You may have noticed from our website news coverage these past few days that three-quarters of Team PERE have been in the south of France for the annual MIPIM property show which took over the seaside town of Cannes this week.
Eighteen thousand people-plus chewed the fat in hotels, apartments, villas, yachts, restaurants, at evening soirees and late night parties (yes we did let our hair down a bit) from 8am till 4am the next morning.
Yet for all the contact making, agenda setting, and exploration of deals and ideas in Cannes which will no doubt end up in some significant developments in private equity real estate later this year, one couldn’t help feeling that the more significant event was taking place 6,400 kilometres or a seven hour flight away in New York where Kohlberg Kravis Roberts is headquartered.
Earlier this week, the private equity titan said it had hired former Goldman Sachs and Eton Park veteran Ralph Rosenberg to lead a new real estate initiative, with Monday being his first day in the new job.
This single hiring speaks to many things about real estate – all of them zaftig and thematic and will resonate with all those concerned with earning a buck out of the asset class.
• Real estate represents an attractive asset class to the savviest firms and is a good and scalable business for sophisticated alternative investment houses
• For the larger franchises, adding real estate know-how to existing multiple asset class capabilites in areas such private equity, fixed income and capital markets is a desirable operating model
• Many real estate investors have exited the sector including investment banks – therein lies opportunity
• Significant investment opportunities will materialise because of the demand for capital to resolve the valuation excesses of the three bubble years up to 2008
• Sorting out the world’s existing commercial real estate debt mountain heaped up in property- related activities is going to take ages – many years. KKR knows this and demonstrates how one should view property as a sector to be in for the long haul
• Now is the time to get set for a cyclical trend. Real estate valuations, as we all know, have been killed, but in many cases are rebounding. Property could even benefit disproportionately from a long term economic recovery. It should provide an inflationary hedge too
• Having a real estate expert among the ranks of a private equity firm gives an advantage to private equity firms more so than ever when assessing and scouting non real estate companies that nevertheless have significant property holdings
Some of these might seem obvious, some less so, but to see KKR echo in a single appointment what many practitioners are saying to investors all over the world has a real impact. After all, KKR hasn’t become one of the most successful buyout firms of all time by being a chump.
Delegates at MIPIM have in some cases thought about the immediate impact KKR might have as a real estate investor. When will it create a whole team, what will the calibre of that team be, when will it launch a real estate fund, what big sales and situations are out there for KKR to bid on? These are all valid and interesting questions that were being asked out at the MIPIM property show.
But the main statement that KKR has made about real estate and its place in the alternatives world with this week’s appointment is already abundantly clear and powerful. Having real estate experts is a requisite resource for alternatives firms looking to outperform in coming years.