Chris Taylor, the chief executive officer of Hermes Real Estate, is on a mission to help his firm expand internationally, including in the US, core Western European markets such as Germany and possibly Australia.
Taylor joined Hermes in 2010 from Australian-based global investor QIC, where he was head of European investments for four years, and before that was at the real estate arm of UK insurer Prudential. In his first interview with PERE since taking helm at the London-based fund manager, he said a partnership formed in the US last June had become the “template” for future globalisation on behalf of its client investors.
“For our global strategy, we would like to shift our main portfolio to a 70:30 split between UK and international,” Taylor said. “In the UK, where we have in-house teams, our preference is to invest directly, but internationally we need partners. The challenge and opportunity is to identify best-in-class partners where there fundamentally is an alignment of interests. We believe this is important as real estate is very much a local business unless you want acquire trophy assets in major cities to multi-corporates, which is not our style.”
Hermes, which has a total of £5.9 billion (€7.2 billion; $9.4 billion) in assets under management and whose flagship vehicle is the UK Hermes Property Unit Trust with some 132 limited partners, announced last year its international debut. It joined forces with New Jersey-based real estate investment firm Hampshire Real Estate Companies as its local operating partner. Earlier this year, it launched the result of that joint venture, the HUH US Real Estate Income Fund, which is targeting non-discretionary retail spending properties. The BT Pension Scheme and UOB Global Capital, a subsidiary of Singapore’s United Overseas Bank, are cornerstone investors.
Taylor noted that there is no target for the fundraising. Instead, he said it was “opportunity-driven,” adding that the timing of the fund had caught the US recovery. “The US is interesting because European investors are now looking at the US dollar as a relative safe haven, but perhaps more importantly the income component of the return is compelling,” he said. “There is no overall target – it is just driven by value and opportunity. If we see that, we will invest.”
The US initiative is the “template,” Taylor stressed, for how Hermes Real Estate intends to invest internationally. “We are looking at further investments in the US, and we see core Western European markets – notably Germany – as attractive as they are reasonably stable. Australia is a market we like as well because of the economic fundamentals, the health of the banking sector and its commodities link to China which, vicariously would give us exposure to the Asia growth story.”
Overall, Taylor noted that the US would be Hermes’ priority. “If you are a long-term investor, that is the obvious place to start given stability and transparency,” he said.
Back in its home market, however, Hermes continues to invest on behalf of its clients, which are mainly seeking core-plus assets. In May, the manager bought the remaining 50 percent stake it did not own in three shopping centres from Australian developer Westfield: Royal Victoria Place in Tunbridge Wells, The Friary Centre in Guildford and CastleCourt in Belfast. The deal saw Hermes gain full ownership of all three centres.
Taylor pointed out that the fund manager is unusual in the UK as it owns two private property companies, Argent and MEPC. The BT Pension Fund and GE Capital took Argent private in 2000 and, three years later, the pension plan took over the remaining 50 percent. Argent is the developer behind the rejuvenation of the King’s Cross area of London, where 8 million square feet of mixed-use commercial space is being developed.
In an exceptional move, Hermes did invest in a UK opportunistic fund before Taylor joined. It made an early commitment to Brockton Capital’s first fund, which raised £150 million (€189 million; $300 million) in 2006. Taylor noted that, if a compelling opportunity arose again, the firm could entertain non-core-plus strategies, but that would be the exception rather than the rule.
Hermes also has been on a recruitment drive of late. The firm recently hired Nigel Roberts, the former veteran head of research at Jones Lang LaSalle in Europe, and also has beefed up its asset management team. In total, it employs 40 real estate specialists, with more than 20 of them concentrated on investment.
“One of the keys for us is to understand the occupier. That is the key to sustaining income,” said Taylor. “We are looking for alpha for our clients. We always have bought assets with asset management upside.”
Hermes is hoping that it can export that philosophy abroad.