It is a rare thing when a successful business in its own right strategically takes a back seat to a new entity. That is what the bosses at NREP, the Copenhagen-based private real estate firm, decided to see happen.
Despite NREP existing for nearly 20 years, chief executive officer Claus Mathisen and his senior colleagues announced at the start of the month they would now be working for Urban Partners.
The umbrella company will become the parent entity to NREP alongside businesses dedicated to technology, debt and private equity. Mathisen said thematic to the move is that all four businesses are intended to share a common aim: improving city life for people.
“Humanity has decided to live in cities,” he tells PERE. “This is where we use our materials, where we have our social interaction, consume, live and play. Cities are super-complex ecosystems that evolve as a consequence of technology, demographics and politics. This is the narrative around why urban is a much more dynamic investment thesis than real estate on a standalone basis.”
Consequently, NREP – stewardship of which was handed to Rune Kock as Mathisen’s replacement CEO, alongside existing chief investment officer Jani Nokkanen and chief operating officer Nick Melgaard – is positioned by Urban Partners as one investible theme within a broader suite of institutional offerings. The others are 2150, previously NREP’s venture capital business; Velo Capital, a Northern Europe-focused debt fund business; and Luma Equity, a private equity firm created at the same time as the parent.
Amid all this creation, Mathisen and his colleagues have formed a corporate structure that strikes some resemblance to a “classic industrial conglomerate.”
“The old-time conglomerate used to have a common purpose which was for the family who built it,” he said. “They were industrial and were there to build what was needed. There was a kind of glue which bound them together.”
But Mathisen said many conglomerates historically lost that glue and found themselves disbanding, something he said would not happen with Urban Partners. Referencing the four businesses, he said: “They should stay in the family. These investment verticals share a common vision and values.”
Moreover, he was expecting the creation of Urban Partners to enable collaborations with different stakeholders beyond those enjoyed by NREP already. These include public sector organizations, Mathisen said: “Cities have distinct bodies that oversee their evolution. In certain instances, they’re interlinked with state-level entities. In most, that has not come in ways that can be converted into the institutional opportunity set.”
As such, Mathisen was hopeful the creation of Urban Partners would bring the firm’s institutional following closer to projects that would see the transformation of cities in line with public sector objectives.
Nordics fundraising machine
NREP has out-fundraised its Nordic private real estate peers in recent years to become the region’s preeminent private real estate firm.
It has enjoyed backing from a range of institutions, notably including US pensions like Sacramento County Employees Retirement System, Los Angeles City Employees Retirement System and San Diego City Employees Retirement System, as per PERE data.
Today, Urban Partners announced NREP’s fifth value-add fund attracted more than €3.6 billion from investors, the biggest fundraising ever for a pan-Nordics private real estate fund.
But even before NSF V was closed, the firm was streets ahead when it came to equity capital raising. According to preliminary data for this year’s PERE 200, the annual ranking of managers by capital raised in the last five years for closed-end vehicles, NREP has raised approximately $7 billion of equity from investors.
This equity haul – measured up until March – was way ahead of the approximately $2 billion collected by the region’s second-highest fundraiser Areim, as per the ranking’s methodology.
Convincing its investors will be key to making the introduction of a parent company a success.
Mathisen said reaction among NREP’s investors to the creation of Urban Partners ranged from positive to neutral, with none demonstrating concern. “We spent a lot of time speaking to capital,” he said. “For some it resonated, for others it didn’t. But we didn’t see anyone for whom it was negative.” Furthermore, Mathisen believes the shared infrastructure at the Urban Partners level will only aid the fundraising efforts for 2150, Velo and Luma and for any further company launches to come.
At conception of the new entity, NREP represents the lion’s share of Urban Partners’ assets under management. 2150’s assets reflect the €270 million raised for its debut proptech fund, 2150 Urban Sustainability Fund, in 2021, Velo has approximately €1 billion in loans and Luma has no assets yet. The proportionate breakdown of that AUM is expected to significantly change by the time the firm reaches a 2028 growth target of €50 billion. By then, private real estate is still expected to represent the bulk of the assets, but the other businesses would be better represented, too.
NREP’s bosses have a track record for making unconventional strategic plans and are regularly described as bold in doing so. In October 2021, the firm publicly declared it would make its then-€14 billion property portfolio carbon neutral by 2028, years ahead of its private real estate sector peers. In another unconventional move last November, the firm announced a self-imposed carbon tax to help meet that target.
But while those strategies were broadly accepted by the private real estate sector, the creation of Urban Partners has onlookers asking questions – at least initially.
One senior London-based capital advisory executive, who declined to be named, described the move as a “stretch goal.” He said: “Something I like about NREP is they make bold statements… and put them out there. I like that they pull the industry with them and reach for the stars.” However, he also asked: “How much money do you need to redevelop entire cities? The question for me is, have they bitten off more than they can chew? Is this too ambitious?”
Mathisen said there was not a risk of overextending, pointing to the separate funds and investment committees in each “vertical.” He said: “We are not an urban development entity. Urban Partners is essentially an orchestrator of capital in independent vehicles, which allows us to target multiple urban opportunities separately, but with a holistic view.”
A global head at a private markets consultant, who also asked to be anonymous, said the formation of Urban Partners made sense from a commercial standpoint and around the group’s decarbonization vision. But he also said it provoked concerns about alignment. “Are senior leaders more aligned to the overall group than one of the four verticals?” he asked. “Could it lead to conflicts if Urban Partners represents different parts of the capital stack on the same ‘urban solution’?”
Mathisen said: “Potential conflicts are handled at arms-length where the interest of the fund always comes first when choosing a service or provider.” He added any activity enrolling one of Urban Partners’ other businesses would be something that a third-party would supply and the conditions for its appointment would need to be “at least favorable.”
Mathisen added that the partnership is at the Urban Partners level, while carried interest and incentives to key staff remains at the fund level to be aligned with investor interests.
Generally speaking, he was confident about how Urban Partners would be addressing investor needs. “Some of our LPs like this multi-pronged approach and want to invest in different ways but don’t know the entry point,” he said. “We’re trying to create a conduit for capital to invest in what people see as a common theme now.”