Increasing Cromwell’s assets under management by 50% is just one of the many challenges Mark McLaughlin faces as the company’s new managing director for Europe. PropertyEU's deputy editor-in-chief Robin Marriott spoke to him about his priorities.
Mark McLaughlin, managing director in Europe of Cromwell Property Group, is at the start of a big mission to help elevate the firm. The Irishman officially took over from David Kirkby in October 2017 in a phased-in appointment of a professional seen by the group as the man capable of delivering on certain targets. McLaughlin is described by those approached by PropertyEU as ‘energetic’ and someone who knows the company extremely well. After all, he has been with the group for over 16 years throughout all its name changes and ownership structures and has worked in several positions including head of Benelux and head of European property.
Readers can be forgiven for requiring a potted version of the history to Cromwell in Europe as there have been four name changes in the past 15 years. The company started out in Europe as Teesland Development Company in the 1960s and listed on the London Stock Exchange in 2002, one year after McLaughlin joined the firm. Teesland acquired Property Fund Management to become Teesland IOG in 2005 and was subsequently acquired by Australia’s Valad Property Group in 2007. The Blackstone Group bought Valad in 2011 and sold Valad Europe in 2015 to fellow Australian firm Cromwell Property Group, which had been looking for a European platform for some years.
The big mission referred to earlier is multi-faceted and involves growing AUM by 50%. Cromwell is looking to grow its core/core-plus and value add co-mingled funds and discretionary capital business. But McLaughlin has more than this on his plate, as he explains. ‘It is about performance and further building our track record, investing in the platform and becoming more efficient, and in terms of growth; leveraging off our existing and new relations, including new sources of Asian capital.’
IPO in Singapore
That ‘new avenue’ of Asian capital he refers to is the Cromwell European REIT (CEREIT). At the end of November 2017, Cromwell launched a successful IPO in Singapore of €1.4 bn European assets. To be fair, it wasn’t the smoothest of launches as the plan got postponed once due to what the company called ‘market conditions’, though some media reports mentioned at the time ‘investor concern’ about a lack of familiarity with the European markets. Cromwell’s founder and CEO Paul Weightman got criticised in some media reports.
One person familiar with Cromwell in Europe that PropertyEU approached tended to agree with the negative sentiment. They said putting European assets into a Singaporean REIT may not have been an obvious move at the time. ‘Why would people buy a European REIT launched in Singapore? The only argument is to give European exposure to Asian investors, but Asian investors are pretty sophisticated.’
And yet, on November 30, Cromwell announced the successful IPO of CEREIT in what Weightman called an ‘innovative and transformational deal.’ CEREIT became the first Euro-denominated REIT on the SGX-ST and the largest REIT IPO in Asia since 2013 by market capitalisation. Weightman felt vindicated, saying ‘CEREIT also secures approximately one third of our existing European assets under management (AUM) with longer term capital, and allows us to grow our platform in Italy, the Eurozone’s third largest economy, with an additional €400 mln in assets under management.’
The IPO raised €865.7 mln of proceeds. Cromwell’s stake of 35.8% was valued at around €310 mln. The new REIT’s cornerstone investors include Cerberus Singapore, Hillsboro Capital, the private investment holding company of Chinese Filipino billionaire Andrew Tan and his family who resides in Manila, and Chinese tycoon Gordon Tang and his wife Celine Tang, one of whose companies has amassed a significant portfolio of US real estate.
The prospectus for the REIT has basically set certain targets for McLaughlin and the team in Europe to meet and surpass, hence the mission to grow assets.
Cromwell’s platform in Europe is significant. It has €4 bn of assets including those in CEREIT, 3,100 tenants, and 200 people in 12 countries including 79 locally based investment managers, asset managers and analysts. It signs on average 12 leases a week and last year traded €3.7 bn. Over the last 24 months it has refinanced €1.4 bn-plus of real estate and its recent track record appears commendable.
As PropertyEU has reported, Cromwell is undergoing some sales as investors seek to exit certain strategies. For example, in March it put €500 mln of Polish shopping centres incorporating eight properties up for sale. But Cromwell wants to move away from being a trader to growing the net AUM.
Cromwell has three dimensions; comingled funds with institutional investors, private equity partners for whom it provides asset and investment management services, and the smaller business of bank workouts.
