Todd Everett, global CEO for Principal Real Estate Investors, has said he is happy with the acquisition of Internos, which led to the creation of Principal Real Estate Europe two years ago.
Everett spoke to PropertyEU in the wake of the recent launch a new Real Estate Operating Company (REOC), which will invest in US operating companies as well as those in Europe for the first time.
The company has hired John Kropke to lead the effort in both the US and Europe, as previously reported.
Everett said Europe was the first thing that would be different for REOC. ‘With the acquisition (of Internos), it has really enhanced our ability to conduct the strategy in Europe. We could not have done it before.’
He added, ‘It is very important to have the infrastructure that can be leveraged when implementing a REOC strategy; the local and pan European market knowledge is really essential to seek the best opportunities and operating companies.’
The previous REOC strategy was eventually wound down towards the end of 2018 after a successful run. Strategies revolved around necessity-based real estate extending to the ecommerce theme for industrial and some student housing.
By taking an entity-level investment into an operator, investors can control the transaction pipeline given the direct and exclusive access.
In some cases, investors can even hope to benefit from lower fees than perhaps for another structure such as a separate account given certain scale that can be achieved. The previous REOC grew to an impressive $9 bn.
The relaunch is complimentary to other investment strategies offered by Principal such as direct real estate investing and exposure to public REITs.
‘We are investing for growth and looking forward very strategically to a dislocated market, which presents opportunities,’ said Everett.
‘We would have launched this at any time, but it is very opportune. There will be situations in which real estate operators will be seeking capital.’
Some operating companies might need to delever their balance sheet or build for future growth or even pursue delisting opportunities.
Market segments
The strategies for the relaunched REOC programme could be more diverse than the predecessor given market dislocation and the expanded geographic remit to include Europe.
The strategy can be summed up as seeking to invest in best-in-class sharp-shooter operators.
Though too early to say, Everett guesses that REOC will be slower to deploy in covid-disrupted asset classes such as hotels and retail and to some extent even offices until price discovery becomes clearer.
Industrial on the other hand is covid-assisted, meaning investment opportunities into that sector can begin immediately.
Data centres are also attractive.
In the US, multi family is proving resilient in that rent collection and occupancy levels remain high within the firm’s existing portfolio.
The company is looking at other asset categories such as life sciences and self-storage not just for the REOC programme but across real estate.
Since the acquisition of Internos in 2018, Principal has integrated operations, brought US capital to Europe, enhanced consultant relationships, and redesigned its flagship European fund to have broader appeal to global capital with enhanced tax characteristics, and has launched new funds and separate accounts. Notwithstanding complex European regulations, the company is pleased.
Andrew Thornton and Jos Short have continued to run Europe as CEO and chairman respectively.
‘We have been thrilled with the investment expertise, staff and alignment we have had with our leaders in Europe. We want to grow it and gain more scale,’ said Everett.
Principal manages or sub advises on $78.6 bn of assets. It has €4.33 bn of assets under management in Europe, of which €2.85 bn is managed by Principal Real Estate Europe and affiliates.
