General Electric, the US electrical appliances-to-capital finance conglomerate, once had an ambitious plan to scale up real estate investment management in order to compete with the big boys of private equity real estate. It went about hiring senior professionals globally and even managed to raise some funds. However, just three years later, the Connecticut-based conglomerate’s finance arm is dismantling what it has achieved to date and instead is focusing its efforts on real estate debt.
The latest installment in that strategic shift arrived just last month when GE Capital completed a deal with Valad Europe to sell the management contract for its €240 million Polish Retail Fund, which was launched in 2011 and managed to amass just over €400 million in assets since then. The deal also involves Valad acquiring a team of around 20 staff led by Thierry Leleu, formerly the general manager in Europe for GE Capital Real Estate Investment Management. He joins Valad Europe as head of funds management and also will sit on the firm’s executive committee.
The deal has had a knock-on effect on David Kirkby, Valad Europe’s current head of fund management, who has been appointed to the new role of chief investment officer. Both Kirkby and Leleu report to Valad’s chief executive officer Marty McCarthy, a former GE Capital Real Estate professional who worked for the firm in Australia, New Zealand and the US.
Another key ingredient of the transaction is GE Capital’s co-investment in the fund, which it is retaining for the most part, although Valad Europe is buying a portion of that co-investment to ensure alignment of interest with investors. The purchase by Valad is being made from its balance sheet.
Sources said it was the middle of last year when GE Capital told investors of its strategic shift away from managing third-party funds towards credit investments. The firm drew up a short list of potential suitors to take over the management of the fund and one of the names was Valad Europe, which has been managing assets in Poland for around eight years. Talks with various parties progressed through 2012, culminating in Valad being selected. Limited partners in the fund, such as clients of The Townsend Group and CBRE Global Investors, approved the transaction towards the end of 2012, and last month the transaction was made public.
Representing Valad Europe’s first corporate acquisition since being privatized in 2011, McCarthy said the deal was helped by the fact that many of the investors in the Polish Retail Fund also are limited partners in Valad’s funds. The transaction more than doubles the firm’s assets under management in Central and Eastern Europe to €800 million and its overall assets to €4.3 billion across 16 funds and mandates. Coming with that is the task of managing an additional 3 million square feet of retail assets in seven of Poland’s major cities, including Warsaw, Kraków and Wroclaw.
McCarthy noted that, to date, there has been a lack of corporate takeover deals to pursue. “It is a key element of our growth strategy to acquire funds, GPs and companies that add value to our platform,” he said. “This transaction is exciting and rare.”