‘Making the private public again to create a community’

The 600,000 sq ft mixed-use Devonshire Square real estate project in London is all about opening up access to a previously closed-off area and creating a meeting place to draw the local community in

David Kaiser, Senior Director, Real Estate, WeWork

David Kaiser, Senior Director, Real Estate, WeWork, tells Real Estate Day about their 600,000 sq ft mixed-use Devonshire Square real estate project in London, which is all about opening up access to a previously closed-off area and creating a meeting place to draw the local community in


Contact the editor here.

Institutionalisation of RE: BTR

In this series, we explore the progress key ‘alternative sectors’, have taken towards asset class maturity. In part two, we continue our closer look at the UK BTR sector.

Fellow insurers Legal & General, Aviva, AXA IM – Real Assets soon followed M&G’s lead, as did listed investors including Grainger, PRS REIT. In mid-2015, private equity capital joined the fray with Lone Star’s £700m acquisition of Quintain, one of the UK sector’s early pioneers along with Sigma and Long Harbour.

Dan Batterton, Fund Manager BTR, LGIM Real Assets, explains:

“Relatively speaking, this market is in its infancy.  For many institutions, in order to assess the risk and reward of their investment, they require access to high-quality data.  For BTR, it’s the operational data which is the most valuable, so as more assets come into operation and the data becomes available we will see more deals emerge.  But the reality is that we are five years away – maybe longer – from being able to provide data that can demonstrate a correct and fair assessment of value. 

“For the large annuity and liability matching investors, like Legal & General, the credit rating will depend on the strength of income cash flow, so if the cash flow can be correctly rated then the size of the potential investor market will see significant growth.  We need to show that this asset class can offer low risk and steady growth returns over the long-term. 

“Along with access to high-quality data, in order for BTR to reach maturity and become a viable asset class there needs to be liquidity in the market. At the moment, there are buyers but limited sellers – we need a sufficient pool of assets to see regular deals.

“But ultimately, in this sector, operators will only really succeed if we can deliver on the quality customer service that the BTR model is built on. The customer experience is key.” 

The liquidity issue remains a significant draw back and best exemplified by Lone Star’s aborted sale of Quintain, in a thin bidding process led by Delancey last September. Lone Star wanted £2.2bn for Quintain, which owns one of London’s largest urban regeneration sites at Wembley Park, but did not get close enough to close the deal.

Overall, the BTR sector remains immature but it is developing fast. Operational BTR stock increased by 26% in 2018, according to Savills, while the amount under construction has increased by 33%.

This rapid growth highlights the momentum of the sector which continues to attract significant investment, from both overseas and domestic institutional investors. Much more to be done, but as new players continue to enter the market, liquidity should increase, helping BTR transition to the next stage of maturity.

In tomorrow’s third instalment, we turn to another sector: healthcare.

james.wallace@realassetmedia.com

‘Investors have to work harder in Germany’

Both domestic and international investors are broadening their horizons and having to work harder to find opportunities in an increasingly competitive German market

Christiane Conrads, Head of German Real Estate Desk, PwC Legal AG, Thomas Kaechele, Director: Head of Germany, M&G Real Estate, Peter Mussaeus, Partner I Energy Law, PwC Legal AG, Christian Kadel, Managing Director, Head of Capital Markets, Colliers International and Arnaud Malbos, Vice President, Investments, Europe, Ivanhoé Cambridge discuss the Real Estate Investment market in Germany. Filmed at MIPIM 2019 by Real Asset Media.

Both domestic and international investors are broadening their horizons and having to work harder to find opportunities in an increasingly competitive German market, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held at MIPIM in Cannes.

‘You have to kiss a lot of frogs to find a good opportunity,’ said Thomas Kaechele, Director: Head of Germany, M&G Real Estate. ‘Investing has become harder in Germany, you really have to know your market and broaden your investment strategy’.

Competition is increasing from domestic as well as international players. ‘The context is much more competitive,’ said Arnaud Malbos, Vice President, Investments Europe, Ivanhoé Cambridge. ‘In some places you can be lucky and have rental growth, but you have to look at value-add, opportunistic strategies’.

Institutions like Union Investment are branching out into the student housing sector and others are actively looking at alternative asset classes.

‘We are widening our investment platform to student housing, all alternative sectors and value-add,’ said Kaechele. ‘We used to buy cheap, work hard, sell for a decent price. Now we buy expensive, work hard to justify the expensive price and then sell for a rather moderate deal. Value-add is the new core because after taking a lot of risk and doing a lot of hard work maybe you get 50-60 basis points more’.

Even cautious Asian investors are taking the plunge, said Christian Kadel, Managing Director, Head of Capital Markets, Colliers International: ‘I have seen an interesting change in their risk profile. Asians who in the past were very conservative have gone up the risk curve, while US investors, who by nature were more on the opportunistic side, have moved to the core sector’.

