March 2021 • perenews.com Europe roundtable 2021 Analysis ROUNDTABLE SUPPORTERS ARES MANAGEMENT CORPORATION • BC PARTNERS • KENNEDY WILSON EUROPE • PICTET ALTERNATIVE ADVISORS SAVILLS INVESTMENT MANAGEMENT • SIGNA FINANCIAL SERVICES Covid rings the changes for European real estate As the initial shock of the pandemic recedes, participants at the Europe roundtable survey an altered investment landscape. Stuart Watson reports n 2020, the fallout from the coro- buckle down to the task of addressing the spring, capital kept flowing into navirus pandemic jolted Europe’s the front-of-mind questions for inves- real estate, notes Zsolt Kohalmi, glob- real estate market and induced tors in the region. al head of real estate at Swiss-based temporary paralysis. The result They agree that European real es- Pictet Alternative Advisors. “When you was a significant fallaway in invest- tate is in a better shape to recover from have open-ended funds getting capital ment volumes. According to real the pandemic-induced downturn than every month, that means that the pro- Iestate deal data firm Real Capital An- it was after the global financial crisis. pensity to deploy is going to remain. alytics, Q4 2020 deals plummeted to “This time there was not overbuilding And as a core buyer, your returns are €75.8 billion, 44 percent below the re- in most sectors, or overlending because being measured against the risk-free gion’s peak volume recorded in the last banks were still unable to participate,” rate, which is only going one way. So, three months of 2019. In a fate com- observes Bill Benjamin, head of real on a relative basis, core looks better and pounded by a third slew of lockdowns, estate at global alternative investment better, and you keep deploying.” that meant the total European invest- manager Ares Management. While funds continued to flow ment volume for 2020 was 27 percent “There was a world of difference into perpetual life vehicles, closed-end lower than the previous year. in the policy response this time round fundraising in Europe was a different Now, with the initial shock fading, compared to the GFC,” adds Peter story with plenty of instances of fund- the industry is beginning to assess the Collins, president of Kennedy Wilson raising extension requests by managers lasting effects of the crisis. Meeting by Europe. “The European Central Bank unable to reach a final close amid travel videoconference from work and home was much quicker to react and so was restrictions imposed by governments. offices across the continent, the six par- the European Union on the fiscal side.” According to PERE data, $25.4 billion ticipants at PERE’s Europe roundtable Thus, following a brief hiatus in was raised for European closed-end 36 PERE • March 2021 Analysis Bill Benjamin Partner and head of real estate group Ares Management Corporation Based in London, Benjamin is head of real estate at global alternative investment manager Ares, where he oversees the real estate group’s investment activity worldwide. The firm manages around $179 billion of assets, primarily in the private markets, including $14.4 billion of real estate in opportunistic and value-add strategies in Europe and the US, and in US real estate debt. Kiran Patel Global chief investment officer and deputy global chief executive officer Savills Investment Management Patel joined Savills IM, the investment management arm of global real estate services provider Savills Group, eight years ago. The business manages around $25 billion of real estate assets, employing a team of 300 professionals located in 16 offices across Europe and Asia. Peter Collins President Kennedy Wilson Europe Collins has been with global Zsolt Kohalmi property company and investment manager Kennedy Global head of real estate and co-chief Wilson since 2011 and now executive officer leads its European business. Pictet Alternative Advisors Quoted in the US, the firm has $17 billion of assets under management in strategies that Kohalmi joined Pictet from Starwood Capital span the risk spectrum from two years ago to build the Swiss financial development to core-plus services firm’s real estate business. Pictet and sectors including offices, manages €560 billion overall, including around multifamily and industrial. €4 billion of real estate. The company closed its first direct real estate fund, Elevation I, at its hard-cap of €700 million in February 2020. March 2021 • PERE 37 funds, 12 percent more than in 2019 but 44 percent down on the region’s peak fundraising year in 2017. Nevertheless, participants Pictet and BC Partners both raised first-time funds in 2020. Pictet closed its vehi- Stéphane Theuriau cle in February before the pandemic started. But BC Partners head of real Partner and head of real estate Stéphane Theuriau endured the estate challenges of fundraising during the BC Partners pandemic. “As a new entrant our experience is that there is a lot of available capital