INTERVIEW: Redevco takes a city view to new acquisitions

Redevco is back in the market again with a significant amount of equity to deploy, the company’s CEO Andrew Vaughan of Redevco told PropertyEU in an interview.

'We’re looking for investment opportunities that match our clear focus on retail properties which appeal most to tenants and shoppers as online commerce continues to transform the retail sector.'

Redevco is one of Europe’s largest owners of high street properties but the company had gone quiet on the acquisition front in recent years after a strategic review in 2011 led it to reorganise its real estate portfolio to focus on those assets which it believes will both survive and flourish in the digital revolution that is currently sweeping the high street. Over the past four years, it has withdrawn from certain emerging markets including Turkey and Poland and divested all its non-retail assets. Redevco is now targeting prime buildings on the principal shopping streets of attractive retail destinations across Western Europe as well as shopping centres and dominant out-of-town retail parks across the risk-return spectrum, Vaughan said.

In January, the company acquired a property in Paris, in the 'Golden Triangle' retail district off Avenue des Champs-Elysées, from a private French investor. The mixed-use property, located on 38 rue François 1er, has strong redevelopment potential and comprises a total of 1,670 m2 of space. No financial details were disclosed. In the same month, Redevco acquired a 1,295 m2 building on the main shopping street of Hasselt, Belgium for almost €15 mln. That deal reflects a yield of just under 5%.

Although the two acquisitions in Paris and Hasselt are relatively modest in terms of volume, they are typical of the type of assets Redevco is seeking, Vaughan said. ‘We kick-started the year quite well. These acquisitions send out a good signal for our team and the market. We will be a net buyer for the next couple of years.’

Casting the net wider
Hunters of trophy retail assets tend to confine themselves to cities like London and Paris and possibly Munich and Hamburg, but more knowledgeable and experienced investors cast their nets wider, Vaughan said. ‘There are 10 countries in Europe where we have assets and local expertise. So we can do far more than a few cities. We are also still looking at the Nordics.’

But rather than taking a country view, Redevco prefers to take a city view, Vaughan said. ‘We have done a lot of research on the attractiveness of cities. We have carried out research on 778 cities in 19 countries across Europe with no less than 23,000 data entries on criteria such as the economy, population, local property market and so on. Our City Attractiveness Model provides a huge amount of data but it is a dynamic model which monitors shifts in employment data, GDP growth and a host of other levers. Altogether this ranking enables us to make judgements about the quality of cities and anticipate why certain cities will do better than others.’

‘Soft’ location factors like the number of creative professionals in a city or the number of tourist attractions are increasingly important in determining an urban centre’s overall attractiveness for high street investments, according Redevco's research. In addition to fundamental market drivers such as economic and demographic data, these soft factors can in turn explain differences in rent levels and yields of retail properties in hundreds of European cities, the research found.

The existence of a creative class may not directly increase GDP, but the mere existence of a creative class leads to so many other things, Vaughan said, pointing to a lively cultural and arts scene, restaurants and bars and a buzzing nightlife. 'We have analysed these aspects in our city attractiveness ranking and typically those cities that do have a creative class have far more ingredients to be successful.’

Eight core markets
Primarily, Redevco is interested in the big eight core markets, Vaughan said. ‘We have a large portfolio in Spain and Portugal which performed well during the crisis. We’re currently looking at some value add opportunities. There’s a recovery story in Spain and Portugal, rents have been rebased and retailers are starting to expand there. We see opportunities despite the fact that there is quite a lot of competition.’

The rest of Southern Europe is on the edge of Redevco’s core market, Vaughan said. Redevco spun off its Turkish portfolio to US alternative assets giant Blackstone so a return to that neck of the woods would not be a logical move, he added. ‘We are not currently looking at Italy either. We don’t have a team there and you really need a team on the ground. And there are enough opportunities elsewhere. We are not actively looking at Poland or any further east. Central and Eastern Europe has a different risk profile to the rest of Europe. You can choose to either focus or diversify and we’ve decided it’s better to focus. And we have sufficient diversification in the markets where we are active already.’

