People have short memories and forget that last year’s feel-good factor at MIPIM was obliterated when Cyprus blew up a few days later. Luckily, there were no such shocks in the aftermath of the 2014 event, which was staged the week of March 10. Near universal opinion was that the ‘mood’ was upbeat, given that the Eurozone had stabilized. Some firms even attempted to lend some science to that feeling by taking a poll of delegates. Admittedly, a poll of 300 property professionals out of 25,000 delegates is only a 1.2 percent sample, but CBRE nonetheless reported that 85 percent of respondents felt “bullish” about European commercial real estate. “There is certainly less caution and more confidence,” added Jonathan Hull, CBRE’s managing director of EMEA capital markets.
Scratch below the surface, and it seems much of the upbeat mood came from the appearance of global capital itching to get into Europe – some €60 billion from institutional investors, according to data released by Colliers International during the conference. That is clearly good news for real estate brokers, for whom the good times have returned. Talking points linked to the broker community included the sale of Germany’s Corpus Sireo and its €16.5 billion in assets under management, for which bids were rumored to be going in during MIPIM week. One person said they expected the large agents to be gunning for it.
What of the funds
While an abundance of capital might be good for brokers, it is not quite such good news for opportunity funds, which would prefer scarcity of capital. Spain, for example, was clearly the hottest of the European markets being spoken of, and anecdotes abound about just how much capital is chasing deals.
One fund manager joked about a recent flight to Madrid, which was packed with analysts, hedge fund types, credit funds, equity funds and global investors seeking a sunny deal. Another bemoaned how he was working on a deal that seemed exclusive – until a broker opened it up. All of a sudden, there were 30 bids coming in.
The interest in Spain and relative strength of European capital markets certainly has encouraged certain groups to launch public property companies in the country. This was another hot talking point (see this month’s Eurozone, page 18). The rise of the listed sector was piquing interest in the hotels and restaurants of Cannes, where opportunistic fund managers were wondering about the relative fee structures of these vehicles. “There are probably five to 10 (listed vehicles) either out or in the works across Europe,” one noted.
The broader theme among some managers of capital had to do with “disintermediation” of private equity funds. More precisely, they were wondering to what extent traditional closed-ended funds were getting left out of the equation by global investors looking to pair up with local specialist asset managers or operating partners.
A favorite nugget that reached the ears of PERE was how a representative of the family office of a billionaire sheik was at MIPIM looking for a way to invest several hundred million euros in European commercial real estate for the first time. However, he wasn’t going to invest in a pan-European fund.
True to its roots
To be fair, MIPIM never started out as a place for opportunity fund managers to meet with investors. Consider that 25 years ago, when MIPIM first began, the first opportunistic funds – such as Brazos Partners (now Lone Star Funds) and Colony Capital – were just being conceived in the US. Back then, MIPIM was a smaller, mainly French affair about good old-fashioned development of projects. In that regard, it has stayed the same.
At the focal point – the Palais des Festivals – the usual countries featured prominently. Russia had a pavilion all to itself, promoting the latest large-scale projects. Attractive women stood by to field (business-related) enquiries, although not about the referendum by Crimea to become part of Russia – surely the biggest property deal struck during MIPIM week. Ukraine, meanwhile, was promoting a new office for oil giant Shell in Kiev.
One startling statistic, incidentally, is that Russia together with Turkey accounted for almost 50 percent of all new European shopping mall development in 2013, according to Jones Lang LaSalle, which released the findings in Cannes. Without those two emerging economies, where would mall development in Europe be?
In terms of personal favorites, PERE noted the model for NATO’s €1 billion headquarters in Brussels, designed by Skidmore Owings & Merrill and set for opening in 2016. The display was a bit ironic, given Russia’s actions and its self-promotion nearby. There also was the large Paris display area. Surprisingly, it has been some 40 years since a skyscraper was developed in the City of Light, although that drought will end shortly with the Tours Duo building coming on stream in the Bruneseau area of the city.
In the evening, the Palais des Festivals closed, and all those inside hit the hotels, bars, restaurants and beach-side hospitality tents. Or perhaps they were fortunate enough to snag an invite to one of the large yachts moored along the Jetée Albert Edouard.
Tristan Capital’s party on the beachfront was hugely enjoyable, with money raised by attendees apparently going to The Black Heart Foundation – the charity begun by Tristan founder Ric Lewis. It just goes to show, despite the flashiness and capital on display, there was room to spare a thought for those not fortunate enough to benefit from the wall of money coming into European property.
