InstItutIonal Real estate letteREUROPE

THE

InstItutIonal Real estate letteR

April 2013A publication of Institutional Real Estate, Inc

www.irei.com

Same old, same oldReal estate markets will continue in the same vein this year

Quality and quantityBenchmarks: real estate investors need numbers and need someone to crunch them

A two-way streetProperty capital flows traverse Europe and Asia

As one of Europe’s leading property investment managers, Rockspring has earned a reputation for combining agile thinking with steady growth.

Independent in both spirit and structure, we work with leading institutional clients across the world and have over €7.3 billion in funds under management.

Top 10 Businesses REurope’s Power Index 2012

Property Manager of the Year Global Pensions Awards 2011

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www.rockspringpim.com

A measured approach to breaking new ground

TIREL EU April 2013 - A measured approach to breaking new ground.indd 1 11/02/2013 17:23:11

The Letter – Europe | 1 | April 2013

F E AT U R E S D E PA R T M E N T S

A p r i l 2 0 1 3 • Vo l 7 • N o 4 • I S S N 1 7 5 2 - 9 4 1 7

3 Notes & Trends by Richard Fleming

11 People

13 News & Views

14 Fundraising activity table

37 Investment Guide: Funds in the market

40 Europe Deals: Transactions in January 2013

41 Market Focus: Odense, Denmark

44 Market Pulse

18

A two-way streetby Richard Fleming

European investors are still interested in Asia, on diversification and better growth opportunity grounds, but they are being more than matched in capital flow terms by Asian investors heading for Europe — primarily London — on diversification, safe-haven and limited downside grounds

Contents

On the cover: Shanghai skyline, above, and Canary Wharf, London, below. ©2013 Getty Images/iStock photo

6Same old, same oldby Alice Breheny

Real estate markets will continue in the same vein this year

24Quality and quantityby Patrick Baldia

Benchmarks: real estate investors need numbers and need someone to crunch them

26A critical linkby Simon Redman

Inflation is a more important consideration for real estate investments in this low bond yield environment

30Shop Talkwith Richard Fleming

A conversation with Gabriel Bernardino, chairman of EIOPA, the European Insurance and Occupational Pensions Authority

A world of difference in real estate investment.

Like most great ideas, it’s a simple one: creating excellence in the built environment creates lasting value. For more than half a century, Hines has delivered buildings as architecturally soaring as they are commercially sound.

By blending far-reaching vision with the expert insight of tenured local teams, Hines has demonstrated international leadership in sustainable development, strategic acquisitions and dispositions, award-winning asset and property management, and diverse real estate investment vehicles.

Our Office of Investments would be pleased to discuss a range of opportunities including funds, separate accounts and equity investments. In global real estate, who you invest with makes a world of difference.

hines.com

Australia Brazil Canada Chile China France Germany Ireland India Italy Luxembourg Mexico Panama Poland Russia Spain United Kingdom United States

CE011113-831 TIREL.indd 1 1/11/13 4:31 PM

The Letter – Europe | 3 | April 2013

THE INSTITUTIONAL REAL ESTATE LETTER

EUROPE

ISSN 1752-9417Institutional Real Estate, Inc.Vol 7 No 4 April 2013

PURPOSETo provide European investors with decision-making tools and information on the people, issues, ideas and events driving the institutionalisation and globalisation of real estate

The Institutional Real Estate Letter – Europe is published 11 times per year for €695 per year, by Institutional Real Estate, Inc, New Broad Street House, 35 New Broad Street, London EC2M 1NH, UK. Tel +44 (0)20-7194 8180, Fax +44 (0)20-7194 8181.Periodicals postage paid at London and at additional offices.

Copyright © 2013 by Institutional Real Estate, Inc. Material may not be reproduced in whole or in part without the express written permission of the publisher.

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Editorial Enquiries: Richard Fleming, Tel +44 (0)115-938 6042; r.fleming@irei.com

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The publisher of The Institutional Real Estate Letter – Europe is not engaged in rendering tax, accounting or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee its accuracy.

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Notes & Trends

History in the makingIs Europe more divided than ever?

by Richard Fleming

Europe used to be an east/west sort of place, and you knew where you were — you were west or you were east of what was then more or less a fixed, impervious border. Times have changed. Now it has

become a north/south kind of place, where the Iron Curtain has twitched away to the scrapyard and haberdashery in the sky and where it’s slightly more difficult to work out whether you’re north or whether you’re south.

Other ways of dividing Europe don’t help matters — Euro-pean Union (EU)/not EU, euro zone/not euro zone, Schengen/not Schengen, old/new, rich/poor, enlightened/unenlightened, developed/emerging, core/peripheral, growth/no growth, low tax/high tax, high unemployment/even higher unemployment, low risk/high risk, good credit rating/bad credit rating, social/mar-ket, dirigiste/laissez-faire.

You can probably think of more, like hot/cold, wet/dry, sandy beach/rocky foreshore or knowingly eat horsemeat/unwittingly eat horsemeat, and of ways of allocating the kaleidoscope of countries that is Europe to these various categories in the search for the standout candidates that international real estate investors want to move capital into in their search for risk-adjusted returns and outperformance.

But the countries making the running in Europe today, and giving out the money, are northern, like (alphabetically) Denmark, Finland, Germany, the Netherlands, Sweden and the United Kingdom, and the countries doing the running, and taking the money, are southern, like (again, alphabetically) France, Greece, Italy, Portugal and Spain. That’s undeniable. One question is which side of this north/south divide do countries in the middle like (from west to east) Ireland, Belgium, Austria, Slovakia, Hungary and Romania sit?

I won’t ask about Turkey, that’s a case apart — for the EU member states that are firmly opposed to Turkish membership, Turkey is not in Europe and will not ever be in the EU. That’s a shame, because — as real estate market participants know — Turkey is the one place in Europe that has the emerging market credentials of high economic growth, increasing urbanisation, rising prosperity and good prospects. Even if most of it is in Asia.

You could see this bifurcation of Europe clearly at the recent EU budget summit. On the one side, the real-terms cutters and the nil-growthers; on the other, the pro-spending, pro-growth solidarity growthers. They came to a messy compromise in the end, as they always do, but were there the first signs of a realisation among the EU’s leaders that this keep-them-up-till-the-early-hours-until-they-agree way of coming to unsatisfactory multilateral agree-ments cannot continue? That this way of conducting business is almost as bad as the make-them-vote-until-they-give-the-right-answer way of seeking demo-cratic approval from electorates for EU treaty changes? Call that democracy?

And then there’s the European Parliament. MEPs are not happy with the outcome of the EU budget negotiations — they want more spending, not less — and are threatening to hold a secret ballot as a show of force. A secret ballot is normally taken as a sign of a healthy democracy, but in this case may be used to “hide” votes from national governments as a means of helping to circumvent the budget decision made by the EU’s national government

The Letter – Europe | 4 | April 2013

THE INSTITUTIONAL REAL ESTATE LETTER

EUROPE

PUBLISHER & EDITOR-IN-CHIEF Geoffrey Dohrmann

CHIEF OPERATING OFFICER Mark Dohrmann

MANAGING DIRECTOR, EUROPE & INFRASTRUCTURE Sheila Hopkins

MANAGING DIRECTOR, ASIA PACIFIC Alex Eidlin

EDITORIAL DIRECTOR Larry Gray

EDITOR Richard Fleming

ART DIRECTOR Susan Sharpe

PRODUCTION EDITOR Loretta Clodfelter

CONTRIBUTING EDITORS Drew Campbell Mike Consol Denise DeChaine Sara Kassabian Jennifer Molloy Andrea Waitrovich

DATA SERVICES MANAGER Ashlee Lambrix

DATA SERVICES Justin Galicia Karen Palma Caterina Torres

VICE PRESIDENT, MARkETING Sandy Terranova

MARkETING & CLIENT SERVICES Suzanne Chaix Elaine Daniels Julia Feiner Karen McLean Brigite Thompson Michelle Tiziani

SPONSOR SERVICES Wendy Chen Salika Khizer

CONFERENCE DIRECTOR Michael Laffey

CONFERENCE SERVICES Angel Howlett John Hunt Alessandra Mongardi

CONFERENCE SPONSORSHIP SALES MANAGER Randy Schein

ADMINISTRATION Jennifer Guerrero Derek Hellender Lucero Jaramillo

Global View Local Perspective

www.cbreglobalinvestors.com

The CBRE Global Investors platform gives our clients access to the world’s

broadest network of investment specialists whose sole focus is real estate. Our

investment teams are backed by in-depth local market intelligence and the

expertise of the world’s premier real estate services firm. We now offer more

ways to capitalize on market opportunities – across strategies, regions and

property types worldwide. At CBRE Global Investors, we translate our clients’

objectives into innovative investment strategies.

CBRE Global Investors. Real Estate in Focus.

members — who are the ones paying the bills. What price democracy here? Who is working in whose interests in this EU?

