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EXCLUSIVE: USAA explores European co-investments

 The San Antonio-based real estate investment firm is considering partnering with institutional investors on its European deals as early as this year.

Less than a year after launching its European operations, USAA Real Estate Company is now looking at bringing in third-party capital into some of its property investments in the region.

The San Antonio-based real estate investment firm expects to have six development projects under construction in Europe by the end of this quarter, and a $1 billion worth of projects in the pipeline by year’s end. The majority of the developments, which will be located in the UK, Poland, the Czech Republic and the Netherlands, will be done through its joint venture with European logistics developer Mountpark Logistics. The partnership was announced in conjunction with the official opening of its European operations last July.

To date, USAA Real Estate has undertaken all of its investments in Europe either in partnership with Mountpark or on its own. The company’s debut transaction in the region was the acquisition of a 365,489-square-foot warehouse facility, a 43,917-square-foot office building and a 19.70-acre parcel of land in Utrecht, The Netherlands, in October. It was funded with its own capital.

In addition to the development parcels it already has purchased, USAA Real Estate also is expected to close on additional sites in Poland, Czech Republic and Slovakia by next month. All told, the sites that USAA Real Estate expects to own by the end of the quarter are expected to yield approximately 7.5 million square feet.

“We’re perfectly comfortable doing this ourselves,” said Len O’Donnell, USAA Real Estate’s chief executive, in an interview with PERE. “However, there’s institutional capital that has been asking to participate with us. At some point this year, we may put together a strategy to entertain that.”

The type of co-investment vehicle or partnership that USAA Real Estate would create with those institutions would depend upon the nature of the capital, and whether or not the investor would want to participate in development, which would allow the company to build greater scale in Europe, or simply own the finished properties.

O’Donnell noted that the co-investment model drives USAA Real Estate’s business in the US. However, in Europe, “we want to make sure first that all our processes are working smoothly and in place,” said David Buck, who heads the firm’s European office in Amsterdam. “If there are mistakes made as we enter these new markets, we’re going to do it on our money and on our time and not expose our investors to that.”

USAA Real Estate is also evaluating expanding into other property types in Europe, although not in the immediate future. “We’ve got some early intelligence on multifamily in Europe, and we’ve evaluated some retail. We’ll consider any property type where we have a core competency and deep history in the US,” said O’Donnell. “But we only have a small percentage of our portfolio allocated to non-US investments at this time, so it’s probably a 2016 discussion for us.”

The company’s Amsterdam office currently has three employees, including Buck; Maximilian von Below, head of client relationships in Europe; and Sabine Bentvelzen, senior analyst. USAA Real Estate also plans to relocate a senior accounting professional from San Antonio to Amsterdam in June.