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Europe offers best risk-adjusted returns in RE

Speaking at the PERE Forum: Europe 2008 in London Tuesday, Perella Weinberg Partners’ Leon Bressler says Europe’s core markets offer some of the best returns for private equity real estate firms but warns that larger organizations will face increased pressure from newcomers to the field.

Mature markets in Europe will offer some of the best risk-adjusted returns for private equity real estate firms, according to Leon Bressler, partner of Perella Weinberg Partners.

Bressler, speaking at the PERE Forum: Europe 2008 in London Tuesday, said the credit market dislocation has created real opportunities to deliver alpha to investors, and had produced a period where sponsors could look for high returns, with relatively low risks.

The current market conditions, which has seen mass repricing in countries such as the UK, Spain and Ireland, had created “exceptional conditions,” he said, adding: “Core European countries have become more interesting than non-core European countries.

“Europe is a great place to invest and will offer the best risk-adjusted returns in the real estate world.”

However, Bressler, the former chairman and chief executive officer of Unibail who joined the firm in 2006 to develop its real estate platform, said market conditions would prompt a re-ordering of firms – with some larger players losing ground to “newcomers.”

Saying private equity real estate firms were operating in an extremely “Darwinian environment,” he told delegates that the market hadn’t just changed but was “collapsing.

“The difficulty will not be for the newcomers, the new concepts, the new players but the real challenge is for the largest ones, the most established ones, the ones with history and the weight of very strong culture. The field is wide open between established players and newcomers.”

There would be some “big winners, and big losers,” but he stressed that private equity real estate was facing its most favorable market conditions in decades.

“Private equity real estate is not dead, it’s back. It’s the beginning of a new environment. [There will be] a lot of difficulties, a lot of challenges but basically its an environment where private equity can flourish in a way we haven’t seen since the mid-1990s.”