Some markets have really ‘dried out’, he said, so ‘you need to be much more creative to find sites to develop conversion schemes, from retail to office’.

Development has been made harder by scarcity of land and rising construction costs. ‘On the development side all the low-hanging fruit has been picked, you now you have to work that much harder to find profitable projects, but they do exist and they are worth finding,’ said Melike Wirth, Executive Board Member, Projektentwicklung. 

Investors can also find opportunities in less obvious sectors like energy, exploiting the trend for the decentralisation of energy systems and new stricter laws that are being introduced, said Peter Mussaeus, Partner, Energy Law, PwC Legal.

‘It is in the DNA of Germans to regulate everything, but the good news for real estate companies and managers is that is easier to make money with a highly regulated, standardised commodity business,’ he said. ‘Big housing companies already make money by offering their tenants energy supply contracts.’


Contact the editor here.

‘The UK is a great place to start and grow a Proptech company’

Matt Partridge about his plans as the new chair of the UK Proptech Association, a non-profit organisation, to create a forum, to introduce free membership for companies and investors and promote the UK’s advantages as the place to be

Matt Partridge, Founder & CEO, Infabode

Matt Partridge, Founder & CEO, Infabode, tells Real Estate Day about his plans as the new chair of the UK Proptech Association, a non-profit organisation, to create a forum, to introduce free membership for companies and investors and promote the UK’s advantages as the place to be


Contact the editor here.

Institutionalisation of emerging real estate sectors

Emerging real estate sector, the often dubbed ‘alternative sectors’, have experienced rapid growth in recent years, driven by a range of structural forces driving demand in markets where supply is constrained.

Over the course of this week, we will take a look at what it means for emerging property sectors to become mature or institutionalised, with a focus on three standout nascent sectors in particular: Build to Rent (BTR), healthcare and retirement living.

Each of these sectors are at a different stage of maturity and benefit from different structural drivers. So, what makes an asset class institutionalised? Here are an outline worth considering: 

  • Attract institutional capital (equity investors, debt providers & financial intermediaries);
  • Professional management of assets, including:
    1. Research-driven investment strategies;
    2. Asset management and portfolio management;
    3. Portfolio monitoring;
  • Data, including frequent independent valuations, transparent performance measurement, and a liquid transactional market;
  • Investment reporting (including leasing, transactions, financing, market value accounting, etc); and
  • Digitalisation.

In this first article we start to consider to what extent each of these alternative sectors have reached maturity and how much further each need to go before they can be considered truly ‘institutional class’ sectors.

Build to Rent

Institutional investment in the UK residential property market was a slow burn for decades and then, since 2012 has gathered incredible momentum. It has been driven by declining home ownership, as changing lifestyle choices and tightened mortgage regulation have supported rental demand and, in turn, residential capital growth.

Strong price has further been supported by the demand and supply imbalance, historically cheap mortgages and in population growth forecasts, entrenching the structural tailwinds supporting the sector.

Seven years ago, the market was held back by the lack of “oven-ready” portfolios of scale, the challenges of developing without recognition or support from housing and planning policy, the granularity of the asset management and the need for new finance models.

But then M&G’s acquisition of the Berkeley residential portfolio in 2013 was evidence that UK institutional investors were in the game. “It was a way to get into the sector, even though the portfolio was not purpose-built,” explains Lawrence Bowles, associate director, residential research at Savills. The institutional investors realised that they had to build product themselves, which subsequently drove the trend in forward funding in the sector.

Tomorrow, in the second instalment in this new series, we continue to explore the BTR sector.

james.wallace@realassetmedia.com

‘Germany is a tale of two markets’

Foreign investors understand that in Germany there is no Paris or London dominating the country, but that each of the top cities is ‘a little cosmos in itself’, that allows for good diversification

Dr. Marcus Cieleback, Chief Economist, PATRIZIA Immobilien AG

Germany is a tale of two markets, with clear differences between residential and commercial and also between primary and secondary markets, delegates heard at Real Asset Media’s Germany Investment Briefing, which was held at MIPIM recently.

‘Two-thirds of commercial transactions take place in the top 7 cities, but then it comes to residential the picture changes dramatically,’ said Marcus Cieleback, Chief Economist, Patrizia Immobilien. ‘Around half of all transactions take place outside the top cities, underlining the importance of Germany’s federal structure’.

What that points to is ‘that there is a market out here and that’s the story not often told,’ he said. ‘There are a lot of opportunities for international investors, provided you have the local knowledge and understand what’s going on’. Until now the residential sector has been dominated  by domestic investors, who account for 67% of transactions compared to 55% in the commercial sector.