David Cameron, the British prime minister, has doubtless made few friends with his seemingly incessant anti-EU rhetoric. His much-delayed speech on Europe and the EU contained not just the expected threats of treaty and terms renegotiations and a yes/no, in/out referendum in the United Kingdom on EU membership in 2017 but also a reasoned argument on why the EU needs to change the way it does things, and how.

Intriguingly, Cameron’s speech was not greeted with the customary dis-dain or anger by fellow Europeans — with the predictable exception of MEPs — but with consideration, indicating that at least some of his arguments may be finding some resonance in at least some EU capital cities. And the agree-ment reached on the EU budget provided further evidence, perhaps, of a move toward a more rational approach to Europe’s financial affairs.

The United Kingdom’s EU referendum will only happen if the Conserva-tive Party wins the next general election in May 2015, which on present per-formance is a big ask. Another big ask that could also affect the referendum is the result of the yes/no, in/out independence referendum in Scotland, due to take place in autumn 2014.

If the voters in Scotland opt for independence, the plan is that the nego-tiations on secession of the country from the United Kingdom would be concluded by March 2016 — making it highly unlikely that Scotland could participate in the United Kingdom’s EU referendum in 2017. Could that fasci-nating psephological mix of event and happenstance skew the result of either referendum one way or the other? Who knows?

How ironic it would be if the generally pro-EU Scots (because Scotland has necessarily benefited from being a net long-term recipient of the EU’s solidarity and regional support funds, just as it has received financial sup-port from the UK government for time immemorial, as it is deemed to be a “poor” country that requires structural assistance) voted for independence and helped by omission to bring about a no/out answer in the rump United Kingdom’s EU referendum.

And a newly-independent Scotland would probably have to apply afresh for membership of international bodies like the EU, the United Nations, the IMF and the World Bank and renegotiate thousands of international treaties and agreements, with all the risks that that entails. Spain, with its Catalonia independence pressures, would be keen not to set a precedent. A fascinating period of European/British/English/Scottish history-in-the-making lies ahead.

What does all this mean for European real estate markets? It means uncer-tainty, at least in the short and medium term until we have a resolution, and markets don’t like uncertainty.

For instance, if Scotland did vote for independence and leave the United Kingdom, what would be the implications for the head office operations of the United Kingdom’s two main banks, Royal Bank of Scotland and Lloyds Banking Group? Significant proportions are located in London, Glasgow and Edinburgh. Both banks have a historic link with Scotland, and as a result of the global finan-cial crisis both now have the UK government as a significant shareholder.

What would be the implications for Europe if the United Kingdom decided to leave the EU? If the EU decided to take accession talks with Tur-key no further? If the EU decided to consider membership for North African countries? With club membership levels constant, up or down, depending on referendum results and accession agreements, the EU cannot plan effectively for the future.

The EU hates it when the least favourite and apparently least committed member state — the United Kingdom — makes all the running on transfor-mational change but, hey, Cameron will say, someone’s got to do it. With or without Scotland. v

Richard Fleming18 February 2013Kimberley, United Kingdom

Global View Local Perspective

www.cbreglobalinvestors.com

The CBRE Global Investors platform gives our clients access to the world’s

broadest network of investment specialists whose sole focus is real estate. Our

investment teams are backed by in-depth local market intelligence and the

expertise of the world’s premier real estate services firm. We now offer more

ways to capitalize on market opportunities – across strategies, regions and

property types worldwide. At CBRE Global Investors, we translate our clients’

objectives into innovative investment strategies.

CBRE Global Investors. Real Estate in Focus.

The Letter – Europe | 6 | April 2013

When asked what the 2013 outlook for real estate looks like, it sounds like the easy option to say very much the

same as 2012. But the reality is that it is difficult to see how this year will be significantly different from the last. The market is likely to continue to be characterised by risk aversion, the hunt for income and wealth preservation. We believe that caution is the right way to approach real estate investment in 2013, with no imminent improve-ment in the economic environment anticipated.

However, we still support the case for real estate as a tangible asset. The comparatively solid income that it offers, combined with some upside potential from asset management, means that the sector continues to attract growing investor

interest. It should be noted, though, that ele-vated interest does not necessarily translate into increased investment activity. Transaction vol-umes remain muted and very much concentrated on core, liquid markets.

The continued focus on core is likely to put further pressure on prime market values through-out 2013 and investors will either need to lower their return expectations or venture up the risk curve a little to find value. However, by the end of 2013, the economic future of Europe should look a little clearer, and in this event investors should feel more comfortable in the core-plus or value-add space. Those looking to capture the full recovery cycle in this arena will have to be ready to react quickly to changing market condi-tions. We must remember that the property mar-ket has proven its ability to reprice quickly, and so investors need to be prepared to do so, too.

Diversification still worth pursuingThe themes relating to income and wealth pres-ervation are, broadly speaking, universal. We are seeing the flight to quality across all global real estate markets, and as such there is now little price differential across the largest markets. Some might argue that this weakens the case

Speaker’s Corner

Same old, same oldReal estate markets will continue in the same vein this year. The arguments for real estate exposure are unchanged, too

by Alice Breheny

The market is likely to continue

to be characterised by risk

aversion, the hunt for income

and wealth preservation.

Alice Breheny Henderson Global Investors

Prime office total return cross-correlations, 1990–2011London Paris Frankfurt Milan Madrid Sydney Hong Kong Tokyo Singapore

London 1.00

Paris 0.67 1.00

Frankfurt 0.31 0.61 1.00

Milan 0.22 0.63 0.58 1.00

Madrid 0.35 0.73 0.63 0.67 1.00

Sydney 0.66 0.52 0.12 0.28 0.44 1.00

Hong Kong 0.45 0.34 –0.05 –0.19 –0.14 0.14 1.00

Tokyo 0.47 0.76 0.62 0.45 0.68 0.40 0.29 1.00

Singapore 0.44 0.44 0.39 0.09 0.46 0.46 0.44 0.46 1.00Source: Henderson Global Investors

A S I A • E U R O P E • T H E A M E R I C A S

Global Real Assets: Real Estate | Infrastructure | Maritime | Energy

This information is for professional institutional investors in the UK and Continental Europe only – it is not for retail use or distribution.J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co and its affiliates worldwide. Issued in the UK by JPMorgan Asset Management Marketing Limited which is authorised and regulated by the Financial Services Authority. Registered in England No: 288553, Registered address: 125 London Wall, London EC2Y 5AJ. Issued in all other jurisdictions by: JPMorgan Asset Management (Europe) Société à responsabilité limitée, European Bank & Business Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. © 2013 J.P. Morgan Asset Management.

The pendulum has swung in favour of investors seeking to move up the risk curve – a forgotten segment of the market where investors are being rewarded for taking additional risk.A new report from J.P. Morgan Asset Management highlights that investment activity in the opportunistic segment of the market will continue to rise; that distressed sales of over EUR 125 billion are expected in the UK, France and Germany; and that the opportunistic sector remains significantly under-capitalised given the balance between the volume of distressed sales coming to the market and the small amount of investment firepower targeting the European region.

For a copy of the new report, please contact Albert Yang at +44 207 7428502 or albert.yang@jpmorgan.com

Carpe diem10 | Opportunity seized, opportunity missed – The case for opportunistic real estate investment in Europe

Development cycleReal estate development activity around Europe is at a 30 year low. This means that, despite the

economic downturn, there is not only continuing demand for quality space from occupiers, but

also a relatively low supply of new quality assets for investors as well. The lack of quality stock

available in the investment market has been made all the more severe by the strong inflow of

long term institutional and sovereign wealth fund capital from outside the region. (3)

Exhibit 8 | Development is at a 30–year low

0

1

2

3

4

5

6

Development completions as a % of total stock

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20092011

20132015

30 year averageSource: PMA, as of June 2012

Where’s the product?Much of the attention has inevitably focussed on the banking sector as a source of investment

grade product and, in particular, the fact that we have not yet seen the promised wave of

distressed assets on the market. The banking sector in Europe has announced sales of EUR 200bn

over the past 24 months although only a relatively small proportion of this has actually been

executed. Even so, the level of announced sales account for less than one–third of the toxic

balance sheet in the sector as a whole. Banks will become a major source of investment product

but, for the time being, it is reasonable to assume they will seek to maintain the slow trickle of

assets into the market. While banks are between a rock and a hard place, successive rounds of liquidity injected over the

past three–to–four years have been successful in providing something of a respite. The transfer of

assets from bank balance sheets into the market has been slow and ponderous, and though there

is now evidence that this is picking up, the indications are that banks will seek to hold those assets

that continue to pay a coupon in the hope that time will solve the valuation issue. There is

however another group of assets which have been in ‘suspended animation’ for the last three–to–

five years, where borrowers have lost all equity and where the banks have been unwilling to inject

the required capital to maintain values. These are the assets in the process of being placed on the

market as the banks have come to recognise that the failure to invest over the last few years is

costing them dearly as the deterioration in value is unlikely to recover any time soon.

As pressure continues on the banking sector, so the funding gap is wide and getting wider over

time. Indeed, the funding gap in Europe has now doubled over the past 12 months to an estimated

USD 200bn as the new wave of banking regulation begins to take hold. The funding gap is unlikely

to be plugged in its entirety by alternative sources of finance such as life companies and the

sovereign wealth funds. (6) This gap will inevitably lead to further pressure on pricing for those assets

currently held on bank balance sheets.

