Friday Letter Expo Takeaways

‘Too big to fail’ can go for property shows as well. This week, the giant EXPO REAL trade event in Munich, Germany, drew its usual thousands of visitors despite economic uncertainty. Robin Marriott was among them, swilling beer while talking shop. Here are a few key themes to emerge.

Code breaker: Speak with delegates at the show and more often than not they will turn out a phrase like “cautiously optimistic”. This can more readily translate into “we are not that happy…yet.” Firms are still busy trying to refinance assets.

Numbers game: It may have felt like there were more people at the show than last year, but according to organisers Messe München, there was only a slight increase. There were 21,000 industry professionals in attendance, which was more or less the same as 2009. The increase came in the number of exhibitors – up 4 percent. Marketing budgets must be a little more robust.

Local problem, big effect: German open-ended funds are under huge pressure. While the top four might be safe, the talk at EXPO REAL was the huge question mark over the future of the next tier down. KanAM US Grundinvest recently became the first liquidation in the history of the industry. Changes to the German Investment Act due to come in 2011 could put off institutional investors because of new rules requiring minimum holding periods of 24 months for all new investors, while redemptions in the third and fourth year will carry a 10 percent and 5 percent penalty, respectively. The issue for private equity funds is that a big squeeze on this traditionally active counterparty in real estate will reduce global opportunities to buy assets or indeed sell assets, as German open-ended funds have often been an exit route. Maybe more money will fly to Spezial Fonds, which are exclusively dedicated to institutional investors.

Spectator sport: It was noticeable how a few firms announced fund raising initiatives of various strategies. But the vibe from placement agents, capital raisers and investment advisors (not to mention those actually embarked on a roadshow) was that many potential LPs are still eyeing partners from the bar rather than getting on the dance floor.

Green feeling: Increasingly, if you want to attract capital, you need to start thinking like an environmentalist. French investors – for example, Caisse des Dépôts group (CDC) and CNP Assurances – have a lot of equity, but their government is forcing them to invest in assets that are green. They will ask fund managers to explain how they plan to upgrade the energy efficiency of properties they buy. Greenprint Foundation, a global alliance of owners, investors and financial institutions run by Chuck Leitner, the former global head of RREEF, released at EXPO its first Greenprint Carbon Index, which is intended to be a global measurement of real estate’s carbon footprint. Aetos Capital, Beacon Capital, Prudential Real Estate Investors and RREEF are founding members.

ING: There were some big M&A stories circulated at EXPO, including Europa Capital Partners selling a majority share in itself to New York-based Rockefeller Group International. Thirsty for more, delegates wanted to know the latest on up-for-sale ING Real Estate Investment Management, the Netherlands-based global giant. Bids were reportedly in last month. Stop press: though often cited as being a potentially interested party, you can discount The Blackstone Group. There is unlikely to be an MBO by the North American team at ING Clarion either.

Told you so: Last year at this event, there was a herd-like mentality with everyone seemingly trying to convince investors to put money into London. The contrarian approach, as PERE suggested last October, was that the window for buying cheaply had already shut. Sure enough, this year Germans were saying that London assets were “too expensive”.

New order: Investment banks with private equity real estate platforms were not very visible at EXPO. This is unsurprising given the structural changes taking place in the industry. In their place, some newer players were present that are taking down some big deals, including Apollo Real Estate, the New York firm that reportedly is buying a loan book of more than €1 billion from Credit Suisse.

As some of the points above show, this year’s EXPO REAL may not exactly have been a continuation of the fortnight-long Munich Oktoberfest that ended on 4 October. However, there are pockets of activity that some participants in private equity real estate can toast.