EUROPE NEWS: Access, not mechanism

PERE: PGGM has had a busy start to the year in Europe, alongside partners you have committed more than €1 billion already. What makes the continent look so appealing?

Guido Verhoef: We have been pretty active in the past few years in Asia and the US. I think we were a bit ahead of the curve in doing that and so were well positioned in those continents but that meant we had lagged behind with our European exposure as we had divested quite a bit in the past and we felt the timing was not good. We had to reinvest again and that meant you have seen a couple of big deals recently in the UK, a £370 million (€470 million; $561 million) UK fund portfolio and a £375 million joint venture with Legal & General Property and we bought into a big retail portfolio in Germany with Rockspring Property Investment Managers and AG Insurance which means we have our allocation in Europe up to speed now, but of course we are still looking for more investment opportunities globally.

PERE: Typically PGGM has invested in core assets but these early deals appear to have a value add strategy, is the investment approach changing at all in Europe?

GV: We see that the market has become much more expensive, it is of course a much lower yielding environment. As a result, many investors are looking for yield and the real estate sector seems to be an appealing asset category so prices have come up quite dramatically. Quite often it gets way too expensive for us as a pure real estate investor so we have to be more creative and when that happens we are more likely to move up the risk curve. We are still very much a core investor so still income generating assets but they need some work, so it’s a bit of a value add strategy. We were looking at opportunities in the UK/Europe and all of a sudden two pop up and we were ready, tomorrow that could be the same. It isn’t always something we can describe upfront and have a crystal ball to predict the future.

PERE: All three of your 2015 investments have been JVs or club deals, does this mean you are cutting back on your fund commitments?

GV: For us it is really important to get access to the best real estate. The structure is a kind of wrapper which we use just to get to the real estate, so we do it both ways either club or via a fund. We simply look at the best structure that is available given the market circumstances, in the last couple of years we have been able to do more joint ventures but we still do funds and will continue to do both. The bottom line is, is the real estate good, is the manager good, and if the answer is yes then we will work out what is the best way to approach it.

PERE: In the L&G partnerships there is a clear message that you will look to integrate environmental, social and governance (ESG) features throughout the joint venture’s assets. Is the industry as a whole adopting a pro-ESG approach?

GV: It’s on everybody’s agenda but there is still a lot of green talking and not a lot of green walking, but that is changing. PGGM is known for this being important and so you have conversations on this and the managers know that if they want to work with us they have to deliver also in this field. It’s got to be important to both parties involved, but not only that, can you actually deliver, do you have the right people and systems in place to execute. With L&G we wanted to make it even more clear as it is a value add strategy that we spend a lot of time improving the E component without giving in to the return, because that is still number one. But if you are creative you can be much more environmentally responsible and cost efficient which is a win-win. More sustainable buildings also attract better tenants, a lot of potential companies which want to rent such a building will look at the sustainability of the building they rent because they feel it is important and shows off to their market. That is something we discussed with the L&G group and as they share the same beliefs it was a very good match for setting up the venture.