With the market slowing and values falling, Primonial REIM is betting on operationally-intensive real estate and asset management to generate value for its investors.
For the past 10 years or more, a combination of low interest rates, good yield spreads and rising values have made it relatively easy for investment managers to deliver on their funds’ strategies. This all changed over the course of 2022, says Primonial REIM’s CEO Laurent Fléchet. ‘What we did over the past 10-15 years is no longer enough now that the market fundamentals have changed,’ Fléchet told PropertyEU. ‘Previously even if investment managers were not doing a very good job, values would still increase. Now we need to work on each asset to create value. If we do not work every day on the assets together with our tenants, through capex and ESG initiatives, values will remain flat at best and this is a big change for everyone, particularly for Primonial REIM which has operations in several European countries.’
To better manage the different country businesses, the group has been shifting power and responsibility to the local country heads, who in the real estate platform’s two largest markets are respectively Peter Finkbeiner in Germany and Grégory Frapet in France. ‘These are the main markets where we want to grow our business, together with Luxembourg where we have a strong team for fund management.’ The European businesses, with teams in France, Germany, Luxembourg, Italy and the UK, was largely set up over the past couple of years, also with the help of former CEO Juergen Fenk, who left in January of this year after ‘successfully laying the foundation of the European platform’.
To coordinate the different country businesses, so that they do not work in silos, is now the role of CEO Laurent Fléchet and Deputy CEO Stéphanie Lacroix. ‘All the organization is focused on identifying opportunities for the development of our assets under management and to create value for our clients,’ Fléchet said. ‘We are totally convinced that companies like ours that continue to raise equity, are in a good position to continue to increase the size of their pan European funds during 2023.’
Primonial REIM saw steady inflows in its retail funds last year, with €2.7 bn of gross equity commitments across all categories. The firm’s institutional funds raised €369 mln of capital last year. Fléchet continued: ‘The main issue today is the level of corporate debt as in fact, many investors cannot invest because they are in the process of deleveraging. We at Primonial REIM on the other hand can do full equity deals as well as big deals, something not many players are in a position to do right now. We’ll also continue to focus on club deals within our institutional business.’
Primonial REIM plans to spend over €3 bn in acquisitions this year, more or less in line with 2022. ‘But we are not focused on this number, we are focusing on our clients. That means that if we are in a position to deliver the performance we promised our clients, we will continue to grow strongly, otherwise not. I am confident however that 2023 will present us opportunities for delivering the returns that our investors are looking for.’
Primonial REIM’s main investment focus over 2023 will be on the healthcare sector, which currently represents roughly 35% of the group’s €35 bn of assets under management. Ideally, this asset class could grow to represent up to 45% of the group’s portfolio in the future, knocking offices from the top spot. ‘We have a very strong appetite for this asset class,’ Fléchet said, ‘As do our investors. This is a quite unique property segment, which showed resilience during the pandemic, and it is not experiencing the level of correction and repricing other sectors are seeing. We are also looking at diversifying within this sector by investing not only in nursing homes but also in private hospital clinics and preventive care facilities.’
Another growth sector for Primonial REIM is hospitality, which currently accounts for 5% of the portfolio and is planned to double to around 10% in the future. The firm entered the sector just before the pandemic and in July 2021 signed a strategic partnership with Hova Hospitality, the hospitality company founded by Dominique Ozanne, the mastermind behind the creation and growth of Covivio Hotels. The two partners’ investment focus is on mid-priced tourist hotels as as B&B hotels rather than business or luxury accommodation.
‘Hospitality is one of the asset classes that offers the possibility to change prices daily as a way to counter inflation. In the current times, this is very important,’ Fléchet noted. ‘Also, hotels have experienced a very strong rebound after the pandemic. We hope our hospitality portfolio will follow the same growth trajectory as we experienced for healthcare assets.’