6 | Opportunity seized, opportunity missed – The case for opportunistic real estate investment in Europe

Different drivers of investment returnsAs the market continues to move sideways, with little evidence of a robust or sustainable recovery

in values, the driver of value growth has shifted from debt to the asset manager’s ability to create

value. The increasing shortage of debt in commercial real estate (CRE) and the prospect of little to

no macro growth in the short term will inevitably lead to more modest returns at the opportunistic

end of the market. However, of equal importance is the fact that the real driver of value creation

has shifted to the asset management team, their track record, operational experience and credibility

in mitigating execution risk.Exhibit 2 | Drivers of capital value change

60

70

80

90

100

110

120

130

140

150

160

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Capital value index

Financial experience

Operational experience

Source: J.P. Morgan Asset Management, IPD

Exhibit 3 | Contributors to investment returns

Source: J.P. Morgan Asset Management

Financial leverage

Market

Asset managementFinancial leverage

Asset management

Market

Pre-crisis

Post-crisis

Carpe diem

Insight + Process = Results

FOR PROFESSIONAL/INSTITUTIONAL INVESTORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

The Letter – Europe | 8 | April 2013

for diversification. But the reality is that property markets are, in fact, fairly weakly correlated with each other, especially if you steer clear of finan-cial capitals.

Geographical diversification can not only enhance performance — through the ability to pick from a larger pool of opportunity — but also lower overall volatility of returns at the portfolio level. So while many investors have retreated into their domestic markets since the financial crisis, we continue to advocate a global approach to real estate investment as long as capital is deployed strategically. Understanding the underlying per-formance characteristics of different geographies and sectors and timing of entry will be crucial to maximising the benefits of diversification.

In search of clarity, but it’s elusiveIn Europe, there remains vast polarisation across the continent, and we believe that the capital focus, for 2013 at least, will continue to be on northern Euro-pean economies, putting further pressure on yields.

For the short term, the performance of real estate in Europe will be largely determined by

economics and politics and current investment trends are unlikely to change until we have some more clarity on the future of the euro zone. But we believe that it is also very important to under-stand some of the structural trends, as opposed to cyclical, that will determine the longer-term real estate winners and losers. We believe that there are a couple of areas that have been overlooked

by investors since the downturn — perhaps due to perceived risk — that we think offer strong cov-enants and long-term growth prospects, namely retail warehousing and logistics.

The retail warehouse sector in Europe suf-fered a sharp outward yield correction early in the downturn and has not recovered significantly since, offering good value for investors. We have always favoured retail warehousing for the afford-ability that it offers retailers versus other retail formats, and for the associated growth potential. This remains true, and rents are now significantly cheaper following their recession declines. Inves-tors still have the opportunity to capture the full rental recovery cycle in some markets.

We expect to see rising demand from occupi-ers who seek clean, modern floorplates in acces-sible locations that can embrace multi-channel retailing and accommodate the click-and-collect services that are currently enjoying very strong growth. We remain nervous about all but the best High Streets, where fragmented ownership makes it difficult to defend against the digital retail future.

Opportunities through multi-channel retailingE-commerce is one of the fastest growing industries in Europe; while the roles of the traditional store and Internet are becoming blurred, so too are the roles of retail and logistics. This rapid growth in multi-channel retailing is putting pressure on dis-tribution channels and creating demand for prop-erty for the storage of goods awaiting despatch or collection. Hence, we recognise the opportunity for real estate gains in the logistics sector, another asset type that has remained out of favour with mainstream investors.

Logistics is often portrayed as a niche property sector, which hugely understates its significance in advanced economies. More than half of the take-up of logistics space is ultimately for retail distribution, offering strong covenants in a growth sector.

Retail is no longer just about distribution to shops but to homes, too, with online shopping in Europe enjoying double-digit rates of growth dur-ing the past 10 years. Parts of Europe with large and affluent populations will attract increasing demand for logistics functions. Logistics operators will favour locations that are central to continental Europe, where population is dense and infrastruc-ture is good. For investors, the sizeable yield dif-ferential versus office and retail and the long-term growth in demand, at strategic locations, make this sector a sound choice.

Powerful age-related pointers In the United States, we favour opportunities where structural or demographic trends will drive long-term demand. For investors looking for attrac-tive, secure income, we recommend the apart-ment, student housing and medical sectors. In the

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0Milan Madrid Amsterdam Paris Brussels Frankfurt Vienna Stockholm Luxembourg ZurichLondon

(West End)London

(City)

� Range — Current

Yie

ld (p

erc

ent)

Prime European office yields (previous cyclical range vs current yield, percent)

Source: Henderson Global Investors, Q3 2012

Geographical diversification can not only

enhance performance — through the ability to

pick from a larger pool of opportunity — but

also lower overall volatility of returns at the

portfolio level.

The Letter – Europe | 9 | April 2013

The continued focus on core is likely to put

further pressure on prime market values

throughout 2013 and investors will either

need to lower their return expectations or

venture up the risk curve a little to find value.

0

1

2

3

4

5

6

7

8

9

10

Gro

wth

(per

cent

)

2012–2017

Australia China Hong Kong Japan Singapore South Korea

Consumer spending forecasts in Asia (2012–2017, percent per year)

Source: Oxford Economics

Real estate investors can look forward to a future that includes greater exposure to the growth areas of retirement housing and nursing/care homes

case of apartments, stringent lending conditions and the propensity for households to lower debt means that fewer people are buying homes and are choosing to rent instead.

In the education sector, we are seeing growing demand for college places yet cuts in state budgets for accommodation, creating an opportunity for the private sector to step in and provide accommodation at popular colleges. This sector offers particularly attractive yields for investors. Finally, a rapidly ageing popula-tion in the United States and the corresponding spend on healthcare bodes well for long-term demand in the medical sector.

In Asia, like everyone else, we are drawn to the strong economic growth rates in China — especially those pertaining to the retail sector. Again it is demographic change, specifically the rate of urbanisation and the growth of the mid-dle classes, that means there should be long-term structural growth for the retail sector.

However, it has become clear to us that Chi-nese retail is not the “no-brainer” investment choice that many may have first thought. In fact, there are very high levels of supply and some international retailers are scaling back their expansion plans, having underestimated the power of mass-market local brands. We favour niche categories such as the luxury goods sector, where there is very strong demand from occupiers and consumers, yet modest provision of the quality accommodation that these high-end groups expect.

To summarise, we continue to support the case for property, and indeed a global approach to investment. The flight to quality will continue during 2013, with the associated pressure on

values meaning that investors will have to lower their return expectations or broaden their invest-ment horizons. We believe that risk awareness should still be top of the agenda, but that total risk aversion may see investors missing out on some interesting opportunities. v

Alice Breheny (alice.breheny@henderson.com) is head of research, property, at Henderson Global Investors, based in London.

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The Letter – Europe | 11 | April 2013

Sebastian Cave has been appointed joint managing director of Grainger Deutschland GmbH, based in Frankfurt. Cave, who was previously director of cor-porate development at Grainger in London, will work alongside Peter Brock on develop-ment of further opportunities in the German residential market. Grainger recently announced a German residential property joint venture with Heitman.

Rüdiger Keller has been appointed head of property management at GRR Real Estate Management GmbH, based in Erlangen, Germany. Keller was previously team leader in com-mercial property management at E.ON Facility Management with responsibility for the man-agement of commercial and residential real estate portfolios throughout Germany.

Thierry Leleu has been appointed head of funds man-agement at Valad Europe, based in London, and will join the firm’s executive committee. David Kirkby, Valad Europe’s current head of funds man-agement, has been appointed to the new role of CIO. Both Leleu and Kirkby will report to CEO Marty McCarthy. Leleu was previously general man-ager, Europe, at GE Capital Real Estate Investment Management. Valad Europe recently acquired the investment adviser and asset manager operations of GE Capital Real Estate’s Pol-ish Retail Fund. The GE Capital Real Estate Poland team, based in Warsaw, will also join Valad.

Savills Germany has appointed Marcus Mornhart as man-aging director and head of

office agency, based in Frank-furt, and Andreas Wende as COO and managing direc-tor of investment, based in Hamburg. Mornhart and Wende, who were both previ-ously with Jones Lang LaSalle GmbH, will have joint respon-sibility for the letting and investment business of Savills’ six offices in Germany. Rob-ert Kellershohn has moved from his previous role as head of office agency to a new posi-tion as managing director for property developments in Germany. Wende will join Sav-ills in the summer.

Erik Rijnoudt has been appointed as senior vice presi-dent – portfolio management at Heitman LLC, based in London. Rijnoudt was previously a Euro-pean portfolio manager at Apollo Global Real Estate, where he had responsibility for core-plus and value-added assets in west-ern Europe. In a related move, Heitman has promoted David Brodersen to senior vice presi-dent, and he will relocate to the firm’s Warsaw office.

