EUROPE NEWS: Cornerstone’s European entry

The acquisition of Europe’s Protego Real Estate Investors by Cornerstone Real Estate Advisors of the US was a well kept secret despite 18 months of talks between the parties.

Outside of North America, Connecticut-based Cornerstone, led by president and chief executive David Reilly, is not a household name. Nearly all of its $8.2 billion assets are located in the US managed via private equity real estate, commingled and co-investment vehicles.

However, this North American concentration does not fit with the global aspirations of Cornerstone or its parent company, MassMutual, a life insurance company established in the 1850s (yes, it is fairly well established). MassMutual and its real estate subsidiary want to build out a global property platform. To this end, it opened an office in Hong Kong and Amsterdam two years ago from where it has built up a $500 million global securities portfolio.

This is not a rescue deal

Well placed source

MassMutual owns real estate advisory firm Cornerstone and also a larger asset manager, Babson Capital Management, which has $21 billion of commercial mortgage lending on its books. It is already folding Cornerstone into Babson to create a business with a combined $30 billion of assets and staff of 250.

In Protego, MassMutual and Cornerstone have bolted on a European platform, adding £2 billion (€2.2 billion; $3.3 billion) of assets in the region, but more importantly a management team that over time can start buying European property. The plan is that under new ownership Protego will launch new funds, and that investors from both Protego and Cornerstone could invest in each others’ products. It is anticipated that MassMutual in time would seed Protego’s future commingled funds. This is, of course, a conventional model. In Europe, perhaps the most obvious example is British insurer Aviva.

For its part, Protego is well known in Europe. It was set up five years ago with backing from London-based private equity firm, Smedvig Capital. It is a medium-size organisation employing around 30 staff and has indirect property funds, such as its Nordic Retail Fund, as well as separate accounts.

When it became clear two years ago that Smedvig wished to exit, the management team at Protego began the process of finding a buyer so that it could progress its business. The deal with Cornerstone was the culmination of that drawn-out process.

The fact that news of the deal did not leak out earlier was important to Protego. Those close to the company suggest it did not want international investors to assume it had issues. In other words, it did not want to be perceived as a “Kenmore” – a reference to Europe’s collapsed Kenmore Property Group, which is being broken up and is seeing replacement managers of its funds being appointed. “This is not a rescue deal,” said a well placed source.