Winners of the 2009 PERE Awards shared in their success on board the Serendipity Blue in Cannes harbour during last month’s MIPIM conference. While still tackling global real estate headwinds, our winners are clearly now on the look-out for meaningful signs of recovery.
t is 9am on a bright, clear Wednesday in March. We are on board The Serendipity Blue yacht on the Jetée Albert Edouard in Cannes, facing the vast exhibition halls of the giant real estate fest that is the annual MIPIM property show. PERE has been joined by some of the winners of our annual awards.
The PERE Awards Breakfast Club at MIPIM 2010 was a chance to metaphorically punch the air, and exchange observations about the state of the European market, (not to mention share in some of the winners’ secrets).
What follows are highlights from some of the conversations that took place on board the Serendipity. Despite concerns about banks unwillingness to realise write downs on their legacy loans and slow fundraising markets for private equity-style vehicle, PERE Award winners were cautiously optimistic about the future.
“No question there was a noticeable difference,” one fund manager says summing up the mood at the start and end of 2009. For another though, now is the time that private equity real estate players start looking for “meaningful signs” of a sustained recovery.
Among the winners also in attendance were representatives from Aberdeen Property Investors, Richard Ellis, Clifford Chance, Jones Lang LaSalle, and Freshfields Bruckhaus Deringer, which co-hosted the event.
Benson Elliot Capital Management
[Europe fundraise of the year for Benson Elliot Real Estate Partners III, which raised €505m]
Trish Barrigan, senior managing partner, says the firm will this year be looking closely for “meaningful signs” of a sustainable recovery in the European real estate markets, which it is yet to see, cautiously continuing to pace deployment of its capital. That said, she adds the firm does not anticipate wholesale distress now or in the future. She says: “We will be focusing on opportunities across sectors that have intrinsic value and that will allow for future value-add through intensive asset management.”
Senior managing partner
Brookfield Asset Management
[Global firm of the year and global fundraise of the year for Brookfield Real Estate Turnaround Consortium, a $5.5 billion club structure]
Brookfield’s senior managing partner Barry Blattman said there had been “very meaningful” changes in real estate, not least in relation to debt markets and tenant behaviours. “Not all markets are the same – some are better than others – but no question there was a noticeable difference and greater optimism between the beginning and end of 2009,” he says.
Brookfield feels the global economy remains fragile. In the US, state and local governments and other public entities, such as transit authorities seem to have made little progress in balancing their budgets. Taxes will probably rise and banks still hold “paper” backed up by insufficient collateral, while internationally, similar issues exist in most developed nations and several European countries are suffering from high debt levels and bad investment choices. “It will take some time to sort this out and there will be fallout within the real estate industry,” said Blattman. “But for companies like ours that are well capitalised with strong global institutional relationships, this could well create attractive investment opportunities.”
Chairman, global real estate practice
Paul, Hastings, Janofsky & Walker
[Asia law firm of the year [transactions]
Philip Feder says that if MIPIM 2009 featured “wallowing in self-pity”,
MIPIM 2010 was a metaphor of the week’s weather: apparent clear skies,
but clouds and occasional strong winds and a definite chill in the air. He says buyers are primarily
private equity firms with dry powder, but that they are waiting in the wings for prices to drop.
“The problem is that, unlike the US, and perhaps Ireland, European debt owners have neither the
incentive nor the inclination to sell their non-performing and sub-performing debt. The finance ministries
of Europe aren’t putting pressure on lenders to do anything except to extend and pretend, so the
market for new deals remains stagnant.”
Chief executive officer, Europe
[Asia firm of the year and Asia deal of the year for 181 Queen’s Road, Hong Kong]
“MIPIM may seem subdued on the surface but there are some high-level deals going
on,” says MGPA’s head of Europe, Alex Jeffrey. “The weight of capital chasing prime
assets is remarkable compared with a year ago, and banks are keen to lend.”
He confesses that though the firm was a net seller in 2006 and 2007 he wishes MGPA
had sold more. Conversely, MGPA was a net buyer in 2009, with Jeffrey wishing the firm
had bought more as well. He adds: “We had intended to hold [assets] until macro-economic
stability was more embedded, but unsolicited approaches and buyer demand may point
us towards some earlier sales this year.”
Group head and CIO, Global Real Assets – Real Estate Europe
JP Morgan Asset Management
Europe deal of the year, advising The National Pension Service of Korea on the purchase of HSBC’s Canary Wharf tower
Pete Reilly says 2010 should bring some further rental declines and vacancy increases, though not as painful as in the last two years. “The big question marks still remain for the mid-term – 2012, 2013, 2014 – can quantitative easing be maintained, will interest rates stay low and how will all the overleveraged properties be recapitalised?” He adds: “Investors are coming back into the market but largely at the low risk end, being high quality, core assets which are well located in key cities leased to credit tenants under long-duration leases.”
Peter Pereira Gray
Managing director, investment division
The Wellcome Trust
[Europe limited partner of the year]
The Wellcome Trust’s managing director of investments, Peter Pereira Gray, reckons MIPIM was “right sized” this year, being smaller with a higher proportion of more senior people. It was, he says, more business like and with less “excess”. Whilst in public much was made of the bullish indicators of increased allocations, property prices and even salary rises, in private, MIPIM 2010 told a different story. “Headwinds remain and to some, prices close to pre-recession levels make no apparent sense as an operationally levered industry struggles with a loss of leverage, top line revenue growth and poor margins,” he says. “Seldom has the equilibrium been so uneasy or the stakes so high. Look first to the bond markets for your answers.”
Head of European real estate
Global, Europe and Asia debt investor of the year and Asia fundraise of the year
Lone Star’s head of European real estate said the firm was “confident” this cycle would present “very attractive investment opportunities”. He said in the coming months, banks would attempt to delever their balance sheets and reduce their real estate exposure through various strategies. His firm, which is managing around €20 billion of non-performing assets in Europe, has acquired more than €5 billion of loans in the past 15 months. “The most successful investors will need access to large amounts of equity, sophisticated loan servicing and asset management platforms and in depth loan work-out and acquisition expertise,” says Brahin.