Wednesday 26 April 2017 is a special day in the PropertyEU calendar.
That evening a group of the most distinguished dealmakers in Europe as well as members of our own team from Amsterdam, London and Frankfurt will be gathered in Banqueting House at Whitehall Palace in London for the presentation of PropertyEU’s inaugural Deal of the Decade Awards.
The winners and runners-up of the 10 different categories have already been announced, but in the last few weeks our readers have voted for their preferred choice and the counting has now begun. On Wednesday evening we will announce which of the 10 category winners has won the overall Deal of the Decade Award.
To refresh your memories, these are the 10 candidates:
Office: HSBC HQ, buy-back HSBC, 2008
Retail & Leisure: 25% Regent Street, London, NBIM/Crown Estate, 2011
Logistics: Prologis/NBIM 11-country portfolio, 2012
Residential: Patrizia/LBBW Immobilien, 2012
Portfolio: Pegasus Portfolio, Union Investment, 2007
Debt: Project Jewel loan portfolio, Hammerson/Allianz RE, 2015
Newcomer: Griffin/Redefine - Echo Polska Properties, 2016
Development: Battersea Power Station, SP Setia/Sime Darby/EPF, 2012
Corporate deal: Merlin Properties, Testa acquisition, 2015
Editor’s Choice: 50% stake Puerto Venecia, Zaragoza, Orion Capital Managers, 2011
Together these 10 candidates form the most innovative and groundbreaking deals that have taken place between 2006 - the year in which PropertyEU was founded – and 2016.
We will go into more detail on each of these 10 deals in our upcoming magazine, but for now I would like to go back to a conversation that one of our editors had in the run-up to the awards with Aref Lahham, co-founder of Orion Capital Managers. Orion's acquisition of an initial 50% stake in the Puerto Venecia shopping centre development in Zaragoza in 2011 was the top pick in the Editor’s Choice category. The conversation with Lahham neatly captures the decade from the global financial crisis up until last year, and illustrates the deliberations which must have gone on in many real estate boardrooms during that period.
Towards the end of 2006, alarm bells were beginning to ring inside Orion’s offices, Lahham told PropertyEU’s CapitalWatch editor Robin Marriott. While deals continued to be struck across Europe, the co-founders of Orion saw worrying signs of an overcooked market. And so, in early 2007 it stopped investing.
Recollecting events leading up to the Global Financial Crisis, Lahham recounted that some of Orion's own fund of fund investors had reacted with concern at the company’s annual investor meeting in June 2007. ‘We were saying we had stopped investing, but some investors were more or less replying, “So you can’t cut it anymore?’”
In fact, a clutch of other firms had also arrived at the same conclusion as Orion and had decided to monetise investments. Yet even as voices in the US and Europe warned of an impending crash – and while problems at Bear Stearns first emerged - plenty of others were trying to carry on as normal.
For instance, as late in the cycle as the first half of 2008 with Bear Stearns having collapsed and been taken over by JPMorgan, Lehman Brothers was still on the road raising a $4 –5 bn global real estate fund, Lehman Brothers Real Estate Partners III, with Lehman itself contributing some $800 mln to the opportunistic vehicle.
‘The market continued investing and only got killed when Lehman went down,’ summed up Lahham.
In the summer of 2007 as the first signs of the financial crisis began, many investors realised that Orion had stopped investing in time. The previous year it had returned un-invested capital to limited partners and then in 2008 it went fundraising to raise its largest fund at the time, convinced that there would be large buying opportunities arising from the crisis.
Europe’s real estate market was inactive for months in the wake of the Lehman crash. Indeed, it wasn’t until the second half of 2009 that a few firms started to return to the market. The Blackstone Group’s landmark re-entry to UK property was announced in September 2009 when it struck a 50:50 joint venture with British Land for a stake in the Broadgate office complex in London.
Meanwhile, Orion was scouting out opportunity elsewhere in Europe – namely Spain - though with limited success. Throughout 2008, Orion was trying to open a dialogue with banks in the country. However, financial institutions it visited with insisted that the firm was too early in asking banks to sell assets. Said Lahham: ‘Everyone was laughing at us and saying, “not now!”’
In January 2009 – the same year as it closed its fund – Orion began to find opportunities and bought 7.25% of Société Foncière Lyonnaise (SFL), majority-owned by Spanish group Inmobiliaria Colonial. Another opportunity led to a joint venture with Colony Capital. Orion teamed up with the US firm in buying a portion of a €4.2 bn syndicated loan in Inmobiliaria Colonial from Goldman Sachs, which has since been sold. The company also acquired Plenilunio shopping centre in Madrid - it bought the property for €235 mln from the frozen Banif Immobiliare fund managed by Spanish bank, Santander.
One of the contenders
The PropertyEU editorial team did not pick the Plenilunio deal, but chose instead the May 2011 acquisition of a 50% stake in Puerto Venecia shopping centre and retail park in Zaragoza for an equity cheque of €48 mln from UK REIT British Land.
As reported at the time, British Land was reticent to inject further equity into the shopping centre under construction and the contractor had reputedly walked off the site. Orion came in and convinced British Land to continue funding it. Then in the year after the centre had opened, Orion bought the remaining 50% for €144.5 mln. Orion finished leasing the asset and eventually sold it in 2015 to Intu Properties for €451 mln.
In the real estate world, everybody talks about location, location, location. But that’s just one part of the equation. Both of Orion’s Spanish deals display vision, timing and an ability to overcome a difficult situation. That appears to be the winning combination that sets aside all of the 10 category winners for PropertyEU’s inaugural Deal of the Decade as well as the runners-up.
Puerto Venecia is one of the 10 finalists for the overall award and we look forward to letting you know on Wednesday which one our readers have selected as their winner! We will keep you posted with a special report the following day.
Editor in Chief