Risk appetite on the rise
Fundraising activity and deals are ‘skewing away’ from core and core-plus
to higher-returning strategies, attendees of the PERE panel heard
‘Risk on’ is a horrible phrase, and mercifully no one used it during PERE’s panel session on private real estate. However, the appetite among global investors for more risk certainly was in the air.
Jonathan Harris, Macquarie Capital’s head of European real estate, told a packed room that his firm was seeing real estate transactions ‘skew away’ from core property to value-added and opportunistic strategies, as well as development and niche strategies such as student housing.
Anthony Myers, head of European acquisitions at The Blackstone Group, explained how Europe probably was two years behind the US in terms of banks divesting real estate. However, UK banks were ‘slowly’ getting active and, in 2012 and 2013, the firm was very busy investing more than €2 billion in Europe in each of those years, he noted.
“It is getting harder to find opportunistic deals in the US, given the flow of capital and the re-flation of asset values,” Myers said. “We see much more interesting opportunities here in Europe. It is all about the banks.” However, he noted that Blackstone was starting to see what it has witnessed in the US, with increasing capital and North American firms setting up in London.
Simon Blaxland, head of investments at AEW Europe, said there was “clearly room” for other European players, despite the recent European fundraising by Blackstone. He explained how various investors had allocated a high proportion of capital to alternatives, such as real estate and infrastructure, and typically would be invested with a large global fund manager such as Blackstone, Fortress Investment Group or Lone Star Funds, giving them access to distressed deals and nonperforming loans. “Now, they are ready for more niche strategies with managers such as AEW and its peers,” he added. “I think we are complimentary now.”
Thomas Garbutt, senior managing director and head of global real estate at TIAA-CREF, said US capital was looking more and more outside of its own market, and there was “much more talk about Europe this year compared to last by a wide margin. As far as moving up the risk spectrum, I think that is very natural as part of the cycle,” he added. “There is compression in every asset class, and investors naturally are starting to migrate up the risk curve to get yield.”
The social diary
Sometimes it is hard being a real estate reporter…except when it comes to covering MIPIM. All one really has to do is hang around the Majestic Barrière Hotel and wait for senior members of the real estate industry to show up at some point. But that would be lazy and haphazard, so the PERE team did venture beyond that particular hotel to, well, other hotels as well as bars, private suites and restaurants in order to gain insights into Europe’s private real estate market. Here is a selection of pre-arranged meetings that filled our social calendar over the first two days of the event.
Meeting 1: 9 am
With: Peter Dove, chief executive officer of Cording Real Estate Group
Where: Café Roma
Notes: A bit surprised that Cording has reached €4 billion of assets since being launched in 2008.
Talking points: The good times seem to be back for property brokers; Bilfinger looking to take over GVA; and the sale of Corpus Sireo.
Meeting 2: 11:10 am
With: Dennis Cisterna, senior vice president at Johnson Capital
Where: Majestic Hotel
Notes: Johnson is here as the US firm investigates advisory and financing opportunities in Europe.
Talking points: The potential scale of opportunity; some of the interesting but under-the-radar hedge funds involved in real estate debt investments.
Meeting 3: 11:30 am
With: Noel Manns, principal
at Europa Capital
Where: Café area of the Majestic
Notes: Took along a colleague from PERE’s new sister title Real Estate Capital to hear about both the debt and equity side of investing.
Talking points: The amount of alternative sources of debt, relationship banking and the mistake of think-ing insurance companies are new
to European real estate finance. It’s
a “no comment” on Europa’s own fundraising unfortunately.
Meeting 4: 2 pm
With: Richard van Ovost, independent advisor
Where: Terrace of Carlton Hotel
Notes: The former head of inter-national real estate at Dutch investor MN Services is enjoying MIPIM as an independent advisor, having left the firm last year.
Talking points: General partners and their behavior – good and bad.
Meeting 5: 3 pm
With: Anand Tejani and Krysto Nikolic,
principals at TPG Capital
Where: Terrace of Carlton Hotel
Notes: As PERE has reported, TPG is in fund-
Talking points: The rise of the listed property sector in Europe and the ‘disintermediation’ of private funds by investors and operators
Meeting 6: 5:15 pm
With: TIAA-CREF Henderson Global Real Estate
Where: On board a yacht on the Jetée Albert Edouard
Notes: The Henderson PR team is doing heavy promotion of its new partnership with TIAA-CREF.
Talking points: The official launch occurs on April 1.
Meeting 7: 6 pm – Cancelled!
