EXPO was really busy this year. It felt like speed-dating having to jump from meeting to meeting so quickly,” remarked one delegate of the annual EXPO REAL conference in Munich last month.
He was one of 38,000 real estate professionals (and two intrepid PERE journalists) who descended en masse to the Messe München, the conference center on the east side of the city that houses the event.
The throng of people reflected the state of the world’s private real estate markets at the moment: overcrowded. Indeed, that was a common theme in the numerous conversations PERE had in Munich. The serial complaint was there was way more capital wanting to be invested in solid property deals than there were solid property deals.
“There is a shift towards real assets from the largest pools of capital within their overall portfolios – it’s seen as being different from other asset classes and has a ‘stored value’ perception,” said David Hutchings, head of EMEA investment strategy at global brokerage Cushman & Wakefield.
Hutchings was the author of a report released at EXPO that revealed real estate investment across the globe reached $942.8 billion in the year through June, growing by 16 percent from the previous 12-month period. The figure marked the highest global real estate investment volume since 2008, just 13 percent below the pre-crisis peak.
“The market is pretty buoyant, and I think a key theme from EXPO was finding the right product for value was a challenge for most,” said Matthias Leube, Germany managing director of AXA Investment Managers – Real Assets, the real estate firm of French insurer AXA, which managed to close over €533 million of German acquisitions so far this year.
Sowing the seed
In another prevailing theme from the event, it is becoming increasingly evident investors are accepting that in order to put capital to work sensibly they need to take greater interest in a fund manager’s ability to deploy. Seeded joint ventures were gaining popularity as a result, since as these structures ensured that money committed was not sitting on sidelines.
One high-profile example of this approach was the £1 billion (€1.36 billion; $1.55 billion) UK logistics partnership between the Canada Pension Plan Investment Board (CPPIB), Dutch pension manager APG Asset Management and Sydney-based logistics property developer and fund manager Goodman, announced last month. Each investor committed £200 million for a 33 percent interest in the venture, providing combined initial equity of £600 million and an investment capacity of more than £1 billion, including debt. Though it has scope for future outlays, the venture was seeded with two logistics developments.
Subsequently, investment managers’ deal pipelines were being more greatly scrutinized. “It‘s all about finding the right stock so there is a need to stay disciplined,” said Sophie van Oosterom, chief investment officer and chair of the firm’s EMEA executive committee at CBRE Global Investors (CBRE GI). “We will only take risks on what we can control.”
“Capital is looking at core, but you need to be careful and very critical of deals as the market is full of ‘core’ products that are not really core,” added van Oosterom’s colleague, Pieter Roozenboom, head of global separate accounts, at CBRE GI.
For other managers, however, merely flashing a pipeline of deals under exclusivity is not enough. For them, exclusive deals have the propensity to be overvalued in this part of the market as sellers use the notion of exclusivity to set price. Managers then overpay to get deals done. “Exclusivity on deals is overrated. You only see the price from a seller’s perspective,” said Cameron Spry, partner and head of investments of Tristan Capital Partners.
Squeezed specialists
Many managers at EXPO were bullish about collecting capital, be it for commingled funds, separate account mandates, or simply for partnering with investors on club deals.
But, there were two types of strategies that were garnering particular interest from investors. “Investors want either value-add returns that see the manager get in and out before the end of this cycle or a focus on defensive income-producing assets to be held through the next downturn. The fear is of having a forced liquidity event in four years to eight years,” said Will Rowson, London-based partner of Hodes Weill & Associates, the New York-headquartered capital advisory firm.
Rowson added he has seen more managers leaving ‘bigger shops’ to go it alone. “This can be misguided because unless you can take a verifiable track record with you, raising money is near impossible. A good investment thesis alone won’t cut it like it did before the GFC.”
In fact, despite the general positivity surrounding fundraising not everyone agreed it is easy to get capital support. Rather the market remains bifurcated between the ‘haves’ and the ‘have nots’.
The most successful managers continued to be the biggest and most well-known groups such as The Blackstone Group, which aimed to raise $13 billion but ultimately raked in $15.8 billion for its last fund earlier this year.
Common to these mammoth fundraises was that they typically carried global or pan-regional focuses. “The biggest funds are great for investors as they know they’ll get the money out of the door, they aren’t niche and driven by markets as much and they are able to chase the opportunities,” said Cushman & Wakefield’s Hutchings.