Berlin is the big exception to the rule, as there has been a lot of international activity in the residential sector. Because of foreign investors’ continued interest in the German capital, ‘the Berlin market is the most liquid resi market in Europe’, Cieleback said.

So far, however, foreign capital has focused on commercial assets in the big cities. ‘There is a concentration of activity in a few regions and cities and that creates a lot of competition and has a huge impact on prices,’ Cieleback said. ‘The largest share goes to offices and the figures are skewed by the large flagship towers being sold in Frankfurt’.

Foreign investors understand that in Germany there is no Paris or London dominating the country, but that each of the top cities is ‘a little cosmos in itself’, that allows for good diversification, he said. They gravitate to commercial real estate also because ‘there is a lot more transparency on yields, rents and other data’, and less specialised local knowledge is required.

Despite high prices and intense competition, Germany is set to attract more investment because it is neck and neck with the UK as the biggest market in Europe so ‘all investors have to have a view on Germany’, Cieleback said. 

The other positive factor is that the looming threat of interest rate rises has now effectively  been removed by the European Central Bank, so the market can get on with deal-making  without having to worry about what impact higher interest rates would have on the real estate sector.  


Contact the editor here.

‘The soul of our strategy is income growth’

Huge demand and scarcity of supply in the Logistics sector are leading to rental growth in all key markets, which is a new thing for Logistics and which as fund managers they intend to capitalise on for their investors

Nick Preston, Fund Manager, Tritax Eurobox

Nick Preston, Fund Manager, Tritax Eurobox, tells Real Estate Day that huge demand and scarcity of supply in the Logistics sector are leading to rental growth in all key markets, which is a new thing for Logistics and which as fund managers they intend to capitalise on for their investors

Contact the editor here.

Brexit: ‘no deal’ still unlikely as UK occupational markets and liquidity trend downwards

The UK on balance is still expected to avoid a ‘no deal’ Brexit, with either Theresa May’s deal or the Common Market 2.0 deal, tipped as most probable by Instinctif Partners.

“We do not see the numbers in the House of Commons to get a Second Referendum, but maybe as a dark horse there could be a referendum on the deal once the deal is done, a confirmatory referendum,” explains Warwick Smith, managing partner at Instinctif Partners.

Back to sedate world of property. Why have things held up as well as they have in commercial real estate markets?

Elizabeth Troni, head of EMEA research and insight at Cushman & Wakefield, explains:

“Labour market resilience has been remarkable. Unemployment rate in the UK is currently below 4% for the first time since 1975. To be honest this chart (see below) is genuinely hard to explain. In my view, when you look into the components of GDP, the impact on GDP and the decline in the trend growth rate has largely been driven by a decline in business investment. When businesses does that, it hampers productivity but not spending on plants and equipment, they become less efficient. And that means we likely have to hire more workers… we do that because it is cheaper and more flexible. Businesses who are concerned about the outlook can hold onto employees as a cheaper, more flexible way of maintaining operations. And of course, bums on seats is a key driver of occupational demand in commercial real estate.”

There continues to be much chatter in respect of Brexit challenger cities. Anecdotally, the impact remains very little in terms of Brexit being the deciding factor in company relocating away from the UK, argues Cushman’s Elizabeth Troni. Since the EU referendum in June 2016, office take-up in London has been broadly flat – at -1.2%, compared to Frankfurt which has increased by 65.1% over the same period, according to Cushman & Wakefield data. Frankfurt is followed by Amsterdam, up 28.7%, and Dublin and Paris, up 19.4% and 9.3%, respectively.

Troni explains:

“It is quite hard to clear-through and understand if this leasing performance are in fact broader recovery stories in those office markets post the financial crisis or whether they are attributed to some notional Brexit activity. From our brokers on the ground, we have not heard of specific Brexit conversations happening around those office moves.

“On the statistics, Frankfurt clearly stands out the most in terms of the alleged Brexit star performer. If you go to Frankfurt, they will tell you ‘London’s financial sector is flooding to Frankfurt’ and if you ask people in London, they will tell you ‘we are al still here and nobody has left for Frankfurt’. The reality is that at the time of the EU referendum in the UK, the Frankfurt office market was going through a going through a general recovery from a pretty low base and so while Brexit may have helped in some notional searches and inquiries into office space, the market is more generally getting back on track rather than any specific Brexit impact in our view.”

“This slow-motion train wreck is starting to build up some speedbumps, which is starting to have an impact on confidence in the UK, we can see this in sentiment indicators. Businesses in the UK service sector are feeling particularly downbeat in terms of confidence in terms of confidence falling to its second lowest point since the GFC.”

