: looking for assets that need either repositioning, developing or redeveloping, where we can use the platform that we have with Redevco with very, very deep contacts with the retailers to understand where the retail demand is,' he said. 'With digital and all the changes of technology fundamentally disrupting retail we think [this] is an opportunity for us to use our platform sitting alongside Hermes to find the right opportunities.’

The partners expect to achieve returns of around 7% or 8%. Amsterdam-based Redevco will advise on acquisitions and manage the assembled portfolio.

The investments will be made over the next 12 to 24 months, Vaughan added. ‘It is a tough market and finding the right opportunities is tough,’ he conceded. ‘But we are already looking at some opportunities this year and we both have a long-term horizon. It’s about doing good deals, not just about putting the money out there.'

More partnerships on the cards
The partnership with Redevco is not the first for Herme. Last year, Hermes and privately-owned Lionstone Investments agreed a $250 mln US office sector joint venture. Taylor conceded that the investment manager was interested in similar European link-ups in other asset classes. He declined to give details, but did say he was looking at a similar joint venture in the logistics sector and that an announcement may be on the cards in the near future.

Meanwhile the alliance with Hermes marks the second for Redevco within a month. In early September, the pan-European retail real estate specialist 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.

Unlike the joint venture with Hermes, Redevco Iberian Ventures will be seeded with a combination of assets in the Iberian peninsula from funds managed by Redevco and Ares that have a combined value of approximately €110 mln. Redevco will manage the joint venture and its assets.

The two partnerships with Ares and Hermes mark a major turnaround for Redevco. In the wake of the crisis, the Amsterdam-based company controlled by the Brenninkmeyer family and owner of international clothing retailer C&A, pulled out of markets it considered more risky including Turkey, Italy and Poland. The firm currently manages around €6 bn in retail assets around Europe for its own account.

At the time, Vaughan told PropertyEU that the partnership with Ares was an important step for the company to build its third-party real estate investment management business. The move is not just about spreading risks, he added.

‘A joint venture forces you to become more transparent and accountable, that is very good for the business. And we want to learn from others. We are looking for partners with equity and experience, with the same level of professionalism that we have. We are not interested in passive investors. We want to do the same as we have always done but with a different funding structure.’