Liquor references abounded during a panel on European real estate investing at the Pension Real Estate Association’s Institutional Investor Real Estate Conference in Chicago this week. Take Jeffrey Dishner’s perspective on real estate lending in the region: “For the most part, it’s better to lend in beer-drinking countries than wine-drinking countries because it is more difficult to foreclose in wine-drinking countries.”
Explaining how the firm’s European real estate debt activity has skewed toward northern Europe, the senior managing director at Starwood Capital Group said that, “from a lending standpoint, the most important thing is, if things don’t go well, how easy it is to get control of the assets.” While the UK has been the easiest European market to exercise control as a lender, Starwood also has been highly successful in making loans in the Nordic countries, he noted.
Meanwhile,Ronald Kravit, senior managing director at Cerberus Capital Management, revealed that one of his most memorable recent real estate investments in Europe was the purchase of 1,100 pubs in the UK from Lloyds Bank at the end of last year. Because the UK pub business involves leasing the establishments to operators, Cerberus underwrote the deal as a real estate business rather than an operating business. He noted that Lloyds thus far has been one of the first banks in Europe to actively begin writing real estate assets off its books and has been public about the liquidation of properties.
Drinking-related humor aside, the panelists were serious about real estate investment in Europe. Starwood, which has been making equity investments in the region since 1999 and debt investments since 2009, will deploy more capital in the region in 2013 than all of the other years combined, Dishner said. While about 96 percent of the Greenwich, Connecticut-based investment firm's real estate equity was invested in the US from 2009 to mid-2012, the business has shifted to an approximately 67:33 split between the US and Europe over the past 14 months.
The Blackstone Group, meanwhile, also has seen a dramatic shift in its investment focus from the US to Europe, according to Ken Caplan, head of European real estate. Since the bottom of the downturn, the New York-based firm has invested about $30 billion in equity in real estate, the majority of which was in the US. In the past year, however, slightly more than half of Blackstone’s real estate capital has been focused outside of the US, in Europe and Asia, he noted.
“In terms of pure distressed opportunities like the ones we were seeing in the US in 2009, 2010 and 2011, we are now seeing those in Europe,” said Caplan. “2012 was our busiest year in the 17 years investing in Europe, and 2013 will be right up there.”
One of the biggest differences between investing in the US and Europe is the importance of personal relationships in the latter region. Dishner said many of the Starwood's real estate investment opportunities have been borrower-driven rather than bank-driven situations, where the firm partnered with a borrower with whom they had a long-standing relationship.
Indeed, the US-style of real estate investment doesn’t work in Europe, Kravit said. He observed that it took more than showing up with a big check to succeed in these deals and stressed that performance, being consistent in one’s message and having strong relationships are critically important in the European market.