TOP INVESTORS JP Morgan AM aims to treble investment volume in 2016

JP Morgan Asset Management – Global Real Assets is ringing in the New Year with a renewed focus on value-add deals, according to Peter Reilly, CEO and head of real estate Europe and Joe Valente, head of research and strategy for the European real estate group.

The firm aims to treble its investment volume this year in Europe this year, they added.

In December, JP Morgan Asset Management – Global Real Assets announced that it had raised €746.6 mln for its third closed-end European property fund, 25% above its initial target. The fund will invest in offices, industrial, retail and residential properties. In particular, the fund will home in on properties where intensive management strategies can substantially enhance value.

In the final month of the year, the group acquired a portfolio of two assets in Berlin and Hannover for an undisclosed sum on behalf of the new fund. The portfolio consisted of an office property in Berlin Wilmersdorf occupied by Arvato and LBB. It also included a 21,500 m2 office property in Hannover next to the main train station, which is occupied by Deutsche Bahn.

Also, in November, JP Morgan Asset Management acquired Foundation Park in Maidenhead in the UK from UK real estate fund manager Frogmore for £55.4 mln (€72 mln) on behalf of one of its funds. The out-of-town business park totals 24,155 m2 across eight buildings and is let to tenants such as Johnson & Johnson and Lexmark. Frogmore was advised by CBRE. Leasing agents for the Park are Cushman & Wakefield and Colliers. The group also did one ‘big ticket’ deal of £130 mln in 2015, although no details have been disclosed.

Here, Reilly and Valente outline their investment plans for the year ahead.

PropertyEU: What is your current investment strategy?

Reilly: Our investment strategy is to look at how underlying property markets are evolving and how capital markets are evolving and to marry them up in terms of where there are the highest risk-adjusted returns. In the previous cycle right after the financial crisis, the best risk-adjusted returns could be found in gateway cities in Europe. That opportunity hasn’t existed for the past two and a half years. We’ve migrated into more risk, more active asset management, refurbishment and positioning. We see the best opportunities in value-added properties and we think that capital markets are mispricing those assets.

Valente: You have to ask the question, where in the market do I get overpaid for risk?

Reilly: We typically will invest between €500 mln to €1.5 bn per annum. In the last 12 months, we were mostly focused on smaller, value-add transactions and invested about €500 mln. However, we could invest up to €1.5 bn in 2016.

PropertyEU: How much would you like to invest on behalf of your latest closed-end European property fund next year?

Reilly: Our new fund can invest up to €3 bn in Europe. I think we could invest €1 bn gross on behalf of this fund next year. The main focus will be on the UK, France and Germany. These markets have represented about 75% of our investment activity in Europe over the past 15 years. It’s partly because they are the most liquid markets and when you have an eye to exit, issues such as the liquidity and legal framework come into play. That said, we will consider investment in any EU country. We’ve already invested almost €220 mln across six deals, or 30% of our third European closed-end fund, including deals in Berlin and Paris.

PropertyEU: How would you describe your investor base?
Reilly: Our main investors across our funds are global institutional investors, such as pension funds and insurance companies, as well as endowment funds and SWFs.

PropertyEU: What are your top investment picks for this year?

Valente: There are still some good opportunities out there. German residential is particularly interesting, although I wouldn’t make a case for it across Europe overall. Amsterdam looks interesting in general. There are hotspots where there is still a decent story to be had.

JP Morgan Asset Management – Global Real Assets fact file
Assets under management: $87 bn as of end-June 2015.
Country of origin: US
CEO of real estate: The group is run globally by Joe Azelby, head of global real assets, JP Morgan Asset Management. In Europe, Peter Reilly is CEO and head of real estate Europe for JP Morgan Asset Management – Global Real Assets.