Retail specialist Redevco has joined a growing group of property companies in Europe that has teamed up with an international partner to expand its business.
Retail specialist Redevco has joined a growing group of property companies in Europe that has teamed up with an international partner to expand its business.
On Wednesday the Amsterdam-based company announced it has set up a €500 mln retail real estate joint venture in Spain and Portugal with funds managed by US-based alternative asset manager Ares Management.
Redevco Iberian Ventures is the first partnership for Redevco but not the last, the company’s CEO Andrew Vaughan told PropertyEU in an interview. Indeed, a new partnership is in the works and due to be announced later this month, he revealed. ‘Five years out, I would hope that we have repeat business with five or six investors.’
The move is not just about spreading risks, he added. ‘A joint venture forces you to become more transparent and accountable, that is very good for the business. And we want to learn from others. We are looking for partners with equity and experience, with the same level of professionalism that we have. We are not interested in passive investors. We want to do the same as we have always done but with a different funding structure.’
New partnerships
Ares is a candidate for new ventures, but not the only one, Vaughan added. ‘We would hope that this partnership with Ares is not one-off and that we will discover other opportunities. But we won’t do everything with one partner. We aim to focus as we always have on strategies across the risk spectrum from super-prime to opportunistic and value add. We see huge benefits in working with other people.’
Vaughan said the company had no plans at present to expand its remit beyond Europe and enter into partnerships outside its current geographic focus. ‘Will we cross the pond to the US or go back to China or Turkey? No, this not on the agenda for the foreseeable future. We would never say never, but this is not a focus for now or the next three years at least. There’s still plenty for us to do in Europe.’
The joint venture with Ares follows an extensive period of restructuring and marks a ‘natural next step’ for the company which is one of Europe’s largest owners of high street properties, Vaughan said. ‘We see a huge benefit of working with other companies. It’s not just about equity, we are also learning a lot. Ares brings a whole set of experience and expertise to the table. They have knowledge and skills that are complementary to our own and are best in class in terms of their global investment platform. We view this venture as a partnership of equals.’
The company’s culture is also a good fit, he added. ‘We have a local team on the ground but we felt Ares brought more than equity and has the right values in terms of performance and good governance. Our cultures are very much aligned.’
Capital-intensive business
In the wake of the global financial crisis, Redevco has retreated from emerging markets and those it considered more risky like Turkey, Poland and China to focus on the core markets of western Europe. Over the past four years, it has also divested all its non-retail assets and is now targeting prime buildings on the principal shopping streets of attractive retail destinations across Western Europe as well as shopping centres and dominant out-of-town retail parks across the risk-return spectrum.
‘The starting point for this joint venture was the question, where does Redevco go next?’ Vaughan said. ‘We wanted to expand the company but the reality is that real estate is a capital-intensive business. By teaming up with a partner, we can make our equity go further as well as diversify our platform. This a very significant step for us going forward.’
Redevco took its time to open up the platform to a third party and talked to a number of sovereign wealth funds and pension funds including the ‘usual suspects’. Vaughan: ‘We have been working on this for 12 to 24 months and have been extremely selective in our approach to potential partners. After our preselection we had a pretty small list. We approached Ares ourselves with our business case. We felt that Ares ticks all the boxes.’
The partnership with Ares is the result of Redevco’s new organisational structure, Vaughan said. ‘We have done a lot of work to create organisational readiness. In the past our business used to be focused on our headquarters in Amsterdam and decentralised. We are now set up much more like a network with a central organisation drawing on local expertise. Our office in London has done most of the groundwork in terms of sourcing partners, raising and looking after third-party equity.’
Scale and specialisation
Vaughan believes that global partnerships will continue to flourish in the real estate sector. ‘Scale and specialisation are definitely trends in the industry and they are here to stay.'
Like Redevco, Ares is seeding the joint venture with existing assets. The joint venture currently comprises six assets in Spain and Portugal valued at €110 mln including five retail parks and one shopping centre. Spain in particular is an attractive market, Vaughan said. ‘It is one of the fastest growing economies in Europe, retailer confidence is at its highest level since the crisis and unemployment is falling.’
The joint venture will focus on shopping centres, retail parks and high street assets, he added. ‘We are targeting mispriced assets that haven’t been managed well during the crisis. There are plenty of assets that are still trading at a significant discount to pre-crisis levels.’
The joint venture will target assets from €20 mln to €100 mln but most will be in the €40-80 mln range, Vaughan said. ‘There is plenty of competition from the usual suspects and new REIT structures, but we have a local team that can source assets off-market and people on the ground to take up more difficult assets that an opportunity fund without a local platform would struggle to manage. Our focus is on assets where we can find value and use our skills for improvement or repositioning.’
Redevco has a team of 15 staff at its Madrid office and has a total portfolio valued at €600 mln in Spain. ‘We had a portfolio of around €700 mln in the past but has sold some of the assets we felt that were not worth keeping. We believe in these assets in the joint venture, they all have potential for more upside and fit the profile perfectly well.’
Vaughan sees the new Iberian platform adding to the company’s total assets under management in due course, but said there was no pressure to expand the business within a predetermined time horizon. ‘We have never been focused on growth for the sake of it, for us it’s more about investing well.’