Ten new stars to watch in 2015 investment universe

New entrants range from start-ups to institutions and investment giants from other fields

As international capital flows into real estate at an unprecedented pace, the challenge of keeping up with the new faces, while staying on top of the changing strategies of more familiar names, gets ever harder.

Here, Real Estate Capital picks out 10 investors to watch.

Big and small, from Asia, America and Europe, they range from start-ups to institutions branching out into international investing, to a sovereign wealth fund building a team to take the steps into independent investing.

What is notable is how diverse they are. To take just two: Cale Street Partners is a new entrant, with a crack real estate team and a huge Middle Eastern investor behind it, which has already started to invest in Europe. EQT is a European buy-out firm with the capacity and model to do what its US counterparts did and move into a completely new asset class.

What they all have in common is the ambition to be among the successful investors in the asset class in the coming months and years.

Bayside Capital

Miami-based private equity firm H.I.G. Capital will continue its rapid European expansion by launching its first dedicated real estate opportunities fund this year. Through its credit subsidiary, Bayside Capital, it has deployed $350m of in-house capital in the sector across 14-15 deals.

Ahmed Hamdani
Ahmed Hamdani

It is thought to be targeting around $500m of equity for investment in direct property, loan portfolios and real estate lending. This reflects its transition to a stand-alone business, having spent the past 18 months in “business building mode” says London-based Ahmed Hamdani, co-head of European real estate with new recruit Riccardo Dallolio,

Riccardo Dallolio
Riccardo Dallolio

formerly of AXA Real Estate. The role will be split by geography, with Dallolio focusing on markets including Italy.

Another big hitter, Simon Laker, joined from Evans Randall to work on asset management and underwriting. Their appointments, along with a new joiner from Lone Star to oversee European non-performing loan purchases (taking over from Chris Zlatarev, who moved to Kildare Partners in September), takes H.I.G.’s European real estate team to 11, including new starters in Madrid and Milan offices.

The opportunistic investor targets $10m-$70m mid-market deals where it can add value to meet its high-teen returns. Its latest is a secondary UK offices portfolio. Last year it made its first investment in Finland with a €107m joint-venture acquisition of a retail portfolio. It also picked up non-performing loans in Italy and Romania last summer and a second small Italian NPL package last month, from Cassa di Risparmio di Cesena bank.

Hamdani says: “We focus on countries with banking dislocation, where banks will sell assets but you can buy relatively cheaply because credit is in short supply.”

Eastern Europe continues to be interesting owing to the number of banks seeking to move out of the market and limited investor competition and Bayside is focusing on single-loan sales by banks in Spain.

France will “heat up for us over 2015”, says Hamdani. “We’re seeing an interesting dislocation there: the investment market went well ahead of the occupational market and the economy has not done quite as well. We’re now seeing more pressure from banks on owners of assets.”

Cale Street Partners

The newly launched European investment firm has got people talking since teaming up with US REIT NorthStar to clinch one of the largest pan-European office deals since the downturn.

EuroProperty revealed in November that the pair were buying a €1.1bn office portfolio from SEB Asset Management. The 11 properties, spread across London, Paris, Hamburg, Milan, Brussels, Amsterdam, Rotterdam, and Gothenburg, include trophy assets such as Condor House and Portman Square House in London, Issy-les-Moulineaux in Paris and Maastoren in Rotterdam. Cale Street sourced the deal and is also a capital partner, with senior debt to be provided by a bank.

Founder Ed Siskind, former head of Goldman Sachs Whitehall funds, secured $1.5bn of cornerstone capital from Kuwait Investment Office, taking the sovereign wealth fund into European real estate lending.

Other members of the five-partner team are Wilson Lee, former European head of the real estate principal business at Lehman and UBS; Ramón Camina-Mendizabal, who was Goldman Sachs’ European real estate finance head; Dean Hodcroft, who previously ran Ernst & Young’s real estate, hospitality and construction team; and William Elliott, from Goldman Sachs’ legal department.