Elisabeth Stheeman has been appointed global COO at LaSalle Investment Management, based in London. Stheeman, who will join LaSalle on 1 April, will take over from Kim Wood-row, who will retire at the end of the year. Stheeman was pre-viously at Morgan Stanley, most recently as COO in its investment banking division focused on real estate and natural resources.

Salans has appointed Jirí Stržínek and Michal Hink as co-heads of the Czech Republic Real Estate Practice Group, based in Prague, and

Sona Hanková as head of the Slovak Real Estate Prac-tice Group, based in Bratislava. Stržínek already co-heads the Real Estate Finance Sector Group within the firm’s Global Real Estate Group. In separate news, Sergey Trakhten-berg, a member of the firm’s Global Real Estate Practice Group, based in Moscow, has been promoted to partner.

Jones Lang LaSalle has appointed Tomasz Trzósło, presently head of its Capital Markets business across central and eastern Europe, as manag-ing director for Poland, based in Warsaw, with effect from 1 April. Trzósło will continue to head the Capital Markets busi-ness in Poland as part of his new, wider remit. The current Poland and central and east-ern Europe managing director, John Duckworth, has been appointed to Jones Lang LaSal-le’s UK board and will relocate to London. v

Left to right: Tomasz Trzósło, Andreas Wende,Sona Hanková,Michal Hink,Marcus Mornhart,Sergey Trakhtenberg,Ji rí Stržínek,Sebastian Cave

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The Letter – Europe | 13 | April 2013

News & Views

London office market rises above the turmoil

Despite the presently muted but ongoing euro zone sovereign debt crisis and turmoil in many European economic and politi-

cal circles, the London office market continues to stand tall as the world’s financial centre. Cautious institutional investors remain focused on core assets in perceived safe, liquid markets, and prime office properties in London are attracting capital from all corners of the globe.

In 2012, the London metro office market recorded the highest volume of transactions at approximately $23.6 billion (€18.1 billion), accord-ing to data from Real Capital Analytics. Deals com-pleted in the past 18 months have demonstrated the wide appeal of the London market and its diverse investor base. Buyers have included Brazilian bil-lionaire Moise Yacoub Safra, the Qatar Investment Authority, The Blackstone Group, China Investment Corp, Caisse de dépôt et placement du Québec and South African business magnate Nathan Kirsh.

“2012 saw a large amount of capital invested into central London with figures showing total investment close to levels last seen in the boom of 2006–2007,” notes Chris Gilchrist-Fisher, director, separate accounts UK, at CBRE Global Investors. “The dominant force was from overseas inves-tors, who accounted for approximately 60 percent of central London investment. Traditionally, North America investors — Canada and the United States

— were the largest international investors, but we are now seeing a great deal of interest from Asia.”

The intense competition for high-quality office assets has pushed up prices and compressed yields, with properties located in the West End and City submarkets trading at 4 percent and 5.25 percent, respectively, according to Jones Lang LaSalle. Mean-while, limited supply and strong tenant demand are pushing up rents; Cushman & Wakefield’s annual report Office Space Across the World recently ranked London’s West End as the world’s most expensive office market, with average rents of €2,137 per square metre per year.

“The large amount of capital has put pres-sure on prices and has led investors to seek value,” adds Gilchrist-Fisher. “They are concen-trating their efforts around growth locations, taking advantage of some major transport infra-structure changes in central London.”

While investor appetite for core product in London is still robust, some investors have backed away from the office market, citing that the recovery in property values has already run its course. However, in today’s low interest rate environment, which many expect to persist for several years to come, long-term investors are more than satisfied to own well-located stable income-producing assets.

— Larry Gray

News & Views

The Letter – Europe | 14 | April 2013

Fundraising round-up — variations in approach

Fundraising in Europe continued to remain active in February 2013, with commitments from investors looking to maximise returns in

emerging markets and with core properties. Valad Europe, manager of €4.3 billion in assets,

acquired the Polish Retail Fund from GE Capital Real Estate near the end of the month. The Polish Retail Fund is a closed-end fund that manages a €570 million portfolio of six shopping centres and three hypermarkets across Poland.

Valad is co-investing in the fund, and GE Capi-tal Real Estate will continue to control a substantial stake. According to The Wall Street Journal, the fund produces more than €40 million in yearly revenue, and the properties are fully leased to local chains and international clothing brands. This acquisition makes central and eastern Europe Valad Europe’s third most dominant region in terms of assets under management, totalling approximately €800 million of retail, logistics and light industrial real estate.

Recently, London-based Rockspring Property Investment Managers, which manages €7.3 billion in funds, announced plans to hold a €100 million equity raise on behalf of its German Retail Box Fund (GRBF). The GRBF launched in 2005 and has just under €650 million in assets under management. Twelve institutional investors have committed an undisclosed sum to the fund, which invests in retail properties with core-plus and value-add strategies. GRBF manages a portfolio of approximately 50 food-anchored retail warehouse parks and hyper-markets. Rockspring manages a total of €1 billion in German retail warehouse properties.

The fund has invested about 13 percent of its capital in core, 72 percent in core-plus and 15 per-cent in value-added strategies. Stuart Reid, a part-ner in Rockspring’s Berlin office, tells PropertyEU the firm expects investors to be enthusiastic about

the opportunity to acquire noncore German retail assets. Prior to the announcement of an equity raise, Rockspring secured a €275 million loan refinancing the GRBF from a group of five German banks.

In other news, AXA Real Estate Investment Managers has held a final close of €209 million for the Caesar Fund, which raised capital from 13 Italian institutional investors. The fund surpassed its target fundraising goal, which was not disclosed. The Cae-sar Fund held a first close of €118 million in March 2012. With gearing, the Caesar Fund has a potential buying power size of approximately €420 million.

The Caesar Fund will invest in core office build-ings with strong tenant performance. Investments will be concentrated in France, Germany and the United Kingdom. AXA Real Estate says no single investment will exceed 15 percent of the target port-folio value for the fund. The firm says it plans to complete investing in the next two years. In accor-dance with the law in Italy, AXA Real Estate will evaluate whether or not to reopen the fund for additional commitments.

Additionally, DRC Capital began fundraising for the successor to its European Real Estate Debt Fund, which closed at £300 million (€348 million). Euro-pean Real Estate Debt Fund II aims to raise £500 million (€580 million) and plans to deploy capital in a 12- to 18-month timeframe. The fund will invest in mezzanine finance for commercial property with a strong tenant base, particularly in the United King-dom and Germany, but also throughout Europe.

Tritax, a London-based manager of £1.5 bil-lion (€1.7 billion) in assets, announced the launch of the Tritax Aberdeen Office Fund, which offers investors an investment in a class A office devel-opment in Aberdeen, a centre of the European energy industry.

— Sara Kassabian

Recent fundrais ing act iv i ty — EuropeFirm Fund

Product style Structure

Property type Market focus Lifecycle

Size (M)

AXA Real Estate Investment Managers AXA REIM SGR Caesar Fund

Core Closed-end

Office United Kingdom, France, Germany

Close €209

DRC Capital European Real Estate Debt Fund II

Value-added, opportunistic, Closed-end

Debt, CMBS, mezzanine

Europe Launch £500

Rockspring Property Investment Managers German Retail Box Fund

Core-plus, value-added, Closed-end

Retail Germany Equity raise €100

Tritax Tritax Aberdeen Office Fund

— —

Office Aberdeen Launch —

Source: Institutional Real Estate, Inc

The Letter – Europe | 15 | April 2013

News & Views

Big Russian deals attract investors

A number of high-profile deals have transacted in Russia in recent months. Although overall trading volume in

2012 was lower than in 2011, Russia is enter-ing 2013 with a number of major pending and closed transactions.

In the fourth quarter of 2012, some €818.4 million was invested in commercial property in Russia, reports Real Capital Analytics (RCA). The full-year total was nearly €5.7 billion, a 9 percent decline from 2011. But, reports RCA, Moscow alone had €3.1 billion in pend-ing transactions heading into the first quarter of 2013.

One of the biggest deals in the first quarter was the acquisition of the Metropolis Shopping and Entertainment Mall in Moscow by funds managed by Morgan Stanley Real Estate Invest-ing (MSREI). The 205,000-square-metre prop-erty, which includes 82,000 square metres of retail space and is the largest shopping mall in the Moscow area, was sold by Capital Partners. While terms of the transaction were not dis-closed, the deal reportedly valued the property at $1.2 billion (€919 billion).

According to MSREI, the property gets an average of 55,000 visitors per day. Anchor ten-ants include food hypermarket Karusel and department store Stockmann, and the prop-erty includes such international retailers as Bebe, DKNY, Gap, H&M, Imaginarium, Jaeger, Michael Kors, New Look, River Island, Uterque and Zara, as well as a multi-screen cinema and a bowling alley.

And that wasn’t the first major Russian retail transaction by MSREI. A year ago, funds man-aged by MSREI acquired the Galeria shopping mall in St Petersburg for a reported €824 mil-lion. Both deals highlighted the attractiveness of major retail assets in the region.

