Pressing the numbers

Numbers, as many readers well know, can spell many different things. Wandering the Jetée Albert Edouard in Cannes during the annual MIPIM real estate congress— the organizers like to call it a “market”—the number of lush hospitality yachts and cruisers sardined along the quayside spelt optimism, even bravura, especially if you include the mega-yacht that slept 50 hired by Deutsche Bank floating resplendent beyond the confines of the Vieux Port.

Reviewing some of the data released during the event, you would be hard pressed not to see that bravura reflected in the global real estate market. Take Jones Lang LaSalle, which reported that global direct commercial real estate investment had climbed to $475 billion (€383 billion) in 2005—an increase of 21 percent on 2004. Or the numbers from King Sturge that revealed property lenders—who already have $160 billion of real estate loans on their books— intend to lend a further $139 billion in 2006 alone. These are the kind of numbers that encourage some to talk of boom turning to bust.

But listen to the old real estate hands who frequent—day through night—the cafés along the Boulevard de la Croisette during MIPIM week and the doomsayers get discounted quickly. Commented one opportunistic (and grey-haired) real estate fund manager: “You are not going to see some convulsive market event, no LTCM [Long Term Capital Management] blow-up that has everyone running for the hills. What you are going to see—because real estate is as cyclical as any other market—is a time when assets that are presently trading don't—because they're rubbish assets. And at that point, those who hold those assets…are going to lose some sleep.”

MIPIM, run by Reed MIDEM, a subsidiary of Reed Exhibitions, is a great way to gauge the look and feel of the real estate market across Europe and beyond. The name is an acronym from the French Marché International des Professionels de l'Immobilier and the event was launched in 1990, just prior to the dark days of the asset class when real estate sank and many of today's grey hairs were formed. At that event, 2,973 people attended. Seventeen years later, nearly 22,000 come to Cannes.

Although centered on the Palais des Festivals, the town's exhibition hall, MIPIM sprawls across much of the waterfront, with marquees occupying parts of the beach and the aforementioned yachts and cruisers forming a hospitality ghetto around the harbor. Half of Cannes is employed to man the registration desks, the information points, the food stalls and the security checkpoints while the other half sit in the traffic that radiates from the beach edge. Suites, floors, even entire buildings along the main boulevard, are let to firms eager to host jamborees all day, every day, and, as one regular visitor warned: “Listen to what people have to say on Tuesday, handle their comments with care on Wednesday, count your blessings if anyone's coherent on Thursday and expect to see no one on Friday.”

It's that kind of event.

This was the first time that PERE attended, so it was with a mixture of awe and fascination that some of the 2,277—yes, two thousand, two hundred and seventy seven—exhibition stands were visited. Two regions caught the eye: first, the Russians were out in force, presenting a wild diversity of real estate projects and populated by a memorable selection of tight-suited men and brightly clad women. Next came the Middle East developers, with Dubai once again stealing a march on many with the sheer scale of their projects—such as Dubai Properties' Vision Tower that will, to quote, “offer 500,000 square-feet of prime space in 51 stories of transparent glass allowing clear two-way views and making for an unconventional and iconic structure.” Here was evidence, as if more were needed, that parts of the Middle East are experiencing a real estate development explosion on an epic scale. Even the news reported during the week that Middle Eastern bourses had all taken a severe turn for the worse was read as a reason for more money to be channelled into hard assets.

Which serves as a salutary reminder that even bad numbers can be good for some. And good numbers can be great for others: MIPIM, for example, is by far the organizers' biggest event in terms of attendance— and is rumored to net north of €50 million for them. Just don't expect everyone to like all the numbers all the time.

ABP, ATP invest in Greenhills JV
Dutch pension ABP and Danish institutional investor ATP are working with UK real estate company Hemingway Properties in a UK joint venture that is looking to raise more than £500 million (€722 million; $870 million). Called Greenhills Real Estate Limited, the venture will target office, industrial and mixed-use properties throughout the UK. The two pension funds have both committed £40 million. The venture has already made its initial investment: thirty office and logistics assets valued at £220 million.

CalPERS, LaSalle look at Euro warehouses
CalEast Industrial Investors, a joint venture between the $201 billion (€167 billion) California Public Employees' Retirement System and Chicago-based LaSalle Investment Management, will reportedly commit between $200 million and $400 million to the European logistics sector, focusing on properties between 100,000 and 300,000 square feet in size and located in Central Europe, France and England. The venture's sister company, CalEast Global Investors, recently purchased US REIT CenterPoint Properties Trust in an all-cash deal valued at $3.4 billion.

Aberdeen: lower returns in Europe in 2006
Returns in the European property market will be lower in 2006, according to a report released by Aberdeen Property Investors. The asset management firm cites European economies growing at different speeds and a less positive impact from shifting yields as two major factors for the down-tick from 2005. On a country by country basis, the firm sees strong returns for office investment in Ireland, Norway, the UK, Sweden, Finland and Belgium; looking at retail, it feels growth can be expected in Ireland, Spain, France, Norway, Portugal and Sweden.

UK commercial RE posts big 2005 gains
An index of UK commercial property compiled by the London-based Investment Property Datatbank shows that UK property returns held strong in 2005. The index, which tracks 11,000 properties with a total value of more than £147 billion (€212 billion; $256 billion), generated a return of 19.1 percent for the calendar year. Office properties posted a 20.3 percent gain, followed by retail at 18.9 percent and industrial at 18.4 percent.

Sparinvest makes initial investment
The Sparinvest Property Fund, a global fund of funds managed by Danish firm Sparinvest, has made its first investment. The vehicle is investing DKK 280 million (€38 million; $45 million) in UK real estate fund “The Mall” via a secondary purchase. The acquired fund is managed by Morley Fund Management and speciality property company Capital & Regional. The vehicle, which invests solely in UK retail property, has racked up around £2.7 billion in assets. The fund is the UK's largest sector-focused fund with 23 shopping centers—and has plans to acquire seven more. The Sparinvest fund of funds plans to make two final investments before closing in June.