Leo Van den Thillart, global managing partner at fast expanding advisory firm, Sera Global, has given a "thousand-foot" view of what can be expected in terms of major real estate investment themes going into 2022.
In an interview with PropertyEU inside its November issue, Van den Thillart says that despite Covid these are exciting times.
‘I see a market that is in transition and much more focused on ESG, for example. Investors are prioritising and making choices whether it is impact investing, ESG or transition energy – it is real, and we really see that.’
He says fund manager consolidation is continuing. Within its M&A practice, Sera Global is assisting asset managers who are looking to sell an interest in the company or investors looking to take a stake in a company. ‘In terms of managers looking to acquire smaller managers this is off the charts!’
He also sees sector specialisation.
Larger managers are looking to get into smaller operators in order to get closer to the assets and the expertise.
Recapitalisations is also a common theme. Sera is working with large public REITs or large operating companies and infrastructure enterprises to help them with recap strategies to strengthen the balance sheet. Last year, US healthcare REIT Welltower sold three healthcare portfolios for $1.3 bn, a senior housing portfolio for $702 mln held in an 80/20 JV with an operating partner and announced a $402 mln JV with Invesco Real Estate for a portfolio of 20 outpatient medical buildings previously 100% owned by Welltower.
Some clients are pivoting into asset management – usually operators contemplating how to expand their platform by tapping the markets or moving into institutional private wealth.
Sera is seeing a lot of demand for secondaries transactions. It is also looking to raise capital for new emerging managers and existing managers eyeing new regions or financial channels. Demand from very large institutional investors is coming as they look to form clubs, syndicates, or partnerships with operating partners for much more specific sectors.
Another trend is that institutional investors are consolidating. Local authority pension funds from the UK are pooling resources. Similar moves are happening in the Netherlands as the number of investors gets cut while they form fewer but much larger entities.
Some of these investors want exposure to specialised assets but if they do not possess internal expertise they look to get that through an operating partner.
The good news for the industry, says Van den Thillart, is that investors are ‘not sitting still’. Covid-19 has accelerated pre-existing trends, leading them to rebalance and focus their portfolios. ‘We do not see them sitting on their hands. That is perhaps a surprise given everything happening around the world, but they are taking action. They are investing in incumbent managers to the extent those managers are in high priority areas of interest.’
In its product development business, Sera sees a lot of traditional asset managers looking to move into the alternatives space. Some of this is ‘design and build’ while others are entering alternatives via corporate acquisition.
‘What you see in certain areas is managers expanding into different asset classes, for example infrastructure managers going into real estate which is a natural progression. These assets usually generate cash flow so are similar at a high level though obviously requiring operating expertise,’ says Van den Thillart. ‘What’s also amazing is there are entrepreneur operators and asset managers that are just continuing to innovate and find opportunities, maybe specialising in last-mile logistics, proptech, and retech, and we are seeing some really interesting things among technology and service companies who are making things more efficient.’ ‘
The other area of interest is transition energy and the movement towards decarbonisation. Again, technology is making things more efficient. We are dealing with entrepreneurs and operating companies in that space.’
Convergence of interest
The convergence story is equally compelling. Take data centres, acute medical care facilities and hospitals, for example. Van den Thillart says interest is coming from different sides: real estate managers, infrastructure managers and private equity firms. Within this convergence, there is a concentration on assets powered by green technology. The same can be said for last-mile logistics. ‘Is it real estate or is it infrastructure?’ The lines are blurred.
‘In acute care and medical properties, we see real estate operators, but also now the introduction of infrastructure investors as well because they see the durable cash flows and attributes they consider to be infrastructure.’ At the same time, ESG and the decarbonisation agenda is a very powerful theme. ‘Europe is a very exciting place to be in terms of ESG. In some cases, Europe is taking the lead.’
*see the November issue for the full interview including news of recent hires Sera Global has made. A pdf of the article is attached below.