EUROPE NEWS: On the road again

Last year marked the 30th anniversary of the creation of Montagu Investment Management Property Services (MIMPS), the real estate management firm which would eventually become Rockspring Property Investment Managers.

Founded by Rockspring’s current chairman, Richard Plummer, MIMPS originally managed two open-ended property European unit trusts before forming one of the first property limited partnerships in the early 1990s via the launch of its first closed-ended fund, TransEuropean I, in 1992.

“Amazingly enough it was one of the first limited partnerships for real estate which we evolved out of what we thought were some of the better bits of open-ended funds and at the same time it introduced the closed-ended nature of the limited partnership,” said Robert Gilchrist, Rockspring’s chief executive, who joined Plummer at the firm back in 1987.

It was TransEuropean I, the European core-plus/value-added fund, which very much drew the attention of Prudential Financial of America, which purchased the firm in 1993 and renamed it to PRICOA. Said Gilchrist: “We raised quite a lot of money from the States, albeit at a very difficult time bearing in mind the recession in force at that time. But it was the American investor base and success we had over there which ultimately drew us to their attention.”

Move forward a couple of decades, and 11 years after Plummer, Gilchrist and the 30 or so staff working at the firm at the time underwent a management buyout from Prudential Financial to form Rockspring, and US investors are again very much a focus of the firm as it markets its latest fund in the series.

Rockspring is nearing a €150 million to €200 million first close on TransEuropean VI for which it is aiming to corral €400 million, with a €500 million hard cap. The firm will use up to 50 percent leverage for the fund so total firepower is expected to be in the €800 million to €900 million range.

Having garnered support from existing investors, the firm is now setting its sights on gaining more US backers. “We are determined to raise meaningful capital from the US as one thing I find slightly disappointing right now about our investor roster is that it is lower than I would like in terms of representation from North American investors,” said Gilchrist.

“The reason for that is the fact that a lot of US investors, particularly pre-crisis, were looking for much higher levels of return than we do. A lot of American investors were not looking for income, they wanted real value-add, real return premiums over their domestic markets.”

One of the important selling points of Rockspring and its TransEuropean series is the length of the track record, says Edmund Craston, managing director at Rockspring.

“We have a track record going back to 1992 for the TransEuro series going through completely different market cycles, economic growth cycles and real estate cycles. It is a really strong calling card and in fact a number of the people these investors are seeing have been involved with those programs throughout the duration as well,” added Gilchrist.

Since the launch of TransEuropean I, the firm has invested €1.7 billion from the series in 14 European countries achieving an 11 percent IRR since inception.

TransEuropean V, which is currently 95 percent committed, has delivered a 16.6 percent net IRR per annum, outperforming the series’ average – something Rockspring is hoping will not go unregistered when it embarks on the US leg of its marketing tour.

“It’s also powerful when you can show you lost no money in TransEuro IV which was set up just before the downturn when others lost a lot of money,” Gilchrist said.

Yet, regardless of track record, both Gilchrist and Craston say that what will move the needle in their favor is that Rockspring’s TransEuropean strategy is now chiming with US investors again.

“The story here is about buying income. That is what we have done consistently over the years. The basis of what we do is all about giving that dividend check to investors. It is extraordinary how sometimes they like that idea, which they certainly do today. At other times you will get no excitement which was very much the case back in 2006 and 2007,” said Gilchrist.

Craston recalled a time when the Rockspring pitch about income and hands-on asset management would draw yawns. Though Gilchrist saw this as serendipity. “They did yawn and fortunately our fundraising pre-crisis was not as successful as it has been post. Our market speak of managing assets, creating asset management wins is just not very exciting in 2006 and 2007 when the parcel is being passed with a 100 basis points yield shift every six months.”

AM people

Gilchrist and Craston see Rockspring as an active asset manager of the properties it invests in and employs a considerable number of staff across its seven offices in the UK and continental Europe dedicated to the practice.

Yet, with a large roster of asset managers a problem that can emerge if markets weaken is keeping the workforce motivated and incentivized.

“That is absolutely a key issue for many of us to think about, when the markets are less exciting, or when looking at Europe, you decide you can’t invest in France, for example, and you have a team there, what do you do?” said Craston. “What we have done is to ensure that those people develop skills that can be transportable so that their asset management skills in France mean that when they have nothing to do there, they will be able to assist in what we are doing in Belgium or Luxembourg. Good asset managers can asset manage any real estate. They understand it, it’s in their DNA, they can do it anywhere.”

Craston added that Rockspring’s diversity of product offerings also gives them the luxury of moving resources to busier parts of the business at any given time. Aside from the TransEuropean series, Rockspring operates the following strategies: Rockspring Hanover Property Unit Trust, Rockspring PanEuropean Property Limited Partnership, The Rockspring German Retail Box Fund, Rockspring UK Value 1 & 2 and single client mandates including with Korean pension fund National Pensions Service and Australian superannuation giant AustralianSuper.

“I know speaking to some of our peers, they have one fund and they are not going to be investing in France and the poor chap doing France has nothing to do. We have the advantage of having a whole range of funds and products,” said Craston. “We have a lot of flexibility to move resources to different places to keep them motivated and busy and to create more opportunities for them. If you create a new fund, you can promote someone to fund manager.”

The Rockspring asset managers should expect to be busy as Gilchrist said a large part of the TransEuropean strategy will focus on a “restore to core”.

He said: “TransEuropean VI will be continuing certain themes that we have invested TransEuropean V in and where we still see significant value that can be generated by our in-house asset management teams. As an example we have been doing exciting things on the development side in Switzerland, and with retail boxes in Germany.”

He added that Rockspring sees a refurbishment cycle in some of the markets, while in terms of income, he says there will be strong value in certain logistics and out of town retail markets around Europe.

“We clearly see that the easy money has been made. The inevitable rebound from the cyclical lows of the financial crisis has now happened. This basically means that investors have got to be clever about what they are looking for and why they are investing. It will be very much deal driven and will involve strong asset management but there are still opportunities out there – tougher to find but they are out there,” said Gilchrist.

Now to convince those US investors that the firm can be clever and find these opportunities it claims to understand so well.