Net absorption weakened considerably in the final quarter of last year, as the chart below shows. This is a harbinger of weakened demand overall, which could impact values in future. Investment volumes were slow in December, and low volumes have been recorded in January and February 2019.

Troni concludes:

“We have potential signs of weakening in the occupational market, with net absorption figures trending lower and we have some weakening in investment markets, with liquidity also trending lower. Behind the scenes there are also the retail property funds. We have evidence coming from those retail funds that they have seen hundreds of millions of pounds in outflows in the months leading to year end and into the new year.”

james.wallace@realassetmedia.com

‘Investment in hospitality is soaring’

Europe has become a magnet for tourists from all over the world and this trend is fueling investment in the hotels and hospitality sector

Giorgio Bianchi, Director, Head of Italy, PKF hotelexperts, Johanna Capoani, Deputy Director – Head of Hotel Competence Center, Swiss Life Asset Managers, Sergio Salvio, CFO & CIO, FS Sistemi Urbani, Dirk Bakker, Head of EMEA Hotels, Colliers International, Alessandro Belli, Head of Tourism Real Estate, CDP Investimenti Sgr and Samuel Vetrak, CEO, BONARD discuss the opportunities available in Hotels sector of the European Real Estate investment market. Filmed at MIPIM 2019 by Real Asset Media

Europe has become a magnet for tourists from all over the world and this trend is fueling investment in the hotels and hospitality sector, experts agreed at Real Asset Media’s Hotels, Tourism, Hospitality & Accommodation Investment Briefing, which was held at MIPIM.

‘There is an enormous amount of private equity in the market, very actively looking, said Dirk Bakker, Head of EMEA Hotels, Colliers International. ‘Money is cheap, interest rates are low, and you can’t go wrong in a market where you see double-digit growth in tourism arrivals and such a strong demand for hotel rooms’.

The number of tourists arriving in Europe is increasing at a rate of over 8% a year and reaching double digits in many areas.

‘We are experiencing incredible growth in this industry in Europe,’ said Johanna Capoani, Deputy Director – Head of Hotel Competence Centre, Swiss Life Asset Managers. ‘France and Belgium are experiencing a strong recovery now that the terrorist risk is subsiding, while Southern Europe is still doing fantastically well but not growing so fast now that Northern Africa has come back into play’.

Finding land or product in the right urban locations can be a real challenge, so innovative solutions must be found. ‘Our competitive advantage is land in a central location where normally there are many restraints on building and development,’ said Sergio Salvio, CFO & CIO, FS Sistemi Urbani. ‘We get the change of destination from railway to hospitality, as we have done at Tiburtina Station in Rome, and create a brand new hotel’.

The industry is changing completely and it is all driven by consumer demand’, said Bakker. ‘We are getting a new type of consumer, a new type of hotel and new types of product. Looking five years into the future, we’re seeing a compounded annual growth of 4.4% in hotel rooms and that’s not including Airb’n’b. It is no longer all about location, you need services, experience and personalisation’.

Swiss Life has a bottom-up approach, said Capoani: ‘We are focused on the adaptability of the single asset and then see how the asset fits into our strategy. We look at cities rather than countries’.

The lines between leisure and business are blurring, said Alessandro Belli, Head of Tourism Real Estate, CDP Investimenti: ‘We look for opportunities not just in cities but in leisure destinations as well in Italy, attracting tourists and business travellers’. 

Tourism in Italy is growing at all levels, from 4 star hotels to hostels to serviced apartments, said Giorgio Bianchi, Director, Head of Italy, PKF hotelexperts: ‘The market is moving fast, not just in the main cities but also in secondary cities like Bergamo or Padua’.


Contact the editor here.

Real Asset Insight – new print magazine launched at MIPIM

A new platform created to share ideas, strategy and industry-leading insight with peers from the global cross-border investment community. What are the key trends in each sector, which locations and investment strategies are likely to deliver the best returns?

Real Asset Media has launched Real Asset Insight at MIPIM. Real Asset Insight is a new print magazine with exclusive articles and interviews, 100% focused on thought leadership, analysis, trends, market intelligence and insight from across the industry: capital sources, fundraising, investment management, financing and development. 

It is a new platform created to share ideas, strategy and industry-leading insight with peers from the global cross-border investment community. What are the key trends in each sector, which locations and investment strategies are likely to deliver the best returns? 

You can also sign up for Real Estate Day, a free daily newsletter that keeps you up to date with what is happening in the property world. The newsletter has new exclusive content every day, a video interview with a ‘Thought Leader’ who shares his or her insight on a particular aspect of the market, plus exclusive articles and interviews. The newsletter also has a personalized link to all the other stories and press releases on real estate you may be interested in, so everything you need to keep up to speed with news and events is in one place on your laptop, tablet or phone.


Contact the editor here.