Paris-based Theuriau for existing players. We raised money joined BC Partners in 2018 exclusively from existing relationships. to launch the company’s The large managers have dispropor- real estate business, and tionately benefited during this period, has led an €800 million because it is such an easy decision for fundraise for its first an investor to re-up based on past per- real estate vehicle. The formance,” he says. London-headquartered Capital providers were very selective firm manages around about which strategies to back, howev- Richard Johnson €25 billion of assets er, notes Kiran Patel, global chief in- overall, principally in vestment officer at Savills Investment Managing director and private equity and credit Management. “The core end of the head of international strategies. market became even more expensive, capital markets because people saw that as providing SIGNA Financial Services stability while everyone was waiting for price discovery on the more distressed areas, which did not really materialize.” Johnson joined SIGNA two years ago to Favored sectors expand the Austrian- As the pandemic drags on, the initial headquartered group’s expectation of a V-shaped recovery connections among across the whole market has been re- non-German speaking placed with a growing realization that institutions. The privately there will be long-term consequenc- managed investment and es for some sectors, argues Richard holding company’s real Johnson, head of international capital estate division manages markets at investor-developer SIGNA. around €18 billion of “This year, we are going to be saying standing assets and is that the economy has split into winners undertaking €12 billion of and losers, which will recover at dif- development in Austria, ferent rates, and that will affect invest- Germany, Switzerland and ment flows going forward.” Italy. The residential and logistics sec- tors, with their powerful narratives of resilience, have accounted for an in- creasing share of investment volume, says Patel. “Real Capital Analytics’ 2020 figures show that industrial has increased from 12 to 15 percent – everybody wants logistics, and that is Analysis “We are social animals. I think productivity and morale is better in the office” BILL BENJAMIN Ares being reflected in pricing. Residential will radically rethink their occupational has gone from 20 to 24 percent. Office strategies. “Technology is also attack- came down from 44 percent to 40. But ing offices. This does not appear to be it was still a significant portion of the a real estate cycle or something that is market. Retail was the big loser.” “The core end driven by low GDP. If you look at of- The glut of capital demand for a fices pre-covid, it was pretty clear that few favored sectors presents investors of the market there was an accelerated obsolescence, with a dilemma, argues Kohalmi. “The and that what qualifies as core will be a real choice is which poison would you became even more smaller proportion of what exists.” like to take? A fully priced bet where Benjamin expects to see “a 10-15 the macro drivers are right? Or an expensive, because percent erosion of demand in rents and asset that faces slightly adverse condi- capital value for the time being, per- tions where you can get a better entry people saw that as haps even 20 percent.” However, he point? Making general calls is tough in providing stability” adds: “Zoom has helped our businesses a market with such elevated prices. We during the pandemic. But we are social all need to find the individual deals that animals. I think productivity and mo- make sense.” KIRAN PATEL rale is better in the office, and if you Savills IM Collins senses a window for acquir- are starting out in any business, I do ing distressed assets will open briefly not see how you advance in your career during the next two years. “For ex- from home.” ample, a lot of hotel operators have Offices under pressure Nevertheless, even a 15-20 percent suffered so that could shake out some While there is broad agreement among decline in office take-up could poten- opportunities,” he says. the participants about the prospects for tially cause huge value destruction, “But you have to get your tim- most asset classes, the office sector is says Theuriau. “Cap rates are so low ing right. Retail has the potential to the subject of vigorous debate. Theur- and rents are so high. It does not take be oversold. There are elements that iau argues that it is not only retail that much of a change in underwriting as- will survive like convenience and re- will be impacted by the acceleration of sumptions to get to a pretty dramatic tail warehousing. Overall, distress and technology-led disruption during the repricing.” repositioning will be the main val- pandemic. He notes that investment Patel says Savills IM will still con- ue-add themes that everyone is playing activity in the office segment halved in sider office opportunities.