And so, somewhat contradictory to investor preferences only a couple of years ago, being a sector or geographical specialist is not now always seen as a positive for managers. In fact, one PERE source said at the conference that investors today fear locking their capital out of the market if their chosen sector or geography no longer makes sense after a fund’s final closing.
Paul Hastings corporate real estate partner, David Ryland, pointed to the perennial complication with fixed-life funds in that capital raising periods can eat into an investing window, particularly if they are short. By the time money is raised, the opportunity is gone.
“Take for example a senior debt fund where the target returns were 4 percent. The sponsors took the view they couldn’t achieve that because the lending market was so competitive, so they went to investors and said you have three choices: either lend at that level and go slightly up the risk curve, we return the money to you, or you keep the same risk profile but accept a slightly lower return. In that particular case the investors decided to take the lower return.”
However, Mark Evans, executive director, equity placement at broker CBRE, said it is actually a good time to be niche. “The bigger houses are where most of the investors go unless they want niche. It’s the squeezed middle where there is not a big enough brand name or no specialism who struggle.”
Yet, Evans added there was still more equity than quality managers out in the market so there will be investors who have to make do without their first choice just to get capital out of the door.
“Capital is looking at core, but you need to be careful and very critical of deals as the market is full of ‘core’ products that are not really core,” added van Oosterom’s colleague, Pieter Roozenboom, head of global separate accounts, at CBRE GI.
For other managers, however, merely flashing a pipeline of deals under exclusivity is not enough. For them, exclusive deals have the propensity to be overvalued in this part of the market as sellers use the notion of exclusivity to set price. Managers then overpay to get deals done. “Exclusivity on deals is overrated. You only see the price from a seller’s perspective,” said Cameron Spry, partner and head of investments of Tristan Capital Partners.
Squeezed specialists
Many managers at EXPO were bullish about collecting capital, be it for commingled funds, separate account mandates, or simply for partnering with investors on club deals.
But, there were two types of strategies that were garnering particular interest from investors. “Investors want either value-add returns that see the manager get in and out before the end of this cycle or a focus on defensive income-producing assets to be held through the next downturn. The fear is of having a forced liquidity event in four years to eight years,” said Will Rowson, London-based partner of Hodes Weill & Associates, the New York-headquartered capital advisory firm.
Rowson added he has seen more managers leaving ‘bigger shops’ to go it alone. “This can be misguided because unless you can take a verifiable track record with you, raising money is near impossible. A good investment thesis alone won’t cut it like it did before the GFC.”
In fact, despite the general positivity surrounding fundraising not everyone agreed it is easy to get capital support. Rather the market remains bifurcated between the ‘haves’ and the ‘have nots’.
The most successful managers continued to be the biggest and most well-known groups such as The Blackstone Group, which aimed to raise $13 billion but ultimately raked in $15.8 billion for its last fund earlier this year.
Common to these mammoth fundraises was that they typically carried global or pan-regional focuses. “The biggest funds are great for investors as they know they’ll get the money out of the door, they aren’t niche and driven by markets as much and they are able to chase the opportunities,” said Cushman & Wakefield’s Hutchings.
And so, somewhat contradictory to investor preferences only a couple of years ago, being a sector or geographical specialist is not now always seen as a positive for managers. In fact, one PERE source said at the conference that investors today fear locking their capital out of the market if their chosen sector or geography no longer makes sense after a fund’s final closing.
Paul Hastings corporate real estate partner, David Ryland, pointed to the perennial complication with fixed-life funds in that capital raising periods can eat into an investing window, particularly if they are short. By the time money is raised, the opportunity is gone.
“Take for example a senior debt fund where the target returns were 4 percent. The sponsors took the view they couldn’t achieve that because the lending market was so competitive, so they went to investors and said you have three choices: either lend at that level and go slightly up the risk curve, we return the money to you, or you keep the same risk profile but accept a slightly lower return. In that particular case the investors decided to take the lower return.”
However, Mark Evans, executive director, equity placement at broker CBRE, said it is actually a good time to be niche. “The bigger houses are where most of the investors go unless they want niche. It’s the squeezed middle where there is not a big enough brand name or no specialism who struggle.”
Yet, Evans added there was still more equity than quality managers out in the market so there will be investors who have to make do without their first choice just to get capital out of the door.
And so the piling into real estate shows no signs of abating. Hutching’s EXPO report anticipates 2016 will be another stellar year for investment. It forecasts global volumes to rise 17 percent over the year to mid-2016 and to reach a new high of $1.1 trillion – led in part once more by growth in Europe. As such, expect more ‘speed dates’ at an even more crowded EXPO REAL next year.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: 