“Together with our previous investment in the Galeria mall in St Petersburg, we believe the acquisition of Metropolis will deliver operational synergies and strategic benefits associated with owning two prime shopping centres in Russia,” says Brian Niles, head of MSREI for Europe, the Middle East and Africa.

The office sector is also poised for growth, reports CBRE.

“At the moment, we see positive signals that lead us to forecast modest capital value apprecia-tion in 2013,” says Valentin Gavrilov, director of the research department at CBRE Russia. “Broad-ening risk appetite among investors is supported

by the flow of good news from Europe and decreasing yields on fixed income assets, like bonds.” Gavrilov predicts that the surge in invest-ment activity that occurred in the second half of 2012 is likely to see a continuation of its momen-tum in the first quarter.

“Nonetheless, it’s worth mentioning that fundamental macroeconomic indicators in the euro zone remain weak,” adds Gavrilov. “Due to this fact, interest in secondary properties at the moment is rather fragile. If a further dip into recession in the euro zone can be prevented, this interest will strengthen further by the end of 2013.”

Two of the biggest Moscow office deals in 2012 were the acquisitions by Moscow-based O1 Properties Plc of the 33,078-square-metre Ducat Place III for €299.7 million and the 41,661-square-metre Silver City for €270.8 million. The high-quality office buildings were sold by Hines and Evans Randall, respectively.

— Loretta Clodfelter

Metropolis Shopping and Entertainment Mall, Moscow

News & Views

The Letter – Europe | 16 | April 2013

Residential property in Germany — a growth story

Transaction volume in the German residential market remains strong in the first quarter of 2013 as investors sell assets in the hope of

profiting from buyers motivated by increasing prop-erty prices and rental demand.

Corestate Capital, based in Switzerland, announced the €250 million sale of a German mixed-use portfolio to German institutional inves-tors. The portfolio was originally purchased in a distressed state, and includes repositioned commer-cial and residential units in North Rhine–Westphalia, Hesse and Berlin.

Thomas Landschreiber, COO at Corestate, says the company will continue creating products that respond to the demand for German properties.

A growing population, strong economy and lack of new construction in the major city markets have made German residential property a stable and secure investment, creating a strong demand that has encouraged investors to shed their assets while revenue is competitive.

In February, New York City–based Blackstone Group followed suit, announcing plans to sell a portfolio of about 8,000 German apartments, origi-nally purchased in 2012 and valued at €400 million.

The following day, a venture between the real estate investment business of Deutsche Asset & Wealth Management (formerly RREEF Real Estate) and Prelios SpA announced plans to sell a portfolio

of German residential units valued at €1 billion. The portfolio includes approximately 10,000 apartments in northern German cities.

In the first two months of 2013, the German residential market saw approximately €1.8 billion in transaction volume, according to data from Real Capital Analytics. Some 46 percent of these buy-ers were institutional. The fourth quarter of 2012 recorded similar numbers, with €2.5 billion in trans-actions in the German residential market.

Roman Heidrich, team leader of residential valuation and transaction advisory at Jones Lang LaSalle in Berlin, says Germany has a home owner-ship rate of 45 percent, making it a market domi-nated by renters. Less than 20 percent of people own homes in larger cities and core regions.

Demand for rentals is evidenced by the con-tinually increasing price for property. In 2012, the offering price for German apartments increased by 7.4 percent, according to ImmobilienScout24. Munich continues to be the most expensive rental market, where the average rent for a new apartment with updated features has risen to approximately €13.00 per square metre per month, according to research from PATRIZIA Immobilien AG.

Heidrich notes that mortgage rates in Germany are low; for example, a 10-year financing contract may come with an interest rate of 3–3.5 percent.

— Sara Kassabian

In one of the biggest portfolio deals of early 2013, IVG has acquired three properties in Germany totalling 38,400 square metres

and valued at approximately €500 million. The seller is an investment fund of Freo Group.

The investments were made on behalf of a German pension fund, and IVG is providing fund and asset management for the individual mandate.

“The prime transaction represents the sys-tematic continuation of our club deal strategy for institutional investors,” says Steffen Ricken, man-aging director of IVG Institutional Funds respon-sible for product development.

The prime portfolio comprises two proper-ties in Frankfurt — One Goetheplaza and Tau-nusanlage 11 — and one property in Berlin —Kurfürstendamm 195. One Goetheplaza totals 13,700 square metres of commercial space, of which 5,100 square metres is retail. Retail tenants include Escada, Louis Vuitton, Nespresso and Omega. Office tenants include corporate law firm Heuking Kühn Lüer Wojtek. Taunusanlage 11 is a 9,700-square-metre office tower in Frankfurt’s banking district; the primary tenant of the fully renovated property will be law firm Gleiss Lutz. Kurfürstendamm 195 is a 15,000-square-metre building complex that includes 3,400 square metres of retail space let to Escada, Phillip Plein and Strenesse.

— Loretta Clodfelter

IVG acquires German portfolio valued at €500 million

One Goetheplaza, Frankfurt

VIP – Europe is an invitation-only event intended to provide active

public and private European real estate investors thought-provoking

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May in Berlin for Europe’s “un-conference” and get the VIP advantage.

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VIPEurope2013fullpageA4.indd 1 2/19/2013 11:56:10 AM

The Letter – Europe | 18 | April 2013

As investors — institutional and retail, corporate and individual — we are told that we should diversify as a way

of spreading and reducing risk. Diversify away from the domestic base into other asset classes, sectors, geographies and currencies. Our liabil-ities — usually a payout of retirement income of one sort or another — will remain domes-tic in nature but until that payout is needed we should play with the full range of avail-able investment vehicles in an effort to stabilise returns, reduce risk, maybe get some outper-formance and help achieve a fund level that will give us the desired outcome and income. They say that diversity is the spice of life. And

we’re all different. What do we do when every-one has diversified? When we’re all facing the same risks?

Bizarrely, this is what appears to be happen-ing. As the world develops, as the dividing line between developed economies and emerging markets becomes blurred, so an investor homo-geneity is developing. They say that one day all the people of this world will be brown; that’s no racial slur, just a fact. Will something similar hap-pen in investment? Will we all effectively be part of one huge commingled investment fund? How do you differentiate if everyone is doing the same thing? How can you outperform if everyone is fol-lowing the same investment strategy?

It’s not just one-way traffic; property capital flows traverse Europe and Asia

by Richard Fleming

A two-way street

The Letter – Europe | 19 | April 2013

Europe and Asia are two vastly different conti-nents with two distinct cultures and a host of sub-cultures. Both continents have a mix of disparate, divergent countries, economies, systems, yardsticks, values and peoples. If, as a European investor 25 years ago, you had followed the mantra of the time and allocated capital into the Tiger economies of south-east Asia, you — with a few ups and downs along the way — would have done very well. If you made the right fund choice and didn’t panic, it was a no-brainer. Many of those economies, such as Malaysia, Singapore, South Korea and Taiwan, have grown and developed into stable economic entities, and have provided early investors with handsome returns. Today, international investors into China and India are hoping that their investments will prove equally astute 25 years down the line.

It’s the same with real estate, albeit with shorter investment timeframes. European investors are still interested in Asia, on diversification and bet-ter growth opportunity grounds, but they are being more than matched now in capital flow terms by Asian investors heading for Europe — primarily London — on diversification, safe-haven and limited downside grounds. It might look mucky at home in Europe, in terms of mediocre economic perfor-mance and lousy medium-term prospects, but Asian property investors are not letting that deter them — they can see value, have the money, want to buy and can find willing sellers.

When this business of internationalisation and globalisation of real estate started up, not that long ago, eyebrows were raised, questions asked. Diver-sification out of the domestic market? The home market that you know so well and understand? To a foreign market, perhaps far away, that you do not know so well and perhaps never will fully under-stand? Could that work? Could you see that it was working? Or, worse, could you see in time that it was not working? Was it going to be a fruitless one-way journey in search of opportunities and returns? Was the return journey going to be a triumphant one, coming home with the spoils and a determi-nation to do it again, or was it going to be marked by disappointment and regret and a vow never to repeat the experience?

Becoming an established patternSo far, it seems to be working pretty well. Those European investors who diversified into Asia Pacific are content and can see further opportunity — after all, Asia Pacific countries have an economic growth level that most European countries can only dream of, and that is a prime driver of further inward investment. But it is the traffic the other way — from Asia to Europe — that is attracting greater attention these days.

Recent analysis of 2012 transaction activity in the central London office market from Knight Frank, for instance, showed that investment turnover in the

The Letter – Europe | 20 | April 2013

past year was £13.8 billion (€16.0 billion), up from £9.6 billion (€11.1 billion) in 2011 and comfortably higher than the 10-year average figure of £10.8 bil-lion (€12.5 billion). The buoyancy was due largely to a record level of purchases by foreign investors, who accounted for nearly 70 percent of deals. In 2000, foreign buyers accounted for only 24 percent of deals. Knight Frank points out that 2012 was the fifth consecutive year in which foreign investors accounted for the majority of office purchases; some may think that, if this is what a global financial crisis does, bring it on.

