Patrick Kanters was still a schoolboy when his love affair with real estate was kindled. “It was awkward,” he recalls. “When I was 14, I was already reading all these magazines that showed the house prices, keeping track of how they were moving and comparing them between cities.”
That early crush on the asset class became a vocation, and the vocation a 30-year career that has culminated in the 49-year-old Dutchman becoming global head of real estate assets at the world’s second-biggest real estate investor, APG Asset Management, as well as the recipient of a PERE lifetime achievement award.
PERE’s annual list of the largest capital providers calculates the commitment of APG’s parent company, Stichting Pensioenfonds ABP, to real estate at $45.11 billion in 2017, an allocation to the sector exceeded only by the Abu Dhabi Investment Authority’s $46.94 billion.
I learned a lot about real estate by being thrown in the deep end and also about empowering people, challenging teams, and being challenged
APG manages the pensions of over 40,000 employers in the Netherlands, including its largest client the Dutch civil service pension fund, ABP, which has 2.6 million beneficiaries. Overall, one in five families in the Netherlands, a total of 4.5 million people, will rely on the manager to provide for their retirement. On their behalf, APG manages some €474 billion in assets, with around 10 percent of the total allocated to real estate and 3 percent to infrastructure.
That allocation has grown under Kanters’ stewardship from its pre-financial crisis level of 8-9 percent to a “bandwidth” of 10-12 percent currently, and he argues that a figure of as much as 15 percent would contribute to providing higher absolute returns for pension investors. “A very good case can be made to further increase allocations to real estate,” he says.
APG had a particularly good run in property investment coming out of the financial crisis, with its strategic real estate fund averaging a 19.4 percent annual return between 2009 and 2015, outperforming the industry benchmark by almost 10 percent over that period. Over a 15-year period Kanters says the fund has provided a return of around 9 percent on average.
The accumulation of the real estate investment acumen that made such impressive performance possible began at the Delft University of Technology in 1988. Kanters began studying architecture, but he quickly came to realize his true enthusiasm lay elsewhere. “I found out as soon as what we were doing became more finance-related, when we had to take care of the feasibility for example – the point at which the work usually stops for an architect – that was when I was getting more interested.”
Nonetheless, Kanters remains something of a design buff. The environment at the CitizenM hotel near the Tower of London where this interview takes place – futuristic, colorful and festooned with eye-catching eclectic décor – clearly stimulates him, and not just because APG is an investor in the chain. “Architecture is the subjective part of the real estate business, but we all realize how much impact it has on people by creating memorable experiences,” he says.
Léon Bressler, former chief executive of listed investment company Unibail, and now managing partner at private equity real estate firm Aermont, argues that Kanters’ open-mindedness and imagination are among his strengths: “Patrick is an excellent investor, which is what you would expect, but what I would add to that is he is a creative person who has been very open to new concepts including investments in non-traditional asset classes. One great illustration of that is the support given to CitizenM. That demonstrates the ability of APG and Patrick to support a young team with a brand-new concept and make it a huge success. That is quite remarkable for a very large institution.”
Kanters changed his university course to one in real estate management with thoughts of becoming a property developer: “It was one of the cool things to do back then.”
However, his first big break in the industry came when a professor received a phone call from Andre de Bock, head of the real estate division at insurance company Nationale Nederlanden, which was later to become ING Real Estate, asking him if he could recommend a bright student to become a trainee.
The professor, Bas Menheere, endorsed Kanters for the role. “Back then it was not a fund manager. They were just investing the money of the insurance company. It was seen as a bit dull, but nevertheless I somehow sensed there was a lot about to happen within investments and that would become a really interesting job going forwards,” Kanters remembers.
His traineeship was soon interrupted because ING’s development team needed new recruits. Taking a role was to be a massive opportunity for him as years later he led the refurbishment of the Amsterdam World Trade Center, one of the largest off buildings in the Netherlands at more than 1.2 million square feet.
Then, aged just 31, he was appointed head of the ING Dutch office fund, at that time the largest such sector-specific vehicle in the country. “Not everybody was happy with seeing this young bloke suddenly become the head of that fund,” says Kanters. “Luckily Jan Doets, who was CEO of ING Real Estate for many years, had trust in me and I learned a lot about real estate by being thrown in the deep end and also about empowering people, challenging teams, and being challenged.”
Scale: Being in the top two or three in the rankings is not a goal in itself, but being in the top five or 10 does allow us access to opportunities that would not be available to everybody.
Loyalty: I have worked 11 years for ING and 13 for APG. The companies have changed over time and that keeps giving you energy. As long as you are in a very dynamic environment there is nothing wrong with staying with a company for over 10 years.
His management style: I need to challenge people, but they also need to challenge me. Being very direct is the Dutch culture. I need people to be direct to me with their contrasting views to take the right decisions together with my team.
The market cycle: Going forward, we definitely expect lower returns in real estate. That does not make it less attractive as an asset class, but we have to manage expectations because we have been in an unusual environment where interest rates have declined for 20 or 30 years.
Smartphones: I never put my iPhone down. I am more comfortable being connected, and the kids don’t mind because they are always on the phone as well.
Years later in 2011, Kanters showed himself similarly willing to place his faith in a talented youngster and promote him above more experienced colleagues when he appointed Sachin Doshi to lead APG’s Asian real estate operation, a move that met with surprise at the time. “He had an investment banking background, but, at the same time, a very good eye for long-term investment and that unique combination led me to select him. He is a very young guy, but you need these people to make things happen. You can’t do it all yourself,” says Kanters.