Based in London, Cale Street’s focus will be providing senior and mezzanine debt and preferred equity as well as equity investment capital in partnership with developers and investors across Europe. Cale Street is thought to have about €2bn of deals in the pipeline.

Dalian Wanda

China’s biggest property developer, Dalian Wanda Group, is in global expansion mode and Europe is one of its main targets.

Edificio Espana, Madrid
Edificio Espana, Madrid

Headed by China’s second richest man, Wang Jianlin, the company has many strings to its bow — from commercial property and luxury hotels to sports and entertainment. Its first property investment outside China was the Market Towers site at One Nine Elms in Vauxhall, London in 2013, where it is building a £400m scheme comprising two residential towers, a hotel, retail space and a park.

The next European target for Wanda, which also owns US and Australian property, is expected to be a large retail scheme with a hotel in London, under its Wanda Plaza brand. The goal is to become the world’s largest hotel operator, serving Chinese tourists travelling to European cities like Paris, London, Madrid, Barcelona, Frankfurt and Berlin.

Says Jeremy Waters, Knight Frank’s head of international investment: “It is not going to reinvent itself overseas; it’s about bringing what’s successful in China and exporting that.”

Waters says the company has huge equity and ambition, and “looks in detail at markets before its makes a move. It is very confident in its expertise and is bringing its brand with it. Property is important but not the sole element it is looking for.” For example, Wanda last year bought the vacant landmark office building Edificio España in Madrid from Santander at a discounted price of €265m, which it plans to convert into another plaza complex.

Waters says: “Wanda is so heavily invested in sports and leisure [it recently bought a 20% stake in Atlético de Madrid football club] that it considers key cities it understands, where there is a link to other Wanda interests, so that risk is quantifiable.”

 Deutsche AWM puts DB on fund raising trail

Deutsche Bank’s former RREEF property arm is raising capital again after rebranding the business two years ago.

Pierre Cherki
Pierre Cherki

In October, the now-named Deutsche Asset & Wealth Management (Deutsche AWM) launched its first, €700m, German open-ended property fund under new legislation designed to make such vehicles safer for investors. It has also raised €500m for origination of senior loans in Germany.

Pierre Cherki , Deutsche AWM’s head of alternatives and real assets, says: “We see a lot of interest, particularly from insurers looking to close the capital gap; there is increasing demand for real estate loans as an alternative to bonds.”

The group has invested in mezzanine debt through the US side of its business, but its foray into senior lending is new and marks a further milestone for the bank’s merged asset and wealth management divisions, which endured torrid times from 2011 to 2013.

In 2012 RREEF was the subject of an aborted takeover bid by Guggenheim Partners and lost many staff. Its once flagship UK Core Property Fund was transferred to BlackRock at the end of that year.

With $1.27trn of assets under management globally at the end of September 2014, Deutsche AWM’s main focus is on lower-risk investments, rather than offering the opportunistic strategies it used to, in the core European markets of Germany, the UK and France, although it is planning to explore regional cities more.

Its separate account clients are still key and in the coming year Deutsche AWM will “do more of what we do well and continue to work with clients to diversify portfolios in the [15] markets we’re present in” says Cherki. It will also seek to expand its distribution channel, broadening its product range and client base.

EQT

Big new real estate investors don’t come along every day, so EQT’s announcement of a move into property at the start of this year was newsworthy.

Edouard Fernandez
Edouard Fernandez

The Swedish-owned international private equity firm has raised €22bn of equity from over 300 institutional clients in recent years, so far for investment in asset classes other than real estate, including credit, direct lending and infrastructure. It specialises in company buy-outs and owns around 60 companies.

For its move into property, EQT recruited Edouard Fernandez and Rob Rackind from Wainbridge and Fredrik Elwing, formerly of Greenhill & Co and Credit Suisse. Elwing’s background is in placement agency work and he is well known to many international investors in real estate funds. Fernandez and Rackind have backgrounds in

Rob Rackind
Rob Rackind

property finance, sourcing deals, investment and asset management, as well as building a private equity real estate advisory   business — Wainbridge — from scratch.