“Foreign buyers dominating the London office investment market has become an established state

of affairs,” says Stephen Clifton, investment partner at Knight Frank. “The pound has weakened further in recent weeks, which only increases the logic for overseas investors to buy in London. Also, pricing looks attractive compared to their home markets in many cases. Prime yields on City offices are 5.00 percent, on West End offices they are 4.00 percent, whereas in Hong Kong they are around 3.00 per-cent.” Clifton points out that in 2012 much of the focus was on the safer assets, “but in 2013 I expect

to see investors taking on more risk, including look-ing at development sites in order to ride the global economic recovery.”

“London is attractive for a number of reasons,” says James Petit, head of real estate, United Kingdom and Ireland, for Deutsche Asset & Wealth Manage-ment. “It is truly a global city. London has countless financial institutions, a diverse culture, a transpar-ent and stable market, and the ability to buy build-ings with long leases up to 20 years.” Petit agrees that Asian investors will diversify into Europe in due course. “Last year was very much about watching what was happening with the euro,” he says. “As that becomes clearer and as confidence returns, I can see Asian investors diversifying into Europe.”

“If anything,” says Nicholas Holt, research direc-tor, Asia Pacific, at Knight Frank, “the fact that the United Kingdom is not in the euro zone makes Asian investors feel a little bit more comfortable about investing into London. The ongoing euro zone debt crisis does make people nervous about investing serious money there at the moment.”

Easy to see the attractionsThe term “foreign investors” is necessarily wide, but for London last year comprised largely sover-eign wealth funds, other state-sponsored financial entities and large pension funds from Asia and the Middle East. London is seen as a relative safe haven in these days of economic uncertainty, stock market volatility and low government bond yields — or at least it was until Moody’s took the United Kingdom’s cherished AAA credit rating away. This and other recent economic indicators started a bout of cur-rency weakness for the pound that actually will not upset international real estate buyers one bit. Add in stable, long-term income flows and the inflation-hedging characteristics of property in a market that has upward-only lease reviews and you begin to see the attractions.

This dominance of foreign involvement in Lon-don’s real estate markets is confirmed by the 2012 capital flow numbers from Jones Lang LaSalle (JLL). The firm believes the higher momentum in Europe generated during the increased transaction activ-ity of the fourth quarter “is likely to continue into 2013, as Asian investors continue to invest large sums of equity in Europe.” JLL is forecasting that direct investment into commercial real estate glob-ally could reach $500 billion (€383 billion) this year, from $443 billion (€339 billion) in 2012, so possibly a healthy 13 percent increase for the year.

Matthew Richards, head of JLL’s International Capital Group Europe, adds: “In 2012, we recorded a 36 percent increase in net investment into Europe by investors based outside of the region compared to 2011. The largest growth originated from Asia, where purchases into Europe grew by a staggering 80 percent year-on-year. We expect Asian offshore buyers to be many of the dominant sources of new capital this year and beyond, as domestic regulations

Ho Chi Minh CityHanoiSeoul

BrisbaneBangkok

SydneyKuala Lumpur

MelbourneNew Delhi

TokyoShanghai

Hong KongSingaporeBangalore

MumbaiGuangzhou

JakartaBeijing

-100% -50% 0% 50% 100% 150%

Three-yearpercentage change

Prime office rental growth for major Asia Pacific cities, 2010–2012 (percent)

Source: Knight Frank Research

DublinMadridLisbon

BudapestFrankfurt

MilanAmsterdam

MunichBrusselsWarsaw

ParisBerlin

StockholmMoscow

London (West End)London (City)

-100% -50% 0% 50% 100% 150%

Three-yearpercentage change

Prime office rental growth for major European cities, 2010–2012 (percent)

Source: Knight Frank Research

The Letter – Europe | 21 | April 2013

now allow investment outside of their domestic real estate market.”

Jean Lamothe, head of UK and value-add investment EMEA at CBRE Global Investors, points out that 10 years ago very few Asian institutional investors were investing outside the region. “GIC out of Singapore was probably one of the first to invest outside of Asia more than 20 years ago,” says Lamothe. “Other Asian countries didn’t have sover-eign wealth funds at the time, but the new reality in Asia is that you have these fast-growing pen-sion funds in various countries like South Korea and Malaysia. Initially, the local regulations did not allow them to invest overseas; now they can, so it’s a totally new investment universe for them to be investing out of their home country. One element that probably few people talk about is the fact that they have picked destinations that are not correlated to their home market.”

“They are looking for stability,” Lamothe contin-ues, “but usually a cross-cycle that is quite different and that provides them with exposure that is not correlated to their home market. One of the driv-ers is the larger investment universe, because these funds dominate local bond and equity markets. They are looking for diversification but also they are looking to expand their investment universe by tapping into foreign real estate markets. It’s easy to forget the advantages of transparency and liquidity that European real estate markets offer.” Also often forgotten is that mandatory, fixed-percentage con-tributions to a pension fund will grow absolutely as member wealth rises.

Scott Girard, CEO at PRUPIM Singapore, con-firms Richards’s point about structural asset alloca-tion change by Asian investors. “Historically, Asian pension funds have allocated very small percentages of their multi-asset portfolios to real estate and in some cases have been carrying a zero allocation to real estate,” says Girard. “The relative yield differen-tial between real estate and bonds has allowed some active allocation to the asset class, and they are now broadly targeting 5–10 percent real estate allocations. These are very, very large funds, which then equate to large allocations to real estate. They see these allo-cations as structural, but they have been somewhat opportunistic in terms of wanting to take advantage of stress and dislocation of pricing in certain markets. And the 5–10 percent allocation is to a growing pool of capital, not a contracting pool of capital.”

“And there’s still a number of Asian institu-tions that haven’t even started looking at Europe,” says Bernhard Karas, director of capital markets, Asia Pacific, at Cushman & Wakefield. “In Taiwan, for example, where regulatory barriers have been preventing insurance companies and pension funds from investing in non-domestic real estate.”

Of course, although it is often possible to see the direct Asian source of capital in acquisitions, sometimes investors lie behind the investment man-agers making the acquisition. A recent example is

the purchase by the real estate investment business of Deutsche Asset & Wealth Management (formerly RREEF Real Estate) of One Angel Square in Man-chester for £142 million (€165 million) on behalf of clients reported to include Gingko Tree Investment Ltd, a wholly-owned unit of China’s State Administra-tion of Foreign Exchange. The 30,600-square-metre class A newbuild office property was purchased as a 25-year sale-and-leaseback from The Co-operative

Group Ltd, which will use the building as its new headquarters. The zero carbon emission, BREEAM Outstanding property is inflation-linked leased until 2038, with an option to extend.

A healthy change of investment approachThis new rush of Asian real estate investor interest in Europe is all well and good, but what happened to the rush of European investor interest in Asia? Is it an interest that has dried up, that doesn’t actually result in many purchases, doesn’t get translated into deals on the ground? Is it the case that European investors like the sound of Asia but don’t actually do much about it? “Actually, there isn’t that much institutional-grade stock to buy,” says Lamothe. “Asian real estate

The real estate investment business of Deutsche Asset & Wealth Management (formerly RREEF Real Estate) recently acquired One Angel Square in Manchester for £142 million (€165 million) on behalf of clients reported to include Gingko Tree Investment Ltd, a wholly-owned unit of China’s State Administration of Foreign Exchange.

The Letter – Europe | 22 | April 2013

markets are quite shallow. That’s why people look at development, but that comes with risk.”

PRUPIM’s Girard points to the role played by the variance of investment approach: “The larger institu-tional investors and pension funds out of Asia are targeting direct asset investments in Europe, prin-cipally in the United Kingdom and specifically in London, whereas the capital flowing from Europe to Asia Pacific is much more in the form of either fund

investing or JV investing with managers at an oper-ating level as opposed to direct asset investments. So the capital flows from Europe to Asia Pacific are harder to track than vice versa.”

“It’s not just one-way traffic from Europe into Asia like it used to be,” says Holt.

“It is absolutely two-way traffic,” says Karas. “Yes, it was slow during the financial crisis and just after. But last year we saw a significant ramp-up of European institutions increasing their allocations to Asia. If you speak to European institutions today, you will find that European investors will tell you that they plan to increase their allocations.” Karas suggests that appearances of investor inactivity or disinterest can be deceptive. “They’re active but they’re doing things in a slightly different way.” He

points out that several large Scandinavian pension funds, which historically have not had any exposure to Asia, have started “pretty meaningful Asian invest-ment programmes” and highlights the role being played by separate accounts, club deals and joint ventures and by Asia-focused fund of funds manag-ers with “significant pools of capital that is almost exclusively European institutional money.”

Girard confirms that there was a hiatus in Europe-to-Asia capital flows following the global financial crisis, “but we have seen strong capital flows coming into Asia from European investors over the last 24 months. Allocations have been significantly down on prior years, but we’ve seen stronger inflows into Asia from European investors over the course of 2010, 2011 and 2012, principally in the form of either fund investing or investing in JV structures with managers with platforms within the region.”

