CRS funds are a big arrival at Internos’s European platform


The UK-based investor has nearly doubled the scale of its business by acquiring Commerz Real’s spezialfonds arm, in a deal that builds on its existing Continental strengths, reports Alex Catalano

Andrew Thornton and Jos Short are happy guys. This month, their outfit, Internos Global Investors, bought Commerz Real’s €1.6bn real estate Spezialfonds business (CRS) and won the mandate to run British Land’s €230m Pillar European Retail Park Fund, taking Internos’s managed assets to €4.1bn and adding an Iberian platform.

“We thought CRS was a fairly gutsy transaction – to take on board €1.6bn euros, virtually doubling our size,” says Internos CEO Andrew Thornton. “But it made a lot of sense to get the scale to run our European business properly and to deepen our German platform. So we just went for it.”

Thornton (l) & Short, Internos
Opportunistic deals are back on Internos’s agenda for Andrew Thornton (l) and Jos Short

Internos had a couple of strong cards to play. Short, co-founder and executive chairman, has an investment banking background and has run opportunistic funds for Pramerica; Thornton had built up and run Invesco’s European real estate business.

Also, Internos already had the European infrastructure and expertise on the ground, well-placed to make CRS’s 68 properties, scattered across nine countries, earn their keep. The nine funds were not sufficiently profitable for owner Commerzbank, which needs to boost its capital base.

“Because we already have our own KAG licence [required to run German spezialfonds] and managing directors, we felt confident that when regulator BAFIN was asked for approval, it knew us,” says Thornton. Internos’s German platform is headed by Paul Muno, a former MD of CRS.

It has been a busy year for Internos. It has won two other mandates: to manage a French portfolio for a Swedish pension fund, and €200m for value-added European hotels from the Saxony Doctors Pension Fund. It was also appointed investment manager of Local Shopping REIT and raised €210m for its Hotel Real Estate Fund.

The plan when Thornton and Short set up Internos in May 2008 was rather different; to launch an opportunity fund, make money for investors and on the back of that, take over more mandates and build scale. The global financial meltdown “turned our business upside down,” says Thornton. For 18 months, there was no action.

Then, in late 2009, Internos won the bidding for Halverton GPT’s loss-making UK business, taking on five funds, plus the management of nearly €800m of GPT’s mainly industrial and retail European assets.

Bulking up the business

Next Internos bulked up, replacing other managers on funds and portfolios. Now, with the latest deals, it has 13 funds, 11 separate accounts and 100-plus employees in London, Amsterdam, Luxembourg, Lisbon, Madrid, Frankfurt and Paris.

p23Says Short: “The business we’ve got now is probably what we’d hoped to get. The skills that perhaps we were going to deploy for investors in the opportunistic space are the ones we used to build our own business. At least it keeps our track record intact and shows that we can do complex, smart deals and make things happen.”

Ironically, given its origin, only 6% of Internos’s assets under management are in the UK. “We definitely want to build that,” says Thornton. “There are opportunities, and perhaps because I’m least concerned about that bit, we’ve focused less on it than we might have done. I’m not worried we haven’t been piling in big-time.”

Opportunistic investing is also back on the radar. “Whether we raise a fund, do a deal or just get a separate account, I don’t know,” says Short, who spent a fruitless time two years ago trying to raise money from US investors who were convinced the Eurozone was going to collapse.

“We’d also like to raise some core/core plus funds. A lot of our €4.1bn is in valueadded investments, and we want to be lifting those two other boxes at either end and have a more balanced business.”

Thornton adds: “We’re very focused on a manage-to-core approach.” The preferred locations are cities with dense population and above average wealth and it is targeting southern England, excluding London, French regional offices and retail in Germany.

Thornton says having diverse sources of capital is vital in allowing Internos to operate across the risk spectrum. “We wanted to build a sustainable business that could invest throughout the property cycle,” he says. “If you really want to make money you have to be able to convince people to invest in the City of London in 2009, not in 2013. That trust comes from building relationships.

“If you can access the right capital, there’s always something sensible to be done. If it’s not a good time to invest, that’s when you do manager replacements and take over portfolios. So strategies change, but the business of making real estate perform doesn’t, and that’s what matters to us.”