Following are highlights of what the representatives from six companies, all active in European real estate investment, had to share with the audience.
M&G Real Estate
“U.S. investors tend to look for high risks and high returns when they go overseas,” said Tony Brown, global head of real estate for London, England-based asset owner and manager M&G Real Estate. “Japanese do the same. It depends on what part of the world you’re from what your attitude is toward international real estate.”
London is still the top city for real estate investment in Europe, but Brexit has had a negative impact.
Brown said there had been almost no overseas investment in London this year due to Brexit uncertainty, but he believes the city presents the “biggest single opportunity in Europe right now.”
The election of a majority Conservative government under Boris Johnson is likely to ease that uncertainty, adding to London’s appeal.
M&G’s focus is the United Kingdom and Europe is part of its international allocation. Brown said there are pockets of strong office rental growth in Europe because not much new space has been created in many CBDs during the past 10 years. In addition some older office buildings are being converted to hotels, or residential uses due to housing shortages in the U.K. and other major cities in continental Europe.
Matthew Richards, chief executive officer of capital markets for commercial property and investment management services provider JLL EMEA, said:
* there’s a “massive focus” on Germany due to capitalization rate compression;
* the story in Nordic countries remains positive, as there are opportunities in Stockholm, Sweden and rental growth remains very strong;
* and France is the “real darling of the market right now” due to macro-economic issues.
Richards said investment in student housing is more than US$10 billion in the United States, US$4 billion in the U.K. and US$1.5 billion in continental Europe. There’s accommodation for just 10 per cent of 19 million European university students, according to Richards, creating an area of opportunity.
Richards said investors looking for opportunistic returns in Europe are focused on development. Sustainability is also becoming more important in European real estate, and should be an investment consideration.
Canadian investors have a close community of people who’ve already invested in Europe. Richards said they should try and use those relationships to learn more about it.
Ivanhoe Cambridgé head of Europe and Asia-Pacific Karim Habra said a common theme in gateway cities in Europe is a shortage of quality space, especially in the office sector.
“Whenever someone’s looking for class-A office space, the vacancy is almost zero. This is true for all of the cities. It’s true for Milan, Madrid, Berlin, Paris and every single city.”
Habra said Montreal-headquartered Ivanhoé Cambridge can invest and create value in different ways in Europe, including buying properties directly, setting up platforms and doing joint ventures.
“We wouldn’t do small investments if we didn’t see any growth. In some sectors you’re not going to find critical mass from Day One, so we bet on platforms with operating partners that we can help to grow in the future.”
Ivanhoé Cambridge invests in operating businesses as well as real estate in Europe.
“We will not buy stand-alone hotels because we don’t feel that they capture the full value,” said Habra. “So we go and buy the whole company. We buy the know-how, the rent, the people, the assets and the pipeline. In this way we capture the whole value-creation chain.”
Habra emphasized foreign investors must go into Europe with passion and conviction or they’re wasting their time in the competitive real estate market. He suggested focusing on fewer strategies and ensuring they have the right partners early in the process.
Habra’s final recommendation was to see Europe as a diversification play; and not compare returns and investment strategies with their home markets.
Apache Capital Partners
Apache Capital Partners co-founder and managing director Richard Jackson said Brexit concerns have left some potential investors sitting on the sidelines.
The London-headquartered private real estate investment management firm has multifamily, single-family and seniors living platforms. He said they’re supported by long-term demographic trends, and an increasing number of people are renting for affordability and lifestyle reasons. Jackson believes these defensive investments are recession-proof because people will always need a roof over their heads.
Apache has a pipeline of 6,000 multifamily units and is developing class-A-type products, which hasn’t previously been done in the U.K. Jackson said 14 million people rent housing in the U.K., and that will increase to 17 million by 2025.
Jackson noted just one per cent of residential rental properties in the U.K. are owned by institutions, although that is beginning to rise. Large-scale multifamily residential owners in the U.K. have a lot to learn from their counterparts in North America, where the sector is more established.
“We’ve set up our own operational platform where we’ve trained our own staff that come from a range of property backgrounds and hospitality backgrounds to try and instil that culture and genuine service,” said Jackson.
Rebekah Tobias is the head of business development for MARCOL, a family office that’s acted as an owner, operator, developer, asset manager and joint venture partner in the U.K. for 44 years. She said the firm, which has four European offices, has flexible capital without return criteria and doesn’t need to deploy funds within any set period of time, which allows it to be extremely selective.
“We can take a lot of risk on the operational side of the business, which is where we really find value and where we can create value. We’re not buying stabilized assets. That’s never really been a strategy of ours.”
Tobias said MARCOL didn’t sit back and wait for Brexit the situation to become more clear.
“We’ve seen yields in London that look incredibly cheap compared to the rest of Europe,” she said.
Tobias said multifamily residential is becoming a much bigger asset class in the U.K. MARCOL is also now backing a co-living platform, which bridges the gap between student housing and the multifamily residential market.
MARCOL is doing more in the healthcare real estate space to diversify its portfolio and realize growth opportunities. It’s backing a self-storage operator in Germany and building new sites in growth markets there.
“You just have to be able to roll your sleeves up and get your hands dirty with a lot of these platforms, and obviously back the right people to be able to deliver the strategy,” said Tobias. “If you have a unique skill set in a growing sector in the U.S., there’s a significant opportunity to bring that to Europe.
“But you have to be very mindful of the nuances and cultural changes and mentality, in particular as it relates to city, country and Europe as a whole.”
AXA IM – Real Assets
AXA IM – Real Assets provides investment capabilities in equity and debt, across different geographies and sectors, via private or listed instruments. It manages €15 billion in residential assets including student accommodations, multi-family residential and seniors housing in 11 countries.
Global head of research and strategy for real assets Justin Curlow said these defensive housing investments are underinvested in Europe. This “provides an attractive opportunity to build scale and build on the inefficiencies and build relationships with those standing operators, to really grow this sector into what we see is already a well-established sector in the U.S.”
European real estate investment is fragmented, less transparent than in North America, and difficult from regulatory and legal standpoints. That makes having a local presence, knowledge, and relationships all the more important, Curlow said.