Holt suggests that, if European investor transac-tion activity is reduced, then that’s because prices in Asia are “steamy”. Yields are significantly lower than in Europe, he says: “To be honest, the vast majority of deals done in Asia now are by Asians. There is a little bit of European or American money here, but it is predominantly Asian money; cross-border but intra-Asia, Singaporeans investing in China or Chinese investing in Singapore or Koreans or Japanese invest-ing, diversifying, different risk strategies. There’s not too much capital coming in from the West.” Is there are an element of people talking to people, of herd mentality, of self-perpetuation? “Perhaps,” he says.

The challenge of varied diversityAsia is a big place — with some 25 countries of dif-ferent sizes and varying economic significance — so investors are faced with a choice of country, market and investment style. “And when a European inves-tor looks at Asia, he has to deal with all that diver-sity,” says Kiran Patel, CIO at Cordea Savills.

“In terms of coming on to the radar of insti-tutional investors globally,” says Girard, “Asia was initially viewed as a market that offered either value-add or opportunistic-type investment strategies. By definition, that means that investors needed to move further up the risk curve in order to achieve the returns that were associated with those opportunis-tic strategies. That played out in 2002–2009. In that period,” Girard notes, “investors experienced disap-pointing returns for the level of risk that was being undertaken in those strategies.” He suggests that the focus is now much more on the core, transpar-ent real estate markets of Asia. “As the risk appetite decreases across the asset class, you move further down the risk curve,” he says.

“We’ve seen a lot more interest from European investors in the last couple of years in core, core-plus strategies in Asia,” Andrew Hills, director – cli-ent portfolio management, Europe, at Invesco Real Estate, agrees, “and this is mainly because there’s a big block of assets out there, you have decent ten-ants, multinational tenants, and the market generally

SEB Asset Management recently sold its share of the 23-storey 79 Anson Road office building in Singapore for €136.6 million to United Engineers Developments Pte Ltd.

The Letter – Europe | 23 | April 2013

Europe and Asia are two vastly different

continents with two distinct cultures and a

host of subcultures. Both continents have

a mix of disparate, divergent countries,

economies, systems, yardsticks, values

and peoples.

is more transparent, particularly in Japan and Aus-tralia. Different investors are coming in for different reasons, but it’s all on the back of the growth story. European investors can now look at an Asia alloca-tion as strategic rather than tactical, so a lot of Euro-pean investors who may invest in core, core-plus at home can now invest in core, core-plus plays in Asia and feel a lot more comfortable. In previous cycles, they would invest in opportunistic investment and there’s no denying that some of them were burned in the past.”

“We all got carried away,” says Patel, “and our expectations across the board were just too high. The occupier demand wasn’t there, the pricing wasn’t there. Those expectations haven’t been achieved for the last four to five years because it would imply that property would have to give you a two-times multiple — and that hasn’t occurred.

“No-one disagrees that over the long term the dynamics of China and India are clearly upward,” Patel explains. “What European and even US insti-tutions would question is: how do you execute in those markets, and what is the right timing? The trend is upward, but you’re going to have a series of mini-cycles within that long 20- to 30-year trend. Are you joining at the peak of a cycle or are you joining at the trough of a cycle?”

“You do need to make sure you enter the mar-ket at the right time,” Lamothe confirms.

“One of the big issues facing overseas inves-tors,” Patel continues, “is the breadth and depth of execution capability. People say they can do things, but in reality they’re not as transparent or have the quality to execute because Asia generally — putting aside Japan and Australia — is an emerging area.”

Like Asian elephants, investors do remember. “India is a good example,” says Karas, “of a market where many investors got burned. Some investors are now very reluctant to engage in a dialogue there even though the fundamentals in the market have completely shifted relative to 2007 and the land-scape of local fund managers is much improved. Investors definitely have views on where they want to invest and why.

“The divergence of what investors want to do has increased,” suggests Karas. “Also, the ticket size of investments has increased. When you have some-one who’s active who can write a 50–75 million cheque, that becomes really meaningful — and it’s those guys who make the market. There may have been more institutions to talk to before, but their ticket size was 20–30 million.”

“Investors are looking at allocations to real estate in Asia on a risk-adjusted basis and not just on an absolute return basis,” Girard explains. “We’ve seen more capital flowing to the larger, more transparent core markets like Singapore, Japan, Australia. China is obviously a large component in Asia Pacific because it is 30–33 percent of the investable universe in the region and it attracts a big ratio of capital flows, but we have seen a redirection of focus and a shift of

interest to the more transparent core markets in Asia, like Japan, Hong Kong, Singapore, South Korea, Aus-tralia and New Zealand. Lower returns but lower risk.

“Don’t forget,” Girard points out. “The abso-lute growth differential between Asia and the other global regions — North America and Europe — is such that it is attracting greater interest from investors wanting a stable yield but also underlying growth. The fundamental drivers that will continue to sup-port growth in income and relatively attractive yields are being achieved within Asia. Asia is a destination for core capital and will continue to be so over the medium term.”

“There’s growth everywhere, especially in developing Asia,” Holt confirms.

“The essence of the current interest in Asia, from core investors through to more opportunis-tic investments, is still on the back of the growth story,” says Hills. “It’s a region where there’s a decent amount of growth — slightly lower than the recent past, perhaps, but still sustainable high, single-digit growth — and that’s the story for the next 10–15 years, hopefully. We know that the growth story in Europe is pretty non-existent for the next five years.”

Reconciling differences and similaritiesCulture is one of those things you get used to. As Holt says, “there are differences between the Japanese and the Indonesians just as there are between the Germans and the French. Any investor coming into Asia would have to become familiar not just with the market but with the way business is done.”

“Globalisation is here to stay,” says Petit. “Capital flows will move around and will look for reasons to invest outside their domestic markets; diversifica-tion, possibly pricing or security. The real estate mar-ket is only going to become more global, especially with regard to quality assets. It will be interesting to see how the ‘mid-tier’ pension funds — not the supersized pension funds that have segregated and global mandates — look to follow this trend. They understand that it’s something they need to do, and it will be interesting to see how they achieve that, whether it’s a commingled fund or a small segre-gated account.” v

Richard Fleming (r.fleming@irei.com) is editor of The Letter – Europe. He is based in Kimberley, United Kingdom.

The Letter – Europe | 24 | April 2013

Investment

Quality and quantityYou can have the best of both worlds. Real estate investors need

numbers, and they need someone to crunch themby Patrick Baldia

The growing number of real estate bench-marks has played an essential role in making real estate a more investable asset

class. High-quality data is not only seen as the basis for making real estate more transparent, but also as an important tool for communicat-ing with stakeholders — including regulatory authorities. The availability of more and more benchmarks also means that asset managers and investors have to be more careful in choosing the right one for their purposes. Experts agree that benchmarks shouldn’t be used on their own as a headline number, but rather as a prompt for insight into reasons for over- and underperfor-mance, whether at strategic or tactical levels.

“For equities and bonds, benchmarks are used all the time,” says Peter Hobbs, senior director at IPD. “For real estate, they’re used more and more.” Hobbs thinks that the increase in the use of real estate benchmarks has been driven by the longer-term trend toward the greater sophistication and transparency of the asset class, with far more con-sistent data available across global markets. Apart from these long-term trends, another catalyst for a more widespread use of benchmarks was the global financial crisis, Hobbs points out. “There was a desire on the part of asset owners for greater information and analysis on their real estate expo-sure,” he says.

According to Hobbs, asset owners such as pension funds, insurance companies and sovereign wealth funds increasingly want to use benchmarks for a range of reasons. One is to provide diagnostics. “Benchmarks are very powerful tools. They help explain why a certain return was achieved,” Hobbs says. Another is to communicate with stakeholders. “Including internal and external boards and regula-tors,” he notes. Benchmarks are also increasingly used as a basis for calculating performance fees, as well as to strengthen risk management.

On the launch padsThere are three important approaches to bench-marking: on a fund level, at an asset level or in

comparison to non-property specific bench-marks. For all three types of benchmarks, there is an increasing number of options. Just recently, for example, the first official results of the PREA/IPD US Property Fund Index were released. Steve Cornet, director of the global real estate research and risk analysis team at BlackRock, sees potential for this new index, as both organisations have a proven track record: “After the move from a con-sultative release to a full product, the PREA/IPD US Property Fund Index is expected to gain more market share.”

As Cornet points out, the majority of the BlackRock funds use either the NCREIF Property Index (NPI) or the NCREIF Fund Index Open-End Diversified Core (ODCE). The NPI is an index of unleveraged, institutionally owned, operating properties. Contrary to the NPI, the ODCE and the PREA/IPD US Property Fund Index include the effects of leverage, non-core investments, joint ventures and fees. “However, they represent a nar-rower segment of the market, include a changing composition of funds, and have the potential for style drift,” Cornet points out.

In March, IPD’s global fund index will be launched. It will be based both on open-end and investable funds that are marked to market at an asset and fund level on a quarterly basis. It will measure performance at asset and fund level across markets on a global basis.

