In many ways, Stephen Tross, head of international real estate at Bouwinvest, is a man that readers should want to meet. After all, what’s not to like about someone responsible for growing his firm’s international real estate investments and who is on the hunt for value-added and opportunistic investments?
PERE spoke with Tross as the Dutch manager, with €6 billion in real estate assets under management, announced a drive to invest a further €1 billion in the asset class this year on behalf of its primary client, the Dutch Pension Fund for Construction Workers. To help assist in that task, the firm recently announced the hire of Cathelijne Martin as senior portfolio manager to manage non-listed real estate fund investments in Europe and the US and, in a second hire, just added Marjon Copier to manage non-listed funds in the Asia-Pacific region and replace Jeroen de Grunt, who had moved to CBRE Global Investors.
Tross, who himself joined Bouwinvest from KPMG in 2009, said his department now is dealing with the “challenging” investment target of growing its international assets under management to €2.5 billion from €2 billion currently. Overall, the Dutch manager is looking to add €1 billion of real estate to its portfolio in 2014, with half being invested in its domestic market of the Netherlands and half internationally.
The driver of this appetite is the pension plan’s need for more real estate as the overall fund itself continues to grow, Tross explained. Because it has a fixed allocation of 20 percent to real estate, Bouwinvest must invest more on its behalf. Although the sub-allocation within real estate is two-thirds Dutch property and one-third international, the international component is further behind its target allocation and therefore needs to grow more aggressively than domestic real estate on a relative basis.
“We have to invest about half of the €1 billion abroad so that we can reach the one-third international allocation,” Tross said. “On a relative basis, we see an increase in the US and Asia-Pacific and a decrease in Europe, but we have to grow in absolute terms in all three regions.”
In order to do that and still meet its investment criteria, the manager is considering direct property investments outside its domestic market for the first time. That would be a major departure for Bouwinvest, given that all of its international investments to date have been made either through joint ventures, club deals or open- and closed-ended funds. In addition, it intends to invest in listed real estate in Asia, he noted.
“Us contemplating going direct has to do with the diversification and growth of the portfolio,” said Tross. “The bigger you become, the more you are able to take on bigger investments. The second thing is the availability of product. We still want to make the majority of our investments on the core side with limited leverage. If you are looking for specific opportunities in certain countries or cities, the funds available are quite often more diversified than we might otherwise want.”
Elaborating a bit further, Tross said: “Right now, we are considering direct hotel opportunities in Europe outside of the Netherlands.” Hotels would be interesting, he explained, because long-term leases with an operator mean such investments are not as management intensive. “It is something that we have been investigating, though we haven’t decided yet,” he added.
Speaking of property types, Tross noted that Bouwinvest would keep its exposure to offices at the same level – roughly 25 percent. However, it is decreasing its exposure to retail property while increasing logistics, residential and hotel investments.
Crucially for opportunistic and value-added managers, Tross said Bouwinvest is seeking to add more investments in higher-return strategies. The pension currently has an allocation of 60 percent core, 30 percent value-added and 10 percent opportunistic.
“Over the last years, we have added more on the core side to get to that desired allocation, but we also felt that market was more attractive,” Tross explained. “Currently, there are various places around the world where there are more attractive opportunities in the value-added and opportunistic areas. Some of those include niche sectors in Europe, such as UK healthcare, residential and mezzanine debt. In the US, we are looking at hotels and mezzanine loans and, in Asia, we are looking at Japan senior housing and China residential.”
With €500 million to deploy, that should add up to intense competition among managers to catch Tross’ eye.