MIPIM FEATURE: Caution amid positive findings

On the Wednesday of this year’s MIPIM conference in Cannes, delegates interested in what is happening in the private real estate markets, attended the European Association for Investors in Non-listed Real Estate’s (INREV) customary morning seminar at the upmarket Carlton Hotel.

In keeping with tradition, the association used the occasion to reveal the findings of its Capital Raising Survey, a piece of research jointly assembled by INREV, its Asia counterpart, the Asian Association for Investors in Non-listed Real Estate (ANREV), and its US counterpart, the National Council of Real Estate Fiduciaries (NCREIF).

Delegates heard how 73 percent of fund managers featured in the survey believed 2015’s strong market performances would continue over the coming years, in spite of widening belief that many markets are reaching cyclical peaks.

Continental European markets were considered to be lagging behind those stateside, prompting €63.1 billion, or 51.1 percent of the total capital deployed via private strategies last year to be directed to the region. That compared with €34.5 billion, or 27.9 percent to North America and just €16.9 billion, or 13.6 percent, to Asia. Global strategies, meanwhile, collected €8.5 billion, or 6.9 percent.

The survey also revealed how almost half of last year’s total investment via private real estate strategies, 47.3 percent, was invested via funds. Despite the clamor surrounding separate accounts and joint ventures, these formats attracted only 24.4 percent and 13.3 percent of the year’s aggregate capital outlay.

On stage

In a panel session at the seminar, Dietrich Heidtmann, panel moderator and head of international capital markets at Brazil-focused private equity real estate firm, GTIS Partners, pointed to investment volume numbers from transactions research firm, Real Capital Analytics, which showed that records were achieved last year in all three regions, but dominated by US volumes. Coupling that finding with the greater private capital raisings for Europe, would suggest a relatively greater volume will be achieved by the region in 2016.

Ian Gleeson, chief investment officer at CBRE Global Investment Partners, the real estate partnerships business of CBRE Global Investors, said: “I see performance continuing to pick up in Europe where [the cycle] has more to go.” He added that, last year, 60 percent of his firm’s outlays last year were in Europe. “Three years ago, it was hardly anything.”

Rainer-Jan Foortse, head of European property investments at APG Asset Management, the Dutch pension manager, predicted that, while European equity-based strategies might have further mileage, the debt opportunity in the region for funds has largely passed. INREV’s survey found that 9 percent of 2015’s new capital was raised for debt funds. However, Foortse said: “Debt funds have tailed off in attractiveness. I don’t think their returns are as attractive as equity.”

Fellow institutional investor, Rainer Komenda, head of real estate funds at Bavarian pension fund, Bayerische Versorgungskammer, agreed. “With interest rates down and banks back in the market, there is more competition on the senior lending side. It is a niche play for us, and we have a small allocation of just €500 million for it.”

Fewer, bigger

Foortse articulated how a priority for APG was to find strategies which could be “scalable”. The pension manager, which controls approximately €37 billion of real estate globally, is seeking investments in platforms where large and consistent investments are possible. “We want to limit investments but increase their size.”

“Our top ten investments are now close to €500 million,” he revealed. “Typically, we are a large minority investor.”

Gleeson chimed in: “For us, the right size depends on the strategy, controls, speed of deployment and diversification.”

But whether as many fund managers will enjoy such sizeable equity commitments was a matter debated. In contrast to the survey’s findings, the seminar’s panel considered there to be less optimism in the marketplace given their own conversations.

Foortse said: “My sense is there’s a bit more caution out there,” adding his own anecdote of speaking to certain sovereign wealth funds, for instance, that have paused on their UK investments as they await the outcome of the country’s referendum to stay or leave the European Union. “There’s no point of looking at London until we see the vote on Brexit, they said. I am surprised at what [INREV’s] picture shows.”

Gleeson added: “Our industry has a reputation for optimism.”

Nonetheless, the panellists agreed that, considering the volatility in the stock markets currently, at the low yielding fixed-income markets, that real estate remains an attractive asset class on a relative basis.

“But all the same, there are risks out there,” said Gleeson, listing low oil prices, the possibility of a Brexit scenario and controversial US entrepreneur Donald Trump becoming the Republican candidate and then the next American president, as being among them.

Nevertheless, Foortse concluded: “I think specifically that more fixed-income buyers will keep coming to real estate and that will mean the market will go on a bit longer, in spite of all those things.”