ASIA NEWS: Zombie eaters

Don’t be surprised to read about Asia- and Europe-focused private equity real estate firm MGPA acquiring other real estate investment management platforms in 2012. In a recent interview, chairman James Quille and chief executive officer Simon Treacy highlighted how “zombie managers” finally being forced to throw in the towel could be to the benefit of certain firms, including their $11 billion business.

Speaking shortly after last month’s news that MGPA chief investment officer Alex Jeffrey was leaving to join London-based Prudential Property Investment Managers, Quille told PERE: “The zombie managers that survived the crisis in 2008 are now running out of capital. Our teams are seeing some of those teams lose people, and they won’t be able to hold their funds together.” 

So far, they’ve been the ones we don’t want to be involved with, but I’m sure over the next 12 months there will be one or two of interest
James Quille, MGPA

Indeed, Quille has heard that, over the coming 12 to 24 months, approximately 50 percent of the world’s general partners could “disappear.” He noted that MGPA already has been made aware of two firms per month becoming available for acquisition. “So far, they’ve been the ones we don’t want to be involved with, but I’m sure over the next 12 months there will be one or two of interest,” he added. Quille, however, admitted surprise that the weeding out of such firms had not happened sooner, suggesting “people have hung on a bit.” In particular reference to those platforms that have been marketing funds for more than a year, he said he believes they eventually will reconsider their options.

When asked which regions would provide the most consolidation opportunity, Quille answered the US. MGPA has not previously operated an investment management business stateside – its resources there are more capital-facing – but he said: “There’s clearly more happening in the US at the moment. We haven’t previously looked at the US and we certainly wouldn’t go there unless we found a team we felt comfortable had the ability to continue to service and grow the clients we already have, but ‘never say never’.”

Quille pointed to Latin America and Australia as potentially providing further consolidation opportunities. “There aren’t any geographies out of bounds,” he said.

There is a direct link, of course, between talk of such business development and the departure of Jeffrey. That departure sparked a restructuring of MGPA’s senior hierarchy, part of which resulted in chief operating officer Neil Jones being appointed in late January to the newly-created role of group head of business development to explore potential corporate tie-ups, among other things.

Another responsibility of Jones, one of the founding shareholders who formed MGPA via a management-led buyout from Lend Lease in 2004, is to evaluate and source new strategic business lines. The role has been carefully scripted to send a message to MGPA’s existing investor base that the firm will not neglect existing business for new. Still, it is expected to herald more initiatives such as the firm’s sub-advisor agreement with Orlando-based private REIT manager CNL Financial Group or its KAG-structured, Asia-focused core-plus fund for German institutions.

“Investment performance is our number one priority,” Treacy said. “Still, we have to focus on the consolidation opportunity rather than be a consequence of the industry or misunderstand the landscape.”

Treacy underlined the importance of that last point, adding that another aspect of Jones’ remit would be to evaluate the changing regulatory landscape to help MGPA determine what sort of platform acquisitions or new fundraising initiatives are warranted and, more importantly, viable.

In terms of existing firepower, MGPA still has $400 million from its $3.9 billion MGPA Asia Fund III left to invest following last June’s acquisition of a 50 percent stake in Galleria, a 577,000-square-foot shopping centre in Chengdu from GTC China Real Estate Holdings. It also has raised $100 million for its fourth European opportunity fund.

More unusual, last month also saw MGPA complete a pilot transaction for its venture with CNL. Just a $5.2 million purchase of a 34,000-square-foot retail property in Giessen, central Germany, MGPA and CNL nonetheless interpret the deal as the start of a “snowball” expected to precipitate further transactions for two US REITs benefitting from their arrangement. That could generate more meaningful exposure to an immense alternative source of capital to MGPA’s conventional institutional money – namely, US retail investors such as doctors, lawyers and other professionals.

CNL’s chief financial officer Steve Shackelford added that the tie-up could produce another interesting result for MGPA: a limited partner investment by its REITs into MGPA’s opportunity funds series. “If something comes up like that and it can be structured within the context of the US REIT rules, it would definitely be interesting,” he said.