A growing contingent of global investors is courting Europe’s leading developers in a bid to get a piece of the music.
A growing contingent of global investors is courting Europe’s leading developers in a bid to get a piece of the music.
It doesn’t seem that long ago that Europe’s real estate developers were wallflowers at their own dance, spurned by financiers and investors alike after their retreat from the ballroom after the outbreak of the financial crisis. Some of these financiers and investors have departed forever, but others are returning as happier tunes sound again on the dance floor. In fact, developers are rapidly becoming the new belles of the ball in the current bull cycle.
Just look at all the global investors courting Europe’s leading developers. Their number swelled further over the summer with several high-profile deals hitting the headlines during a period normally described as the ‘silly season’ due to the dearth of news.
In early August, US-based global private equity giant TPG announced it is acquiring CEE real estate developer Trigranit and a large part of its €7 bn portfolio of standing assets and projects. TPG Real Estate intends to commit additional capital to fund future growth and to strengthen TriGranit’s balance sheet 'to create a leading real estate investment, development and management platform in central Europe'.
Just under two years ago, TPG acquired logistics developer P3 together with Toronto-based Ivanhoe Cambridge.
TPG consolidates development platform in CEE
TPG's latest prize Trigranit has €3 bn of assets under management and a development pipeline valued at €4 bn. The transaction, which is estimated to be in the region of €500 mln, covers the Trigranit development and asset management platform as well as the developer's holdings in Poland and Slovakia, plus some development projects in Trigranit’s native Hungary and Croatia.
‘Trigranit is an excellent business with a strong track record. Its highly experienced management team with deep local market knowledge and a high-quality real estate portfolio position the company well for future growth,’Anand Tejani, a member of TPG Real Estate's investment committee, said following the announcement.
TPG Real Estate is the real estate platform of TPG, a leading global private investment firm with some $75 bn of assets under management and 17 offices around the world. TPGRE includes both TPG Real Estate Partners, its equity investment platform, and TPG Real Estate Finance Trust, its debt origination and acquisition platform. Collectively, the two platforms have in excess of $6 bn of assets under management across TPGRE and other TPG-sponsored vehicles.
TPG's latest development deal followed hard on the heels of the takeover of UK developer Quintain Estates and Development by US private equity giant Lone Star in a transaction which values the London-based firm at around £700 mln (€986 mln). ‘The proposed acquisition represents a unique opportunity for Lone Star to gain further exposure to residential and commercial assets in London,’ said Angus Dodd of Lone Star Europe Acquisitions LLP.
Quintain has refocused its business on London in recent years, developing the Wembley Park residential and retail project near England’s national soccer stadium. Commenting on the Offer, Maxwell James, CEO of Quintain, said Quintain had undergone a major transformation since 2012 which has seen the business dispose of non-core assets. ‘We have progressively rebalanced the business to focus on London and materially de-gear the balance sheet, creating a strong platform for growth.’
Canny Canadians
But one of the most dazzling new dancers on the floor this cycle has undoubtedly been Canada Pension Plan Investment Board. The Toronto-based company only started actively investing in real estate internationally in 2006, but it is a fast learner. Since opening their first European office in London in 2008, the savvy Canadians have struck partnerships with some of the most respected real estate specialists on the planet.
In May this year, CPPIB cemented its partnership with Europe’s largest listed real estate company Unibail-Rodamco by taking a 46% indirect stake in German shopping centre developer-manager Mfi. Following the transaction, Unibail-Rodamco has just under 48% in Mfi. The Paris-listed retail giant initially acquired a 51% stake in the company which owned 90.4% of Mfi in June 2013 from Perella Weinberg Partners. It subsequently boosted its stake to 94.15% in two separate transactions in July 2014 and April 2015.
Commenting on the transaction, Andrea Orlandi, CPPIB’s managing director and head of real estate investment in Europe, told PropertyEU that it has already invested around CAN$1 bn (€740 mln) in the Unibail-Rodamco deal and that it is prepared to spend another couple of billion euros this year if it finds the right assets. ‘We are opportunity-driven, it’s really just about finding the right investment opportunities,’ he said. That could also include developing shopping centres in Germany, he added. ‘We’re patient, we’re not very reliant on debt, so we would welcome those kind of development opportunities.’
CPPIB and Unibail-Rodamco were already partners in the Centro shopping centre in Oberhausen near Dusseldorf: last year CPPIB sold Unibail-Rodamco half of the 50% stake it had acquired in the massive retail scheme in May 2011. Including its acquisition of Mfi, the Canadian pension fund manager now has around €3.5 bn of retail assets in Europe, including Germany, the UK, Spain and the Nordics. This equates to roughly 50% of CPPIB’s total real estate portfolio in Europe.
