Referencing sellers’ need to offload assets in the wake of meteoric interest rate rises, Blackstone founder Stephen Schwarzman this week reiterated the mega-manager’s appetite for opportunistically buying European real estate.
At the UK government’s Global Investment Summit in London, he told local journalists about two “billion-dollar” deals his firm has struck in the country in the last two weeks, including one in the social and affordable housing sector. “We’re seeing a good deal of volume to buy in Europe,” he told Bloomberg in a TV interview. “Interest rates were so low here, sometimes negative. Now they’re close to 6 percent – so [sellers] need to sell things. We’re seeing some very good buys in that kind of environment.”
This sentiment is evidently shared by other management groups keen to take market share as the region resets. Singaporean conglomerate Keppel Corporation’s proposed “strategic partnership” with private equity real estate firm Aermont has opportunistic timing written all over it.
The tie-up, announced on Wednesday, is effectively two staggered 50 percent stake acquisitions of the London-headquartered business founded by European investing stalwart Léon Bressler. The first 50 percent, which Keppel will acquire in H1 2024, is valued at S$517 million (£388 million; €353 million). Funded with shares and cash, the transaction is expected to provide the hitherto Asia-centric Keppel with “a significant foothold in Europe,” according to an announcement.
Importantly, Keppel enters the region via the acquisition of a decidedly opportunistic business – and one currently flying high. Aermont is the top-ranked European manager in the top tier of PERE’s signature ranking of managers by capital raised for higher risk and return strategies in the past five years. The firm ranked 22nd on the PERE100 with a haul of $10.3 billion for the period, thanks in large part to a target-exceeding average realized gross IRR of 25 percent and a 2.8x equity multiple, per returns stated in the announcement.
Like Blackstone, which had raised $4 billion for its latest European opportunity fund, BREP VII, by the time the firm reported its third-quarter earnings, Aermont’s offerings similarly are well subscribed. Last year, the firm held a final closing of €3.8 billion for Aermont Capital Real Estate Fund V, notably more than the €3 billion originally targeted.
Keppel’s acquisition gives the firm immediate access to a market in dislocation via a platform well supported by investors. Unsurprisingly, it is already thinking about next stages of growth, identifying “the co-creation of European credit funds, data center funds and various private investment vehicles” – as per the announcement – as strategies to come.
Timing is a large part of investing successfully in real estate, and consensus is building that well-capitalized groups mobilizing now in the region will reap the rewards as the next investment cycle begins. That should be imminent across the eurozone, according to research released this week by AEW. Following significantly low deal activity this year, the Boston-based manager has revised its prime returns forecast upwards for all sectors, to average 9.2 percent per year between next year and 2028.
In its 2024 European Outlook white paper, AEW also expects the denominator effect – which had prevented many institutional investors from maintaining their deployment programs this year – to reverse, leading to “more dry powder capital for real estate to be unlocked in 2024.”
Blackstone is a top bet to benefit from that shift. Keppel Corporation – now tied up with one of the most popular local shows in town – can say the same.
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