The trio are structuring a value-added investment strategy, reporting to deputy managing partner Lennart Blecher. EQT offers both co-investment and funds to its investors in other sectors; expect more details soon.

 

Japan Gov’t Pension Investment Fund

Recent moves by Japan’s Government Pension Investment Fund — the world’s largest pool of public-pension assets — suggest it could soon make its highly anticipated real estate debut.

After much speculation, in November 2013, a government-appointed panel urged GPIF to begin investing in real estate as part of a push to increase its returns in a reviving economy.

Less than a year later, in an October portfolio reshuffle aimed at doing just that, the $1.1trn fund announced an allocation of 5% to alternatives, which it said could include real estate, private equity and infrastructure; and it revealed plans to dedicate an in-house team to seek those investments.

Foreign institutional investors, traditionally seen as ultra-conservative, have slowly crept into the real estate market, as it typically offers a higher yield than government bonds. GPIF president Takahiro Mitani said late last year that the fund was likely to join those investors.

The move into real estate is yet to come, but the real estate industry is keenly anticipating it. While 5% may not sound colossal, it is a typical alternatives allocation for a fund entering the market, and in this case it could translate into tens of billions of dollars worth of property deals in major world cities in time.

In January, as part of the push to increase returns, the fund appointed Hiromichi Mizuno, a former partner with London-based private equity secondary market investor Coller Capital, as its first head of investment. The move immediately made Mizuno one of the most important investors in the world, but his real estate agenda has yet to materialise.

KKR seizes opportunities for rapid real estate growth

In a few short years, US private equity giant Kohlberg Kravis Roberts has become a big fish in the real estate pond. The opportunistic investor, which targets mid to high-teen returns, has deployed about $1.8bn of equity in 30 deals globally since the group launched a dedicated real estate strategy in 2011.

Its first property fund raised $1.5bn in 2013 for opportunities in North America and Western Europe. KKR has since closed seven deals in Europe, each between €75m and €100m, mainly in the UK, France and Spain.

Guillaume Cassou
Guillaume Cassou

Its first, in 2013, was the £112m purchase of three retail parks in Oxford, Glasgow and Sunderland from Resolution Property. Last September it bought Nassica and Vista Allegre retail parks, near Madrid and in Zamora in Spain, from British Land for around €100m.

“We’re targeting good-quality assets with an attractive yield and the ability to create value through capital spending or change of use,” says Guillaume Cassou, head of KKR’s European real estate team.

Germany should feature more in KKR’s plans this year. It has teamed up with local business Deutsche Immobilien Chancen to form asset manager German Estate Group, which will invest in and manage office and retail properties across the risk spectrum for third-party capital (local and international), as well as for KKR’s own balance sheet.

It has also launched debt initiatives, hiring a credit team from Rialto Capital Management to invest in US junior real estate loans, and creating an Indian lending business with backing from GIC.

But real estate is only a small part of KKR’s overall business, accounting for about $1.5bn of the nearly $100bn of assets it manages across asset classes — private equity being its largest. “The objective is [for real estate] to gain scale over the next three to five years,” says Cassou. “We’re trying to invest €200m of equity per year in Europe; with leverage, that’s around €1bn of assets per year.”

KKR is looking at the Nordics, Benelux, Italy and the Netherlands, but “Spain now looks a bit on the expensive side”. Says Cassou: “It’s a stock selection exercise in each country, rather than betting on one market”.

Norwegian Gov’t Pension Fund

Karsten Kallevig
Karsten Kallevig

The world’s largest sovereign wealth fund, Norway’s Government Pension Fund, managed by Norges Bank Investment Management (NBIM), is building its exposure to real estate by up to 1%, or around $8bn a year, to take it to 5% by 2016. Notably, NBIM is for the first time taking the driving seat when it comes to investing, in a move led by chief investment officer for real estate Karsten Kallevig .

The oil fund began deploying capital for property via joint ventures in 2011: its first was the £452m acquisition of a 25% stake in The Crown Estate’s Regent Street properties in London.