At end-2012 it partnered with Helsinki-listed Citycon to buy Kista Galleria - one of the largest shopping centres in Scandinavia for more than €532 mln. Less than 12 months later, it joined forces with Intu Properties to acquire Parque Principado shopping centre in Oviedo, Northern Spain. CPPIB also has a presence in Turkey through its stake in Multi’s Turkish mall fund.
Proliferation of logistics platforms
US alternative asset manager Blackstone has also been scouring the European dance floor for suitable partners and in 2013 (?) picked up one of the biggest retail prizes with the acquisition of Dutch developer Multi Corporation. Blackstone is now bent on beefing up its European logistics arm, Logicor, although this venture is currently more focussed on existing assets rather than new projects.
The US company is by no means the only newcomer pushing for a piece of what has traditionally been a very fragmented market in Europe. In recent years a sizeable number of big equity players have teamed up with specialist developer-owners. Examples include US-based Prologis’ PELP fund in Europe which has financial backing from Norway’s Government Pension Fund Global; P3 Logistic Parks which was acquired by TPG and Ivanhoe Cambridge; Gazeley which was taken over by Brookfield Property Partners; Segro which teamed up with Canadian pension group PSP Investments; and Sydney-listed Goodman Group which acquired European developer Eurinpro and is itself backed by sovereign wealth equity.
In the first half of this year, several more heavyweight investors including Singapore’s GIC, Malaysia’s Employees Provident Fund (EPF) and US private equity group Colony Capital announced intentions to join the fray with a local partner. And another large international platform may be in the works in Czech Republic where local developer CTP has signalled it is ready to sell its entire Czech portfolio comprising assets worth some €1.8 bn. A strategic alliance between an international buyer and CTP would create a new logistics development platform that could use the existing Czech portfolio as a springboard to expand into neighbouring markets.
Residential development takes off
PropertyEU has not traditionally produced a ranking for Europe’s fledgling residential sector but as global players continue to target the sector, it is certainly becoming an option. Over the summer it emerged that Singaporean listed property developer Oxley Holdings is acquiring a 20% stake in the enlarged share capital of Galliard Group, a UK residential developer, for £50 mln (€72 mln). The acquisition strengthens Oxley's presence in London where the firm already owns Royal Wharf, a new waterfront village located in East London.
Oxley, which operates in Singapore, across South East Asia, the UK and Ireland, said the partnership will allow it to capitalise and leverage on Galliard Group’s construction and property development expertise and operating network and contacts in the UK.
Trading as Galliard Homes, the company is currently London’s largest privately owned residential developer and the second largest house builder in the capital. Galliard Homes presently has over £1.6 bn worth of forward sales, with nearly 6,000 residential units under construction. The group has sites in planning with a completed value of £2 bn.
Oxley is not the only investor that has wooed the UK developer. Galliard is developing Maine Tower in Canary Wharf in a joint venture with Cain Hoy and Frogmore. Cain Hoy was set up in London in September 2014 with a minority shareholding from US investor Guggenheim Capital while Frogmore is another UK-based real estate investment manager which recently closed on its third real estate fund Frogmore Real Estate Partners III.
The attractiveness of London’s residential sector is well-documented and also spurring many other Asian and Chinese investors to invest in new developments. The list of names of companies seeking to enter the sector continues to grow. UK-based institutions such as Hermes, RBS and Legal & General, but also foreign players like Patrizia, Lothbury, Middle Eastern investor Apache Capital Partners and Canada’s Kennedy Wilson are all getting in on the act. Bahrain-based Apache formed a £1 bn joint venture with Moda Living in May to establish a regional PRS platform under which five schemes totalling 5,000 units will be developed in Manchester, Birmingham, Liverpool and the South East.
Elsewhere in the UK, European fund manager Rockspring has entered the PRS sector through the joint venture acquisition of a development site in the southern English coastal city of Southampton. Acting on behalf of a separate account client, Rockspring partnered with Chicago-based Atlas Residential for the purchase of the 144,540 sq ft (13,370 m2) site from Southampton City Council. The project will deliver 211 one-and-two bedroom apartments situated within walking distance of leisure and retail areas at the city's marina and Oxford Street.
The transaction represents both Rockspring’s first move into the private rental sector and Atlas’ first venture within the UK. Atlas Residential is one of the largest private rental sector operators in the US, having owned and managed over 75,000 apartments with a transaction value of over $7 bn (€6.1 bn).
‘The supply and demand metrics of the private rented sector are a compelling rationale for any investor, as operational, bespoke and purpose-built assets are increasingly rare and difficult to acquire,’ said Richard Bains, head of Rockspring’s UK business.