The new order

Every four years in Europe, the hierarchy of soccer nations is decided upon in front of millions of armchair spectators. Last time round, during the 2004 European Championships, Greece became the shock footballing gods by unexpectedly winning the competition. Few thought the country could win, with odds at the start of the tournament seriously stacked against them. At one point they were given odds of 100-1 against winning the contest.

Four years later, the European Championship which will have been decided by the time PERE goes to press is unlikely to face the same level of upset. Nevertheless, a revised soccer order will allow the winner to bask in glory for the next four years.

Though most agree Europe is bound to offer some great opportunities – the soccer equivalent of winning 6-0 via a series of spectacular goals – at the moment the main players are simply trying to keep from getting injured by tidying up their portfolios.

Though in private equity real estate such matters cannot be decided upon by the kick of a ball, there is also a growing sense that in this arena too a new ranking of top teams is about to emerge. For the first time in years, the field is wide open to both newcomers and established operators. In the current economic climate the ability to make opportunistic returns is ripe so long as the strategy is a good one.

This was one of the key points made by Léon Bressler during PERE's annual European forum in London last month. The partner of New York-based alternatives firm Perella Weinberg Partners, and former chairman of French property group Unibail, has more experience than most upon which to draw. But his argument was succinct. There is about to take place a new reordering of private equity real estate with some of the biggest players losing their positions. To paraphrase the Frenchman, the field is wide open to newcomers and there will be big winners and big losers in this “Darwinian” era of survival of the fittest.

In soccer, four years is long enough to determine the successes from the failures and so by the time the next European Championship rolls around in 2012, the picture of this reordering should be clear. In four years, we should be able to see who has come up with the right formula to succeed. But at a time when the markets are rapidly changing, players in the game will have to remain patient.

And here is the interesting dynamic. Though most agree Europe is bound to offer some great opportunities – the soccer equivalent of winning 6-0 via a series of spectacular goals – at the moment the main players are simply trying to keep from getting injured by tidying up their portfolios. We may be seeing those same players limbering up on the sidelines by raising new funds, but few are actually getting involved in significant action on the pitch.

During the PERE Forum, delegates agreed and cited recent evidence of opportunities emerging from within the public market that could presage greater activity. Notably, none of those examples involved private equity real estate firms, but all highlighted the belief that what happens in the public markets foreshadows what happens in the private sector. One was the strategic review announced by Dawnay, Day Treveria, the Germany-focused fund listed on London's Alternative Investment Market. That review, prompted after falling share prices, could lead to a sale of assets or an outright sale of the company.

One of the key areas of activity though – at least in the immediate short term – is that of debt investment rather than equity. Gerald Parkes, head of Lehman Brother's real estate private equity group in Europe, was just one of many speakers to reveal he had been bidding on numerous debt portfolios. Private equity real estate firms with cash to deploy argue debt is one of the best ways to begin investing in this new world. However, when it comes to equity investing, it appears caution is the best approach. Market participants may be eager to see a return to deal-hunting sooner rather than later, but for now, it is a waiting game. By the time the next European Championship is played out in 2012, this time in Poland and the Ukraine, a new supremacy could have emerged and the kings of European real estate private equity crowned.