With: Laurent Luccioni, head of European real estate at PIMCO
Where: Brasserie la Claridge
Notes: Message received that Luccioni had a last-minute change of travel plan and is no longer coming to MIPIM as he is heads-down on deals apparently. Good sign for PIMCO.
Meeting 8: 6:30 pm
Where: Chez Astoux restaurant
Notes: First evening engagement of MIPIM to find out more about this German firm.
Talking points: Rob Brook, managing director for the UK, spoke from experience about the model of managing a publicly listed fund with an external manager.
Meeting 9: 9.30 am
With: Michael Morrison, partner at Cushman & Wakefield Corporate Finance
Where: Cushman & Wakefield’s stand inside the Palais des Festivals
Notes: They are raising Legal & General’s second UK property income fund.
Talking points: How large global investors are teaming up with operators. Cushman & Wakefield is advising on a €1 billion partnership between the Healthcare of Ontario Pension Plan and new logistics firm Verdion for the development of European property.
Meeting 10: 11 am
With: Peter Norman, senior vice president of acquisitions and development at Hyatt Hotels
Where: Carlton Hotel
Notes: Norman is looking for partners to own or develop hotels that fill gaps in the Hyatt portfolio.
Talking points: How opportunity funds with short-term investment horizons can partner with the hotel group on investments; gaps in the chain’s coverage – surprisingly, there is no Hyatt in Madrid.
Meeting 11: 2:30 pm
With: Chris Hughes, chief executive officer for capital markets and East region at Hines
Where: Private suite at the Carlton Hotel
Notes: Chris Keber, former director of global capital raising at Starwood Capital Group, also is in attendance, having joined Hines in November.
Talking points: How some people fail to realize that Hines is not just a developer but a very large manager of third-party capital as well.
Meeting 12: 3:45 pm
With: Basil Demeroutis, managing partner
of Fore Partnership
Where: Majestic Hotel
Notes: Fore is managing money for e-Bay founder Jeffrey Skoll and other family offices.
Talking points: A great opportunistic deal that Fore is signing in London; the rise of alternative asset managers and family offices; and the future of mid-sized fund managers.
Meeting 13: 5 pm
With: Kenneth Caplan, head of Europe at The Blackstone Group
Where: A café off La Croisette
Notes: The firm is finding large deal flow in Europe and Asia versus North America. Blackstone also has a new core real estate business.
Talking points: The Greek real estate market; Blackstone’s weekly global investment committee; and Blackstone’s participation in the forthcoming PERE and Patron Capital World Cup five-a-side
football tournament this June.
Meeting 14: 6 pm
With: Pieter Hendrikse, chief executive officer for Europe at CBRE Global Investors
Where: Villa Bernard on La Croisette
Notes: The last time that PERE formally caught up with Hendrikse was in 2011, when the deal to take over ING REIM had been announced.
Talking points: Fascinating discussion about CBRE’s European platform in terms of what to do with existing funds and new strategies.
The famous stretch of Boulevard de la Croisette can take an hour to cover for real estate folk that continue to bump into acquaintances. Here is a sample of those people that PERE spotted or bumped into over a matter of hours: Marc Mogullin his maroon jumper (when you are this well-known, you don’t need a business jacket); Giles King, former head of investors services at CBRE Global Investors, enjoying independence at new property company, Westmount Real Estate; Ric Lewis of Tristan Capital, taking a picture of the beach for his daughter back home; Peter Reilly, JPMorgan’s European real estate head in his trademark shades; Ken Caplan, Blackstone’s head of Europe, shuttling between meets at the Majestic Hotel; Jim Garman, co-global head of real estate at Goldman Sachs Real Estate Principal Investment Area, inside the Carlton Hotel bar and restaurant for a meeting; Stephen Tross, director of international real estate at Bouwinvest, in relaxed mode as he looks to invest €500 million this year; Tom Garbutt, global head of real estate at TIAA-CREF, crossing one of Cannes’ shopping streets; Christian Delaire, new global head of property at Generali Real Estate, checking the latest messages on his mobile; James Jacobs, director at Lazard’s private fund advisory group, seeking entrance to the emerging trends in real estate discussion at the Palais des Festivals; Andrew Radkiewicz, Pramerica’s co-head of Europe, scuttling for a meeting aboard a yacht after leaving his MIPIM badge in his hotel; Bill Tresham president of real estate at Ivanhoe Cambridge, on his way to an evening meal; Adam Metz, head of international real estate at The Carlyle Group, chewing the fat with friendly rivals from Blackstone.