A new real estate fund backed by Italian insurance giant Generali Group plans to make a play for prime European shopping centres, as prices for retail assets continue to polarise in a changing investment climate.

‘We think that given the current market situation – the kinds of assets that normally don’t trade, will trade,’ said Florencio Beccar, CEO and co-founder of Axis Retail Partners. ‘The sector has been discounted generally - that produces a very nice window of opportunity.’

The former CBRE Global Investors head of retail EMEA has launched the business with retail veteran Toby Smith, former portfolio manager at CBRE Global Investors European shopping centre fund, acting as chief investment officer.

Generali will hold a 51% controlling stake in Axis through Generali Investments Holding, the holding company of the firm’s entire multi-boutique strategy, while the remainder of shares in the new business will be held by Madrid-based Beccar and Smith.

The new boutique is backed by a €500 mln initial commitment from Generali to a dedicated pan- European fund, Generali Shopping Centre Fund. The portfolio management of this fund will be delegated to Generali Real Estate, while Axis Retail Partners will advise Generali Real Estate on the investment selection and asset management.

Opportunity in divergence
For Beccar, the divergent fortunes of retail assets – resulting in some secondary shopping centres spiralling into distress, while prime properties hold their value – has created a promising climate for the new enterprise.

‘The structural problems in the retail industry are interesting,’ he told PropertyEU. ‘There’s a lot of negativity coming from specific situations, the US has been pretty weak, department stores there have been suffering; in the UK, it’s very much the same. People tend to look at the overall retail market through those parameters.’

However, for Beccar, the top of the market is a whole different ball game, and geography remains a key factor. ‘A lot of the issues that can be found in the UK don’t translate at all to what is going on in the Continent,’ he added. ‘Continental European retail is based on quite different fundamentals, it’s been much more undersupplied for retail; and the anchors are mostly grocery, rather than department stores. That’s much more solid. There have been winners and losers in all of this: today, in Continental Europe, you’re seeing assets that are trading very strongly still, and assets which have suffered, from the polarisation of retail dynamics.

‘Because of all of that, we’ve identified an asymmetry of information. We think there’s a broad-brush approach to retail, the sector has been discounted generally, and that produces a very nice window of opportunity.’ He added: ‘I think we’re going to see very good assets coming to market, and because of all of this, we think there’s a chance to not only secure top assets, but also get a very interesting price point for those.’

Beccar certainly has the credentials for an astute analysis of the market. After beginning his asset management career at ING Real Estate in 1999, he grew through the ranks of the Dutch giant during its most important spell in commercial property. An experience in Madrid was followed by postings in Italy and the Sao Paulo area of Brazil, before he joined CBRE Global Investors in 2010. With the principal executive responsibility of managing the European Shopping Centre Fund series (ESCF), Beccar was soon the face of CBRE Global Investors’ retail business in Europe, becoming head of retail EMEA for the firm in 2016.  

The Axis strategy
‘Our strategy is focused on high quality, core and dominant shopping centres in strong locations. We want to see strong track records in the assets we buy,’ said Beccar. ‘This is pretty unique to retail – you can see exactly how assets have been trading, you get information from the tenants, and understand the dynamics well. So we’re going to be studying that in a lot of detail and only focusing on those which are trading very strongly despite all of this retail negativity and the e-commerce growth.

‘We think that given the current market situation – the kinds of assets that normally don’t trade, will trade. Many of the best shopping centres in Europe have been held for a long time in portfolios, and people don’t like to trade out of them. But this is a time when we expect to see some movement and rotation of portfolios, whether because investors want to reduce their exposure to retail, or because investors want to show that prices for top retail are still solid,’ he noted. ‘We don’t think there will be big discounts at the top of the market, but interestingly, we do think we’ll be able to get our hands on those assets.  The conditions and bargaining power even for those is better at the moment and we think will provide a lot of opportunity in the coming 24-36 months.’

Axis will be seeking to invest in the 10 countries in Europe where Beccar says tenant information is readily available.  ‘The focus will be on cities with strong growth dynamics, sustainable locations.’ This will necessarily preclude secondary assets in secondary locations, he confirmed, with department store portfolios also ruled out.  ‘Distressed assets aren’t for us,’ he said. ‘You’re probably seeing some opportunistic players already in that market, where yields are expanding at the moment, although many are waiting for the gap to widen even further.’

The future of retail
Generali said that its decision to launch the fund was driven by the belief that the Continental European shopping centre sector continues to be 'marked by solid fundamentals and offers an interesting entry point due to the current market juncture'. The firm added that it also required a 'deep industry knowledge and specific skills to keep risks under control'.

‘In the past we’ve done deals off market and on market,’ said Beccar. ‘Fortunately, our network is vast.’
Over the last 10 years, shopping centre investments have accounted for an annual average of around €20 bn within the retail real estate space in Europe, according to Generali. However, changing  fundamentals and the impact of e-commerce have altered the outlook for many retail-focused investors in recent months, spooked by rising distress in key markets.

‘The e-commerce effect isn’t a new thing – it’s been around for around eight years now,’ said Beccar, ‘and has been eroding the performance of assets which are less strong.’ However, the most able retailers, according to Beccar, have not only accepted the change but embraced it.
‘The best in class realise this is a complete eco-system, from online platforms to delivery in store. As a consequence, they’re not only growing in sales - they’re growing in terms of footprint,’ he said.

‘As long as you have these kinds of tenants in your shopping centres, you are a part of the ecosystem. Our analysis looks at this when we want to bid for an asset – how well tenants are doing in terms of e-commerce.’

Despite signs of the industry’s accelerating evolution, Beccar said he was confident it was the right sector to pursue. ‘The reality today is that retail specialists – people who have invested in retail-focused funds or who hold assets – are continuing to invest in retail,’ Beccar concluded. ‘We are seeing some new fund launches in the shopping centre space as well buying prime assets’. In this regard, Brookfield is perhaps the largest, as they are now looking to enter the sector in Europe - according to market rumours. ‘So it’s a combination of the usual suspects and a bit more of global interest trying to benefit from the current window of opportunity.’