PGIM Real Estate is in talks on a number of European office deals that fit with a key global ‘high conviction’ investment strategy, a senior member of its management team has revealed.
Philip Barrett, global head of business and investment operations, said the transactions demonstrated how the company saw opportunity in capitalising on accelerated income growth at certain office properties and locations that should also provide downside protection in the event of any downturn.
The challenge in today’s market, he said, was that vacancy was not being ‘given away for free’ since so much capital was chasing real estate in the main cities. That is causing PGIM Real Estate to think a little ‘outside the box in terms of location’, he explained.
A European example of this global philosophy is M Campus, which PGIM Real Estate acquired in May on behalf of its pan-European value-add fund alongside Finnish insurance company Varna, for a reported €256 mln. The 45,000 m2 six-office campus is in Meudon on the outskirts of Paris near the Boulogne Trapèze office district. The buildings were completed in 2006 and possess some degree of vacancy. Two of the assets have been recently renovated.
AXA Real Estate Investment Managers and Norges Bank Investment Management owned the asset as part of seven properties AXA acquired in and around Paris, which then got inserted into a €1.4 bn joint venture allowing Norges to own a 50% stake.
PGIM Real Estate’s pricing took into consideration one of the tenants being Dutch international digital security company Gemalto, which had issued a series of profit warnings. Fortuitously, French defence electronics group Thales agreed a €4.8 bn takeover of Gemalto while PGIM was finalising the acquisition.
The takeover is set to complete later this year, though The European Commission is currently conducting an in-depth investigation into the deal on competition grounds.
In Frankfurt, PGIM Real Estate has also been playing into its conviction-based office theme. Again for its value-added fund, PGIM Real Estate is backing the redevelopment of a vacant block on Jungofstrasse in the city’s banking quarter which it acquired in December 2016 and is now more than 60% prelet to Clifford Chance, Ruby Hotels and L’Osteria.
Demolition work on the 33,000 m2 Junghof Plaza has commenced, and on 16 August this year PGIM and its investment partners, an unnamed institution and developer FGI, agreed to forward sell it to Patrizia-owned Triuva for €400 mln. Triuva is buying Junghof Plaza on behalf of a German institutional developer.
It is said that in Germany, there is a spate of domestic players beginning to forward-buy development assets rather than pay market prices when such projects are completed in 18-24 months’ time.
