INTERVIEW New BMO retail fund to focus on 'ultra-core' assets

BMO Real Estate Partners' new pan-European retail fund, which has secured €150 mln of equity from German institutional investors, will target 'ultra-core' assets in capital cities, fund manager Ian Kelley told PropertyEU in an interview.

The fund, Best Value Europe I, will focus on prime high-street retail properties and shopping arcades in capital cities across Europe and be targeted at German institutional investors. Structured as a KVG special fund, the vehicle has secured €150 mln of equity and is targeting €350 mln which, with 50% debt, will give it fire power of up to €700 mln. One property in Paris has already been acquired and final negotiations for other assets are under way.

‘It will be an ultra-core fund,’ Ian Kelley, BMO’s new European fund director and head of France, told PropertyEU. ‘By ultra-core I mean the Louis Vuitton building on the Champs Elysées or equivalent. It’s basically a location whereby the chances that the property value will decrease - even in a downturn - are minimal. In fact they are locations which investors will flock to in a downturn because they are the safest places to be. The chance of vacancy is close to zero. They are locations which have been prime for the past 50 years.’

In practice, the focus entails BMO REP looking at crème de la crème properties in the three-four prime shopping streets in each capital city, said Kelley. The fund is targeting returns of 4% over a 10-year life span, making it ‘very competitive’ at a time when financing conditions are attractive and markets are rising, he added.

Off-market deals
Kelley said that with eligible properties in extremely short supply, the Paris-based team will seek to source assets off-market, entering into talks with the owners, in many cases family-owned businesses or private investors. ‘Many will consider a possible sale in a rising market if they can get an attractive price.’ Kelley, a French American who has lived in Paris for the past 27 years, said he had built up ‘great network’ of contacts across Europe during that period which would stand him in good stead in building up the business.

‘I’ve dealt with a number of independent and smaller brokers for a long time who have good local contacts. In many cases the owners are open to having a discussion, on condition it remains very discreet and that we tailor the transaction to suit their needs.’

Best Value Europe I is an extension of BMO Real Estate Partners’ existing Best Value series focused exclusively on Germany (Best Value Germany I and Best Value Germany II).

The new vehicle will have 10-12 investors, many of whom also took part in the previous two German funds. ‘We will be very much supported in setting up and managing the fund by the BMO team in Munich, led by Iris Schöberl.’

Kelley and his team will prepare a follow-on fund to Best Value Europe I in 2016, as part of plans to expand the business across Europe in the coming years. In total, the Paris office is targeting investments of around €1.7 bn by 2020. The Paris office will be expanded to deal with the increased business, from two at present to five next year, and two new FTE’s every year until 2020.

‘We’re not looking to have a very large team, we’re focused on the larger assets and finding portfolios,’ Kelley said. ‘The team is focused on high-level asset management, other services like property management will be outsourced.’

Fund experience
Kelley was appointed in May to head up BMO Real Estate Partners’ new office in Paris. Together with newly appointed European portfolio manager Adrien Brion, he will support the firm’s existing teams in the UK, Germany and Ireland that manage €9.4 bn in property assets.

Commenting on his new role, he said he expected to devote 90% of his time to the European role and 10% to France.

Kelley previously worked for CBRE Global Investors for 10 years, where he co-launched several pan-European funds with a market value totalling over €2.5 bn. Before that, he held roles at Unibail-Rodamco and Bouygues Immobilier, gaining experience in retail and office development, and at Polo Ralph Lauren, where he was responsible for retail development across Europe.

BMO Real Estate Partners describes itself as an ‘investment boutique and property specialist’ within BMO Global Asset Management, the €225 bn asset managment arm of New York-listed Bank of Montreal. BMO acquired UK fund manager F&C REIT in 2014 to transform it into the Canadian group’s EMEA business. F&C REIT was rebranded as BMO REP in July this year. Besides funds and listed trusts, the firm also invests on behalf of segregated accounts.

‘There’s a pretty big difference between the mainstream real estate fund managers and boutique investment houses like BMO,’ Kelley said. ‘The speed at which we act is much faster and the quality and broader skill sets of the teams make us altogether a more flexible organisation. We’re launching a fund five months after I joined, which is something I’ve never seen before.’