In 2000, Kanters was chosen to lead ING Real Estate as managing director, a role he performed for five years. His time at ING gave him a thorough grounding in the practicalities of development and asset management, and later also in fund management as the company rapidly expanded its funds business.
“I had been very much involved in setting up funds, managing them, and also dealing with the conflicts of interest that might be there. What made me join APG in 2005 was the ability to fully focus on one strategy that you think is best for your client. Within a fund management organization there is always tension between creating investment value and gathering fee income.”
Kanters became APG’s first global head of real estate, taking charge of a 20-strong team, managing around €20 billion of assets, figures that have since more than doubled. One of his most important early judgment calls was to set up an office in Hong Kong to manage the firm’s Asian investments. “Having been more directly involved in real estate I saw the importance of being in the region closer to networks and managers and able to act swifter and to have local people to give us access to the best opportunities and operators.”
When Kanters took over at APG, which in former times had invested only in the Dutch market, it still owned a 100 percent stake in a €1 billion domestic office platform, KFN. “I knew offices inside out and I was concerned about being so heavily exposed, because that is one of the most cyclical markets. One of my first tasks was to see how we could partly sell out of Dutch offices.”
Finding a buyer took time, however, and by the fall of 2007 Kanters was increasingly fretful. “We had people on the ground in New York and we got information on how markets were struggling over there that made me sweat more and more about the need to hurry up. I felt that something was going to hit us.”
In spring 2008, just in the nick of time, APG sold out of the majority of its interests in KFN to two ING funds. In an ironic twist, one was the ING Real Estate Dutch Office Fund of which Kanters was formerly the manager. APG had dodged the bullet and armed itself with enough liquidity to bargain hunt in the global property market when it reached its nadir in 2009-10. As the current cycle reaches its later stages, APG has recently sold out of most of its holdings in the Dutch office market again. “We feel it is getting pricey. Most of the rental growth is now behind us and offices remains a timing strategy,” explains Kanters.
Since the crisis, APG has changed its investing style, preferring to exercise much more control over its investments by taking fewer and larger stakes more directly through backing platforms and operators rather than investing through funds. Kanters says 150 private real estate investments, some as small as €50 million, have been reduced to 50 or so with a value of typically €200 million-€1 billion each.
APG is deliberately underweight in offices compared with its peers, he adds. Meanwhile, residential, hotels, logistics, student housing and retirement homes now make up a bigger proportion of its holdings. The firm has also gradually reduced its exposure to retail, from around 50 percent of its portfolio to 40 percent.
“We still have a large allocation to retail, but we have been working very hard to get exposure to the right retail. In our opinion that is the true experience centers, the very large centers that have a unique offering alongside inner-city retail and the outlet sector.”
The investor has also entered the infrastructure sector, building up an €11 billion portfolio. “APG asked me to also head up the infrastructure department because the evolution we have gone through in real estate to move from funds to direct positions is also the ambition in the infrastructure asset class,” says Kanters.
A signal of how steeped Kanters is in the culture of real estate is that when asked to name figures who have influenced his development as an executive he reels off a list of people connected with the industry: Léon Bressler, who “looks at the megatrends out there and sticks to the belief that investors can capitalize on them;” Indian-born Dutch businessman Rattan Chadha, founder of CitizenM, who “differentiates himself by having such a keen eye for detail;” and Scott Malkin, chairman of outlet operator Value Retail, who he calls “one of the unique entrepreneurs that truly creates experiences.”
In turn, Kanters’ influence on the real estate market is considerable. “Everyone in the market listens to what Patrick has to say,” says Guido Verhoef, head of private real estate at fellow Dutch pension investor and frequent joint venture partner, PGGM. “That is not just based on the size of APG’s portfolio, but also on the knowledge and insights he has into the market.”
Throughout his career, Kanters has been closely associated with cross-industry initiatives. He is a former chairman of the Association for Investment in Non-listed Real Estate Vehicles, sits on the board of the European Public Real Estate Association and was a key player in creating sustainable investing benchmark, GRESB. Former GRESB CEO Nils Kok, now chief economist at real estate tech company Geophy, says: “Leading the real estate group at one of the largest investors in the world comes with responsibility that goes beyond allocating capital. Patrick has been at the forefront of professionalizing the real estate sector, including best practices in corporate governance, performance measurement, and the integration of ESG in investment management.”
That may be Kanters’ most important legacy for the asset class, adds Bressler: “His commitment to stronger corporate governance in all aspects of the real estate universe, listed and private, will have a very positive and durable influence on the industry.”
Not yet 50 years old, Kanters’ most productive years could yet be ahead of him. Next on the agenda is a plan to unlock big data to aid investment decision-making and harmonize valuation across real asset classes, regions and sectors: “That is a really exciting project. I would definitely like to see that established in my time at APG.”
When that is done, would he be prepared to move upstairs and leave his beloved assets behind? Kanters is firm in his refusal. “It is not my ambition to become the chief investment officer of the full company. I want to be involved in the real assets markets. Even though now I am hardly ever involved in the actual transaction teams, it is staying close to that dynamic business that makes me tick.”
It is easy to imagine that PERE’s latest lifetime achievement award winner was born with a toy office block in one hand and a miniature shopping mall in the other. Real estate is in his DNA and the schoolboy’s passion for the industry has become a lifelong commitment.