Friday Letter The new order

The threat that the hunter can become the hunted was flagged this week at the PERE Forum Europe 2008, where around 200 delegates descended on The Hotel Russell in London.  

Opening the event, keynote speaker Léon Bressler of New York-based Perella Weinberg Partners said there would be a new order of things as some of the biggest players in private equity real estate lose their places to others. To paraphrase the French real estate veteran, the field is wide open to newcomers and there will be big winners and big losers in a 'Darwinian' era.

Adding to the theme of survival of the fittest, Partners Group's chief strategist for real estate Nori Gerardo Lietz argued it was longer a given that limited partners were going to automatically re-up with the same firms with the same strategy in the same region as previous vehicles.

But although large firms in particular were singled out as being vulnerable to evolution, that does not mean to say the current successful crop won't also prosper – particularly in Europe. If Bressler is correct, mature European markets now offer the best risk-adjusted returns, as exceptional conditions present opportunities. One of the opportunities he described was the dawn of a new era in which private equity real estate firms would be competitively positioned compared to listed property investors.

Other speakers at the Forum agreed and cited recent evidence of opportunities emerging from within the public market that could presage greater activity. On Monday, Dawnay Day Treveria, the Germany-focused fund listed on London's Alternative Investment Market, announced a strategic review which could lead to a sale of assets or an outright sale of the company. Its share price has been battered of late. And last week, it emerged that the reclusive British billionaire John Whittaker had built up a stake through private vehicle Albright Investments of more than 4 percent in Land Securities, whose office and retail portfolio has fallen in value by £1.28 billion in the year to March.

Notably, neither of these examples involve private equity real estate firms, but that didn't prevent them being highlighted at the conference, with real estate professionals believing that what happens in the public markets foreshadows the private sector.

For the time being, however, private equity real estate GPs will continue to need the kind of patience they have been living with for some months now. That they are seizing on any ray of hope is understandable: the sooner the deal-hunting resumes the better. But in the meantime, private equity real estate professionals will do well to continue to watch their own backs.