Stéphane Theuriau, head of BC Partners Real Estate, has been sharing some thoughts with PropertyEU about the current investment climate, especially the ‘revolution of work’ impacting office investment strategies.
BC Partners is currently in the throes of investing maiden real estate fund, BC Partners European Real Estate I, which has made six investments to date in the UK, France, Germany and Italy. The fund closed in January 2022 vastly oversubscribed at €900 mln and is currently 50-60% invested.
Theuriau said that much of the equity in this maiden fund was technically committed by investors during 2019 before the onset of covid-19. As the pandemic unfolded during the early part of 2020, BC Partners kept hold of the same themes it had shared with investors, including ‘The Revolution of Work’ which suggests a ‘rethink’ of the office as an asset class. But covid served to accelerate the ‘obsolescence’ of work space, so some adaptation and tweaks to the strategy occurred.
BC Partners Real Estate made its first investment in 2019 but effectively paused in 2020. It resumed in 2021 and has continued through 2022.
Theuriau explained: ‘At some point there was a pause as we asked if we were at the beginning of an even deeper evolution, and I think since then there seems to be a growing consensus that offices are definitely needed to perform and compete. But it is also very clear that the old way of occupying offices is no longer valid. To compound it, ESG requirements means companies investing in real estate are doing so on assets that are virtuous from an environmental standpoint.'
‘You could say that we are at the beginning of a huge capex rethinking cycle, which is effectively a combination of ESG and new design. We are considering what functions and architectural programming we need for office space to work, and where offices should be located. And so, for the first time since I have been in this business, frankly we are seeing new locations. We are seeing new hierarchies, and relative values of rents being changed, and we have seen this in London, for example.’
The first investment made on behalf of the fund occurred in November 2019 before covid. This was Wingate House, a 70,000 ft2 mixed use building in London’s Soho area with seven floors of office space and three floors of retail and leisure including the Curzon Soho cinema. This is underdoing a comprehensive refurb carried out alongside local operating partner, Seaforth Land.
After the pause of 2020, BC Partners RE resumed making investments such as Alte Post Kreuzberg, a completely renovated fully-let office building in Berlin with approval for a 1,800 m2 extension, and an office in the Parisian suburb of Issy-les-Moulineaux where the firm acquired a 7,100 m2 asset from DTZ Investors that was developed in 2012 by BNP Paribas Real Estate and is occupied by the company.
In Italy, it has focused on Milan so far where it has made two investments – a office complex in Piazzo Trento where alongside local operating partner, Kervis, it will completely refurbish an office asset into a mix of brand new office space and residential of over 9,000 m2, and separately, a portfolio of offices to be turned into residential apartments for sale.
On the theme of offices, Theuriau said: ‘Office space needs to provide a level of services or functions that answer the question of what cannot be found at home. This might mean more meeting space and much more outside space. Public transportation is also critical.’
‘If you think about office space, it is probably the most standardised of products if you compare a building in New York, Paris, or London. For us, I think what is interesting is that we are not just market players, but we have to be impactful on the product side of the equation. This provides opportunities, but it is also a riskier proposition. Frankly, some investors find comfort in doing the same as before. What we are doing, is tweaking the architecture to do something that maybe has never been done before, but which corresponds to a high conviction play.’
It turns out that BC Partners Real Estate has added entity-level investing to its mix – perhaps no surprise given BC Partners is a buyout firm. Unlike some funds, BC Partners Real Estate can make investments in operating companies should it want to. This might give it an edge.
For example, in 2021 the fund acquired a 70% stake in a French distribution warehouse industrial park and residential developer, Alsei Group. In addition, the fund made a €104 mln investment into French ‘smart hotel’ platform, Edgard Suites, which converts office space into long stay, or short stay hotel rooms and apartments with a strong digital component to it.
Given the firm is trying to make 15%-plus returns from investments, it could be that more entity-level transactions will be forthcoming.
Theuriau also remarks that so far it the fund has stayed away from retail, though the asset class is within its multi-asset class approach.
Meanwhile, other categories of real estate such as medical and life science are of high interest. BC Partners has made private equity investments into the health and science sectors, meaning the real estate team has the added advantage of consulting with the CEOs of BC Partners’ portfolio companies to gain further insights when contemplating investments.
The combination of working at a private equity firm and being experienced real estate investors seems to be suiting the team. ‘We are mixing assets with know-how, expertise, and talented people to make selective investments with discipline, and we have made certain adaptations. This is our story so far,’ concludes Theuriau.
BC Partners Real Estate
BC Partners formed BC Partners Real Estate in 2018. To do so, it hired trio Stéphane Theuriau, Laurian Douin and Thibault Lauprêtre from French real estate group, Altarea Cogedim, which specialised in value-add investments in Paris and its suburbs. BC Partners Real Estate’s debut fund had a target of €500-€700 mln, but shot past this with €900 mln to the delight of the firm.