While Redevco’s portfolio comprises all types of retail assets including retail parks, high street properties in inner-city shopping centres and downtown locations are a specialty. Vaughan: ‘We’re a firm believer in high streets and our major focus will remain there. We have a long history and specialty in this segment which is typically a fragmented market. And we do everything from smaller stores to trophy assets.’

Redevco is looking across the spectrum for new investments from super prime, generational types of acquisitions, Vaughan said. ‘You can’t ignore the cycles, but we have a long-term horizon and are able to look through them and utilize our expertise. Having said that, with value-add purchases, you do want to get the timing right.’

Larger deals
Vaughan said more deals were in the pipeline for the coming months and years. ‘I fully expect to do larger deals than these in the coming months. We’re looking at a range of options varying in size from €10 to 100 mln.’ As well as becoming a more active buyer, Redevco will continue to be a seller, he added. ‘We will maintain that.’

Both the Paris and Hasselt deals were acquired off-market which is a typical path to purchase for Redevco, Vaughan continued. ‘That’s good for us as off-market means less competition. We’re currently looking at a few things which are a mixture of off- and on-market. But at least half is off-market.’

Asked whether it is currently a good time to buy, Vaughan conceded that returns are ‘tough’ for real estate on an absolute basis. ‘We have seen better periods to buy, but on a relative basis, real estate still in general terms offers good value. Bond yields will remain low, they’re not going anywhere for the time being. Real estate continues to offer good cash returns and inflation protection.’

Monitoring consumer behaviour
Given the constant change in the retail industry, landlords need to monitor their assets on a continuous basis, Vaughan warned. ‘The speed of change has just gotten faster, we are really going through a transformation and it’s really happening fast. The whole retail space is changing dramatically.’

Retail landlords cannot afford to sit back, but at the same time it is becoming increasingly difficult to spot the next trend, Vaughan conceded. ‘Five of the biggest companies 10 years from now haven’t even been invented yet! The future is becoming less predictable and customers are becoming more demanding, more informed and more thrifty. It is difficult to predict the next trend.’

In that context, it is vital to monitor consumer behaviour – and internet platforms - very closely. ‘I’m not saying we’ve found the holy grail, but we try to stay as close to the retailer as possible and to understand their business. It’s not a choice between pure bricks-and-mortar or online retailing. Good retailers in stores are also good retailers online. Of course, there are retailers who are pure play bricks-and-mortar or online – that can work for both. But the most successful retailers are those that successfully blend the two. They really sit side by side and in most cases, consumers are benefiting.’

While it is still early days, some trends are becoming visible, Vaughan said. ‘It’s becoming possible to start plotting patterns. If retailers have a good shopping day on a Saturday, often they will see more online sales the next day. And amid the relentless rise of the megabrands, we’re also seeing the rise of the independents and the farmers’ markets. There’s a huge rise in people who are going back to the basics, who are buying local produce and restaurants who only sell locally grown produce.’


COMPANY PROFILE
In total Redevco has a portfolio of €6.4 bn of which 36% comprises shopping centres and retail parks, 58% high streets and 6% other. The 450 assets under management are spread across the strongest retail concentrations in Austria, Belgium, France, Germany, Hungary, Luxembourg, the Netherlands, Portugal, Spain, Switzerland and the UK. The company employs 220 people around eight offices in Europe. Redevco does everything from buying and selling of properties, asset management, property management, leasing and development, the company’s CEO Andrew Vaughan said. ‘We think we need to have all these capabilities. It adds value to our relationships with retailer and understanding of their business.’ Department store chain C&A currently accounts for just 30% of Redevco’s portfolio compared to 98% 15 years ago. C&A is active in Europe, but also in Asia and South America, Vaughan pointed out. ‘We are not following them outside Europe. We run our business quite independently, and we don’t see a reason to go to other parts of the world. We don’t do that for Inditex, Primark and all the other brands either. We treat them just as we do any other retailer.’