It continues to invest in partnerships, like one with Prologis in logistics for example, where it bought buildings last year in Barcelona, Madrid and the Netherlands. In 2013 the fund also entered into a real estate debt co-investment programme with AXA Real Estate, targeting senior loans up to €600m.

But some recent acquisitions reflect a sea change in strategy: NBIM bought Queensberry House in London’s Mayfair without a partner, paying £190.6m in January to Italian fund manager Sorgente, and it did the same last September, buying Bank of America Merrill Lynch’s Financial Centre HQ in London.

Underpinning this change was a real estate department reshuffle last September, with Kallevig planning to quadruple his staff to 200.

The fund holds total assets worth NK6.82trn (£583bn), 60% in equities, 35-40% in fixed income and up to 5% in property, according to The Sovereign Wealth Fund Institute figures.

Its circa £11.6bn real estate portfolio comprises core retail, office and logistics properties in large European and US cities including London, Paris, Frankfurt, Munich and New York, although it is looking at other global cities. It recently invested in Boston, alongside MetLife, and San Francisco, with TIAA-CREF.

Safra Group

Brazilian banking family the Safra Group beat a 200-strong field to buy London’s iconic ‘Gherkin’ office tower for £726m late last year, paying £100m more than previous owners IVG Immobilien and Evans Randall did in 2007.

London's Gherkin
London’s Gherkin

The trophy deal was the first UK purchase for owner Joseph Safra, brother of the late Moise Safra, who bought Plantation Place, also in the City, in 2012, via a separate company.

An adviser on the receivership sale of the Gherkin described the Safra Group as “patient wealth”, given that it has been looking at UK opportunities for around four years and takes a long-term view. It had its sights set on this deal before marketing had even started.

“It never swayed and bid aggressively,” the adviser says, calling the group’s real estate team “very impressive; very focused”.

He adds: “This was an opportunity that suited them. It offered the potential to work the asset and create value, because the building is under rented. Is it likely to do a bunch of other ‘Gherkins’? Probably not, but over time, it will buy across the UK and no doubt Europe as well.”

The Safra Group’s family office has a finger in many pies, having amassed assets including property, banks, telecommunications and most recently bananas, through its takeover of fruit producer Chiquita.

Joseph’s son, Jacob, is said to be responsible for all international operations, including real estate in the US, where Safra bought more than a dozen properties in 2013. It owns a portfolio of commercial real estate in Brazil and is a value investor, seeking low double-digit internal rates of return.

Typically, agents report South American money targeting places such as Spain and Portugal first. Often, investors are non-property families looking for capital protection and diversification.

Lure of London prompts Taikang’s UK debut

Taikang Life is the latest Chinese insurer to start buying international real estate, acquiring its first UK property, Milton Gate in the City of London, for £198m in January. The deal reflected a 5% net initial yield and its bid is thought to have far exceeded competitors’.

Milton Gate, London
Milton Gate, London

The Beijing-based group was one of the first Chinese insurers to be permitted to invest overseas, in 2012, but has only just made its move, advised by private equity firm GAW Capital Partners’ London team. Craig Chen, chief investment officer at Taikang Asset Management in Hong Kong, manages the group’s overseas investments.

With RMB440bn (£45.7bn) of assets, Taikang Life is typical of the 10-20 Chinese insurers known to Knight Frank’s head of international investment Jeremy Waters, seeking secure income and long leases. “There is a clear requirement for property in core, overseas gateway cities,” he says. “These funds have strong requirements and significant equity to invest, with a focus on London, New York and Sydney.”

That often means landmark offices, like China Life’s June 2014 purchase of a majority stake in 10 Upper Bank Street, Canary Wharf.

Chinese insurers tend to diversify by asset class and location as overseas investing becomes more familiar. Ping An for example, which in January paid £327m for Tower Place in the City and was the first Chinese insurer to buy abroad in July 2013, has indicated its interest in Germany, Spain, Italy and Japan.

Some, like Anbang Insurance Group which bought New York’s Waldorf-Astoria hotel for $1.95bn in October (see pp25-26), have an opportunistic strategy. Waters says it is well known what Chinese insurers are looking
for; “it’s a question of when each makes their move”.

 

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