The macroeconomic and political upheaval for which 2022 will be remembered was felt in every global region, but none more so than Europe. On December 16, 2021, the base interest rate set by the Bank of England was 0.25 percent. One year later, following eight separate hikes, it stood at 3.50 percent.
When significant uncertainty creeps into financial markets, it is normal for most money managers to press pause while they closely monitor the actions of the industry’s biggest influencers. That global heavyweight Blackstone has won the most awards in PERE’s Europe category, including Firm of the Year, is therefore no great surprise.
The manager topped many a headline last year – even before the news of BREIT’s gating broke in those final weeks – most notably for its recapitalization of European last-mile logistics business Mileway in April, a transaction that also won it the Logistics Investor of the Year and Deal of the Year award for the region. At a value of €21 billion, it was the largest deal in history for private real estate, and sent strong signals of Blackstone’s conviction in the logistics sector.
The picture has changed for the property type since this deal, however, with cap rates expanding and the sharply increased cost of debt likely to lead to sizable write-downs. “This price resetting is going to hurt [industrial/logistics] more than it has in the past because yields had gotten so low,” says Matt Hershey, partner at real asset advisory firm Hodes Weill & Associates. But, he adds, “as long as existing investors ride that out, little distress will come from that because underlying fundamentals of those properties are still good.”
The man who oversaw the Mileway transaction, Blackstone’s European real estate head James Seppala, won Europe’s Industry Figure of the Year award. Seppala was also critical to the formation of a £1.5 billion ($1.9 billion; €1.7 billion) serviced offices joint venture, combining one of Blackstone’s portfolio companies, The Office Group, with London-based Brockton Capital’s Fora.
In the Debt Firm of the Year category, however, real estate’s largest asset manager was edged out by only three votes by Starwood Capital Group. The Miami-headquartered firm had a busy year in Europe’s debt markets, financing $2.7 billion of deals, including €850 million for the construction of a pre-leased hyperscale data center in Ireland and £365 million for a London multifamily scheme.
Blackstone aside, residential property is a common feature in the activity of Europe’s award winners. Europe has long suffered a shortage of housing, but that issue may get worse through this cycle, says Hershey. “At the beginning of last year there were certainly a lot of new projects in the works, but even then it was slow and challenging to deliver new housing based on density and the regulatory environment in the UK and Europe.”
Tighter lending requirements and higher interest rates have slowed new residential development activity, but it also means home purchases are less affordable, he explains. “What we’re facing now is an even-more favorable supply-demand dynamic. New projects that were anticipated to ease the housing shortage have slowed or stopped. And you have strong increased demand on the rental side, because it’s harder now for people to buy homes with these increased rates.”
Global manager Hines won the Central & Eastern Europe Firm of the Year award for its endeavors in private rental housing. The firm formed a joint venture with pan-European real assets business Kajima to target such opportunities in key Polish cities.
Along with rental housing, purpose-built student accommodation featured prominently in both dealmaking and fundraising success stories of the year. “Student enrollment is usually inversely correlated with economic conditions,” says Hershey. “With a slower patch in the economy there might be more student enrollment, creating more [student housing] demand.”
Indeed, GIC, the repeat winner of Institutional Investor of the Year, Europe, stood out for its activities in this field. In a joint venture with manager Greystar Real Estate Partners, Singaporean sovereign wealth fund GIC acquired Student Roost, the UK’s third-largest PBSA provider with a portfolio of around 23,000 beds, for £3.3 billion from Brookfield. The deal was announced in May but completed in December, after clearance from the UK government following concerns that the acquisition could reduce competition and lead to higher rent and lower-quality housing for students.
Even GIC’s second Europe award, for Hotels & Leisure Investor of the Year, has a tinge of student housing to it. Together with Dutch pension investor APG, GIC agreed to purchase a substantial stake in The Student Hotel from Aermont Capital. The Amsterdam headquartered company operates a hybrid model where long-stay student accommodation meets short-stay hospitality, and was valued at €2.1 billion in the transaction.
For its part in the Student Roost takeover, Greystar also bagged the Residential Investor of the Year, Europe award, in addition to the regional accolade of Capital Raise of the Year for its oversubscribed fundraise for Greystar Equity Partners Europe I. The fund reached €1.55 billion on final close in July 2022, having surpassed its target size of €1 billion at first close in May 2021, and focuses on rental residential property across Europe. Tristan Capital Partners – winner of Firm of the Year, UK – was another manager backing the PBSA horse last year, launching a JV with Bricks Group to acquire a £400 million portfolio of six student accommodation assets in five UK cities.
Mixing it up
Of all the winners crowned in the Europe category, London-based Henderson Park attracted the highest number of winning votes. In fact, the winner of Firm of the Year for both Germany and Southern Europe was the only firm to attract more than 1,000 votes – and did so for both awards.
The common theme among this Europe-focused, diversified investor’s winning exploits was just that – diversifying. Among Henderson Park’s investments in Germany, which totaled almost €2 billion for the year, was the Mosse-Zentrum office building in Berlin Mitte acquired from Real IS, the real estate investment management arm of Bavarian Landesbank; a 25,000-square-meter mixed-use development site in Berlin’s Mediaspree submarket; and a diversified residential platform focusing on new home development across the country.
Similarly, in Southern Europe, Henderson Park made its first foray into Italy with the purchase of three assets in Milan for €221.1 million from utility firm A2A. The assets are mostly offices at present, but the manager plans to redevelop and reposition them into high-quality, sustainable properties offering a blend of residential, office and leisure facilities.
Looking forward, the ongoing market correction is generally expected to affect every asset class, but Europe’s investment outlook should reset accordingly. “Once we get through this rough patch of recalibrating pricing, we will be in a much better place with solid fundamentals, more liquidity and more sustainable yields,” says Hershey.