EUROPEAN NEWS INTERVIEW: Doughty Hanson’s ‘beautiful game’

Julian Gabriel

Doughty Hanson’s ‘beautiful game’

It is not every opportunity fund manager that can claim to have made investments leveraging off Spain’s most successful football club, Real Madrid, or for that matter the European football championships. But Doughty Hanson & Co Real Estate can.

In his first interview since becoming sole head of real estate, Julian Gabriel revealed plans for two investments related to the beautiful game. The first involves the development of a shopping centre in Madrid on a site where Real Madrid has relocated its training facilities and is building a youth academy and a museum. The second involves a shopping centre in Marseille, France, next to the famous Stade Velodrome, the home to Olympique de Marseille of Ligue 1 that is being redeveloped in time for the UEFA Euro 2016 football championship. Together, the two retail developments total more than €135 million in equity commitments.

Before he revealed details of those projects, however, Gabriel paused to address a perception – perhaps an unfair one – that the firm has become a bit of a revolving door since former head Marc Mogull left in 2004. Indeed, co-head of real estate Edward Bates left at the end of last year, but observers also pointed to Doug Edwards, who was hired from AXA in 2005 by Mogull’s successor, John Howard, and has since departed. Howard himself retired back to the US in 2007.

Gabriel: partnership approach

Gabriel, who has been at Doughty Hanson since it first began investing in real estate 11 years ago, defended the firm. He said one would expect some change and transition within a team. Just as importantly, he added, the culture has changed. 

I think we are a stronger partnership than we have even been over the past 11 years Julian Gabriel, head of real estate

“I think we are a stronger partnership than we have even been over the past 11 years,” Gabriel said. “We started out with a strong leader in Marc Mogull, who I enjoyed working with and was very good at what he did. But we also have principals experienced in their own markets that have an opinion and want to have a say in the business. At the same time, someone has to be at the helm who can use their overall experience to support those partners and challenge them. To questions about some team changes, I would say that it is more a result of a cultural difference of opinion.”

Doughty Hanson & Co Real Estate currently employs 25 people, the majority of whom have been at the firm for the duration of Doughty Hanson and Co European Real Estate Fund II, a €560 million vehicle that made its first investment in 2005 and made its latest investment last year – an office asset in Sweden. With that acquisition, the fund has reached the end of its investment period.

To questions about some team changes, I would say that it is more a result of a cultural difference of opinion

Gabriel said the fund in total has made 14 investments in Central and Western Europe. Among the more recent deals was a “first mover” acquisition of the Old George Mall shopping centre in Salisbury, England, in 2009 at a time when many retailers were going bust. The firm has since kept occupancy levels above 90 percent and swapped many new and stronger tenants into the project.  In one instance, music retailer HMV took over an outlet from bankrupt Zavvi, also a music retailer, and paid a premium to do so.

Another UK investment – One Howick Place in London’s increasingly trendy Victoria neighbourhood, where Google and Microsoft have offices – will be one of a very few speculative office schemes ready for occupation in London in 2012. Other investments have been made in Milan, Italy, where it developed MAC 567, an office project in a hitherto industrial area of the northeast part of the city, as well as numerous deals in the Nordics, where it was an early mover into Finland.  

Football fervour

Doughty Hanson has acquired land from the management company of Madrid City to develop Valdebebas shopping centre, a 1.2 million-square-foot project on a vast site where Real Madrid has moved all itsIn  training ground facilities, is developing an academy for its youth and is opening a museum

Of particular interest today, however, are fresh deals now that Fund II is fully invested. This is where football comes in. In Spain, Doughty Hanson has acquired land from the management company of Madrid City to develop Valdebebas shopping centre, a 1.2 million-square-foot project on a vast site where Real Madrid has moved all its training ground facilities, is developing an academy for its youth and is opening a museum. Called the Real Madrid Sports Complex, the 360,000-square-metre facility also will include a new 25,000-seat stadium.

In addition, the site will see Madrid’s Judicial Courts relocate from the city centre, the creation of 12,500 new residential units, the development of one million square metres of office and hotel space, a 500,000-square-metre extension to the IFEMA convention centre and what is thought to be Europe’s largest public park covering 500 hectares – all in the wealthy northeast section of Madrid right next to Spain’s Barajas airport. So far, the consortium of landowners has invested €600 million on infrastructure.

Doughty Hanson’s Spain principal, Juan Barba, sourced the deal from Madrid City’s management company,

Valdebebas, Madrid

which represents 400 different landowners. The firm, which now controls the only part of the development given over to retail use, will invest more than €100 million of equity into the project, which also happens to be the first time that Doughty Hanson has built a shopping centre from scratch. The firm hopes it will be ready within two to three years.
Spain has not enjoyed good headlines, having been hit hard by a collapse in construction-related industries and a surge in unemployment to 20 percent. But at some point, Spain will improve, Gabriel said, noting that the Valdebebas shopping centre is in a prime location in the “defensive” retail sector. Indeed, the centre has been “uniquely designed” in an area of Madrid without much competition from other centres.

Doughty Hanson is in discussion with tenants and currently has enough demand for 80,000 square metres of the 125,000 square metres of available space. Once pre-lets are signed, discussions can begin with bank lending partners and construction could start later this year.

Velodrome, Marseille

The other football-related investment is in Marseille, in the south of France. Doughty Hanson has control of a site where it will develop the 24,000-square-metre Le Centre Commercial du Prado shopping centre next to the Stade Velodrome, which was renovated for the 1988 World Cup and will be redeveloped again in time for football’s Euro 2016 championship. The City of Marseille needed to release land around the stadium in order to fund that redevelopment. 

“We have come in through a private-public partnership to take control of the only retail component,” said Gabriel. “The idea is to have it ready well before Euro 2016.” Doughty Hanson is working with the City of Marseille to gain the necessary permits and, upon completion, the centre will be 100 percent owned by the firm. The equity investment is likely to be at least €35 million to €40 million.

However, it is not all about football at Doughty Hanson, as Gabriel noted that the Nordics, Germany and the UK would provide interesting investment opportunities. Although the firm has not invested in Germany since 2002, it sees the country as relatively stable. And in the Nordics, it just returned to the region with its acquisition at the tail end of the investment period for Fund II and sees additional opportunities to buy income-producing assets in need of management. Meanwhile, the UK still is attractive because it corrected faster than other European countries and typically has long leases, as well as good transparency.

If all goes well, particularly in its football-related investments, Doughty Hanson will be executing a beautiful game plan.