Cromwell has carved out a reputation among private equity partners and this is one of the pillars for growth, says McLaughlin. The company wants to extend these relationships. He refers to a relationship started off in 2014 with a private equity client in the Netherlands that is now invested with Cromwell in five jurisdictions, and they ‘expect to have the same Cromwell brand of service, so my job is about driving and delivering performance.’
‘Our ability to add value for investors is driven by our skilled teams of local real estate professionals on the ground, in every market in which we operate,’ says McLaughlin. ‘Our teams have the local market knowledge down to which street to invest in and the breadth to our pan-European platform means we have the capability to effectively deploy capital. This is attractive for our institutional and private equity partners – as well as the fact we are a one-stop shop, offering asset management, investment management and debt management services, together with risk reporting and compliance.’
He adds: ‘We are continually adding to and improving our platform, such as developing our technology, systems and processes to future proof the European business. 2018 will be a year where we continue to grow with existing clients, work with Asian capital looking to leverage off our extensive platform and bolster our team with new hires. It’s an exciting time for Cromwell in Europe.’
The ‘DNA’ of the company, as McLaughlin puts it, lies in its approach. It is ‘entrepreneurial but professional’. He likes to talk about deals that come back after having seemingly gone away after Cromwell has carefully informed vendors of its thinking.
It takes a bottom-up approach to investing and sees research as fundamental. This is why part of the strategy involves further beefing up its research capability. Key hires have already taken place such as Joanna Tano who has joined from Cushman & Wakefield to lead its European research division, and there are more to come.
‘We are looking to add to the team in the coming 6-9 months’, says McLaughlin. Other key hires to come are a senior transaction figure to support the team to handle portfolio deals across Europe, and a capital markets/business development professional to work with capital partners such as institutional investors and private equity firms. It already appointed Maureen Mahr von Staszewski from AXA last year to lead its fund management business.
There are various initiatives under way to ‘future proof’ the business and a reorganisation of some senior personnel has already occurred under McLaughlin since he took the helm six months ago. However, McLaughlin also talks about efficiency in terms of other initiatives such as technology. Cromwell is working on improving its in-house systems as it tries to ‘take it to a new level’. People have been taken from parts of the business to form a task force. McLaughlin: ‘Given the scale of our transactional activity across Europe, we have access to a huge amount of untapped data, which we want to leverage to enhance our performance and the quality of advice we give to clients. For example, we have been improving the investor-facing experience, moving towards providing our clients with real time information.’
Understanding local dynamics
But the main task is about performance as it usually is for every investment management organisation. Thankfully for Cromwell, it continues to see good opportunities in Europe, especially in managing to core assets of which there are many examples such as Koningskade 30 in The Hague where it took a tired asset and created an ecologically sustainable trophy building fit for ABN Amro’s headquarters.
McLaughlin says throughout its platform in Europe, its local teams know the sub-markets well enabling to select those that are ‘winning’ against those that are ‘losing’. He talks of rental growth in Amsterdam and Paris, and Finland as a ‘growth market’, and Italy where it just added €400 mln for CEREIT by acquiring a portfolio from Cerberus Capital Management. In Central Europe, the firm likes logistics, but also sees opportunity in retail and offices. In Warsaw, where there is lot of supply, the task is about understanding the local dynamics and having a team on the ground.
Referring back to its people, McLaughlin says they are the key assets of the company that adhere to the nine Cromwell values. Its strong local network ‘is key to unlocking value at the asset level. In most cases their knowledge and experience has been built up over a lifetime operating in their respective markets. That’s hard to replicate’.
As a rule, Cromwell strives to be ‘proactive’. For instance, it is building a platform that can provide whole lifecycle solutions to its clients, whether they are private equity partners looking for an exit or longer-term income focused investors.
Those that PropertyEU have spoken with rate Cromwell’s leader in Europe highly. He comes across as genial Irishman and people say he ‘has what it takes to get Cromwell to where it needs to be’. Added one person: ‘I think Mark will go far but it is going to be tough.’ He is certainly having a busy time. He needs to manage existing AUM, grow it, drive IRRs, build track record, onboard the CEREIT assets, improve systems, make key hires and future-proof the business.
McLaughlin seems guardedly optimistic. It is said that Australians have a business mindset of ‘our way or the highway’ but McLaughlin is only seeing the benefits of being part of an organisation with good management, systems and track record. ‘We’ve completed a lot of the hard work already, creating an organisation that is aligned across three continents and backed by an experienced team. The next phase is going to be all about execution as we cement our reputation as the go-to partner for international investors looking to access returns from European real estate.’