INTERVIEW: Hines rolls out €3b development strategy across Europe

US real estate giant Hines is embarking on a new major master-planned development in Europe - its fourth after Diagonal Mar in Barcelona, the former Renault site near Paris and the central Porta Nuova district in Milan.

This time, the privately-held group is betting on the Irish capital which, after years in the doldrums, has recently become one of Europe's fastest recovering property markets, showing both strong rental growth potential and very limited supply.

Hines, which opened an office in the city in 2011, completed the purchase in late 2014 of a 390-acre site in Cherrywood, South Dublin from receivers working for the National Asset Management Agency and a number of banks including Danske Bank and Lloyds Banking Group.

The acquisition, which was carried out with an unnamed partner believed to be US hedge fund King Street Capital, amounted to €290 mln.

Hines is planning a new town ‘the size of Hyde Park’ on the site, according to Lars Huber, CFO and co-head of Hines’ Europe region (pictured below). ‘This project, which has a 35-minute light rail link to the city centre, will completely transform the suburban landscape south of Dublin. It will provide much needed housing, a retail led town centre and involve the completion of the largest out-of-town office park in the city,’ he told PropertyEU.

In total, the development comprises some 4,000 residential units, while the existing 50,000 m2 office park will be expanded to three times its current size. Phase one is expected for completion in the next two to three years, with the final delivery planned for 2022.

‘We do quite a lot of these large developments. We are a private company so we can take a very long-term view and we have teams on the ground with deep knowledge of the local markets. This is our key strength,’ commented Michael Topham, CEO of Hines Europe (pictured below), who alongside Huber oversees the group’s European activities.

Over the past two decades the company has developed nearly 1.5 million m2 across three major European projects in Barcelona, Paris and Milan. ‘Large and complex projects are interesting for us because there is very limited competition. Only a handful of companies have the expertise to handle them,’ added Topham.

NICHE PLAY
Although development has always been a major focus for Hines, it has become even more central in recent years amid plummeting levels of supply and limited availability of core assets. As such, the Houston, Texas-based developer-investor has ramped up its development efforts in Europe to benefit from strong investor demand for core assets.

Traditionally, Hines teams up with institutional players including sovereign wealth funds, pension funds, and insurers, to help fund the projects. In Europe they currently represent a total of 650,000 m2 in the design and construction phase, or a value of around €3 bn.

‘We are active across all the traditional commercial product types, office, retail, residential and hotels, but we also diversify our portfolio with investments in niche sectors, depending on where we are in the cycle,’ commented Huber.

The company is currently expanding into the UK student housing sector and is also considering entering logistics development, he added. ‘We are starting to develop warehouse facilities in Spain where there is an undersupply of good product. There is no particular target in mind - we decide opportunistically on a case-by-case basis.’

Hines is also monitoring Greece for a potential entry, Huber noted. ‘This will allow us to access the market quickly when and if the difficult macroeconomic situation settles down. We believe there is a positive future ahead for Greece.’ The company does not rule out entering the market even in the event the country is forced to leave the eurozone and reintroduce the drachma, he added.

EUROPEAN PROJECTS
Despite its appetite for more alternative sectors, the bulk of Hines’ development pipeline is currently located in Europe’s two core markets, France and Germany. In France, the American developer-investor is focusing on the Western part of the capital city, where it is currently erecting several office towers, either on behalf of investors or on its own.

In the business district of La Défense, Hines has unveiled plans to develop Tour Hekla in a joint venture with Belgian investor AG Real Estate. The Jean Nouvel-designed high-rise building will offer 80,000 m2 in total, reaching a height of 200 metres. ‘This project is in the design phase at the moment,’ Topham noted.

Meanwhile, two other tower projects are being brought forward for third parties, building on the success of Carpe Diem, which was developed for Aviva and Predica, also in La Défense. These include a 54,000 m2 office scheme for occupier Saint Gobain on a site owned by Generali, and the 100,000 m2 Duo Towers in Seine Rive Gauche on the east side of Paris for investor Ivanhoe Cambridge.

In Germany, Hines’ largest project is a nearly 60,000 m2 development in Düsseldorf, which comprises an existing 34,000 m2 core office building and the construction of 21,000 m2 of new speculative office space. ‘We have secured planning and we are now preparing construction,’ Huber said, adding that the €350 mln project represents a partnership with a local pension fund.

In Berlin, Hines has joined forces with another German pension fund to develop Zoo, a 20,000 m2 retail-led mixed-use complex in the western part of the city. The €130 mln project is expected to be delivered at the end of 2017.

Also in the German capital, Hines is currently working on the development of a 150-metre tower in Berlin’s Alexanderplatz including 400 apartments and a 200-room hotel. The rotating structure designed by Frank Gehry is expected to become the tallest residential building in Germany on completion three years from now. The project is expected to require an investment of some €250 mln.

‘We are in final discussions with the city of Berlin and the neighbouring public transport operator and we expect to start construction next year, subject to planning,’ Huber said.