The increasing number of benchmarking options certainly doesn’t make it easier for profes-sionals to find the right one for their purposes. So what is the right benchmark? For Eugene Phil-lips, head of EMEA research at CBRE Global Inves-tors, the choice depends strongly on the goals and coverage that investors want to achieve — for example, on the entire European market or on a country/sector level. The history of index data is also a considerable issue, as the data history is sometimes too short. “It is also possible that the market coverage is not efficient or that there are different valuation practices used in the underlying portfolios of the index,” Phillips argues.

The Letter – Europe | 25 | April 2013

The more, the merrierCertainly, quality and objectivity should be big issues when looking for the right benchmark. For Hobbs, representativeness is a key issue for the robustness of a benchmark. “A benchmark has to reflect the market that you’re getting exposure to. It should contain a reasonable number of assets and not only three to four funds,” he says. This would mean that a European benchmark must reflect all European markets. “On the fund side, you want to capture all funds, even if they go out of business, to avoid the survivorship bias.”

Non-core private real estate has established itself as an asset class over the past 10 to 15 years. “Two to three years ago, there were hardly any indices for non-core private real estate,” explains Michael Studer, head of portfolio and risk manage-ment at Partners Group. Together with Thomson Reuters, the global private markets investment man-ager launched the Partners Group Thomson Reuters Private Real Estate Index, a closed-end private real estate fund index, in 2010. According to Studer, it was a big help that his company had collected data on the asset class for more than 10 years. Contrary to other non-core private real estate indices, like the NCREIF Townsend Fund Index, which focuses on the United States, it has more of a global approach.

“The difficulty with the private real estate market is that data cannot be found on Bloomberg,” Studer points out. As the provision of appropriate data on a regular basis does involve quite a lot of work, com-panies have to be convinced that it is to their ben-efit to be included in the index. According to Studer, apart from making the asset class more transparent, a further key benefit for participants is that they are also provided with data that enables them to compare themselves with the broad market. He explains that the sample contains more than 300 funds with thousands of underlying assets. Only funds for which the entire data history is available are included.

Keeping people on their toesAs Hobbs points out, one of the major challenges for opportunistic benchmarking is the robustness of the values of the underlying constituents: “Few opportunistic funds have regular, quarterly, external appraisals, raising questions about the robustness of the underlying values.”

According to both Phillips and his colleague Marcel Theebe, research manager at CBRE Global Investors, there is a sufficient level of indices on a pan-European level. “Generally speaking, it is good that there are more index companies. This would keep the costs lower for asset management companies and at the same time keep the index companies alert,” they say. In their opinion, the current indices in a way com-plement each other, as INREV reports returns on a NAV level and IPD mostly on GAV — although they refer to the fact that IPD also started a NAV-based index.

“However, if another index company were to enter the European market, it might become a threat

for the quality of all indices if investors have to pay for being included in an index,” says Phillips. In that case, investors will probably choose between avail-able benchmarks if they are substitutes, he thinks. “This would make the coverage of the individual indices smaller, while coverage is one of the big issues when it comes to index quality.”

No comfort in numbersStuder does not believe that there will be a big increase in the number of private real estate indi-ces; investing companies might be willing to pass on data to two or three index providers, but not to five or more. Studer thinks that a larger number of index providers could have a negative impact on the overall quality of indices: “If more companies are competing for customers, this could be at the expense of quality.”

Investing companies could have a hard time deciding which index provider they should co-operate with and could end up passing on less data. Another fact is that some companies have legal limi-tations in respect of the information that they may provide to index companies. According to Studer, a larger number of providers could also lead to a cer-tain consolidation. “This again would make the asset class more transparent,” he says.

For Hobbs, the growth in the number of bench-marks is a positive development for the industry, but he also thinks that care must be taken over the integrity of benchmarks. “If there are many indices to choose from, there is a danger that asset manag-ers choose one that makes them look good, so it is important that there is a robust process behind benchmark selection and management,” he sug-gests. Another challenge for benchmarking is trying to build coverage and to avoid a free-ride business.

Benchmarking in real estate is here to stay: that’s a fact, Studer says. “The real estate industry has understood, in the current scenario of strong regula-tory change, that advantages of the asset class can only be communicated [to investors and regulatory authorities] using high-quality data,” he says. v

Patrick Baldia is a freelance writer based in Vienna.

The Letter – Europe | 26 | April 2013

Investment

A critical linkInflation is a more important consideration for real estate

investments in this low bond yield environmentby Simon Redman

Low bond rates and unpredictable equity markets combine to make the role of a pen-sion scheme trustee or pension fund adviser

a difficult one, particularly given the demands for more predictable but higher income. The search for alternative sources of income has led to a heightened interest in assets such as real estate that can provide some inflation/liability-linking characteristics.

In the United Kingdom, according to data from IPD, real estate has a long-term historic income return of 6.5 percent per year on average (for the 40-year period from 1971 to 2011) and

has had a correlation with inflation of 77 percent, against 45 percent for equities and 27 percent for government bonds (for the 20-year period from 1991 to 2011). These attributes make real estate a potentially attractive option for pension funds.

Through a dedicated and actively managed strategy, it is possible to further enhance the link with liabilities by adopting an active real estate strategy that focuses specifically on matching or exceeding the real estate returns to inflation. For example, real estate leases with indexation share some characteristics with index-linked bonds but with a much higher yield of 3–7 percent compared with upward of 2.5 percent for index-linked bonds.

Real estate in continental Europe has an even higher inflation correlation over short-term periods because most leases include some form of index-ation, thus providing an in-built link to inflation.

A number of UK real estate managers pro-mote strategies aimed at providing an inflation-linked return. The strategies are focused on long, index-linked leases. They are also generally based on the assumption that these types of assets are a proxy for index-linked bonds. While good in theory, these strategies largely ignore some of the risks inherent in a real estate investment.

By ignoring real estate–specific issues, there is the potential to needlessly adopt more risk than is necessary. Real estate investment can exhibit bond-like characteristics, but it is not a bond and needs to be managed in a way that is appropri-ate to the asset class. With a proper understanding and the application of a more active real estate investment philosophy, such risks can potentially be reduced or removed.

By way of comparison, in continental Europe indexed leases have been the norm for many years, although they are often much shorter than in the United Kingdom. These shorter leases are often considered to be inherently more risky, but the major markets in continental Europe have shown a stronger link to inflation and significantly less volatility than the UK property market dur-ing the most recent cycle. Learning from long-term investment in long-term leases and indexed leases outside of the United Kingdom identifies our key risks of a passive long index-leased strategy:

•Erosion of the initial capital investment through a lack of active management. Main-taining the capital value of the investment, ie. ensuring that the sale or “residual” value of the real estate is maintained, is essential to preserv-ing the investment capital. This can only be done through active management.

•A lack of effective management, which can put current and future income at risk. Main-taining income at a sustainable level is essential. In the event that a lease renegotiation or re-letting is required, active management and proper fore-thought and preparation should provide the opportunity to create and not reduce income.

The search for alternative sources

of income has led to a heightened

interest in assets such as real estate

that can provide some inflation/liability-

linking characteristics.Simon Redman Invesco Real Estate

The Letter – Europe | 27 | April 2013

•Too focused on a strategy. Concentrating too much on a small pool of investments leads to unsustainable values. This is a key risk with some index-linked assets today.

•Concentrating solely on the “in-favour” long-leased sector. This can result in over-pricing relative to alternatives.

The application of active and disciplined manage-ment, without the need to focus just on very long leases, provides an alternative way of approach-ing the strategy.

ObsolescenceA risk with long-leased investments is the impact on value of building obsolescence and reducing lease length. Unlike a bond, where

the principal, in the absence of default, is guar-anteed to be returned at the end of the term, there is no such guarantee with a real estate investment. In some cases, real estate values may increase with the market, but they can also decrease. One of the key factors impacting this future value is a building’s obsolescence, as illustrated in the “Obsolescence curve of real estate” chart below.

The rate of obsolescence depends very much on the type and the location of the build-ing. From an investment perspective, it is impor-tant, therefore, to appreciate the potential rate of value decline of particular types of buildings and to invest in such a way that it does not materi-ally impact the building’s value. Factors to con-sider include:

The obsolescence curve of real estateTypical value decline

Source: Invesco Real Estate, February 2013. For illustrative purposes only.

Managing income risk via active management

Source: Invesco Real Estate, February 2013. For illustrative purposes only.

The Letter – Europe | 28 | April 2013

•Building age and utility. Will the building still be “fit for purpose” at the end of the lease? For example, a state-of-the-art office building 20 years ago would not be able to cope with the technological and environmental demands of an occupier today.

•Location. How much of the value of the build-ing is attributable to its location? A well-located building for its particular use will attract occu-pier interest and, therefore, maintain value, whereas a poorly-located building can suffer a dramatic fall in value, should a tenant vacate.

A commonly stated “long lease” view is that the value in this type of investment should be in the lease and not necessarily in the location. The the-ory is that the “value” of the initial investment can be amortised over the life of the lease. In theory, the approach is sound; however, when applied in practice the amount of the income required to amortise the investment can seriously impact the returns. For example:

Largest real return target RPI+2.5% Real estate yield required: 5.3%

80% amortisation over 20 years Amortisation yield: 3.2%

Total required real estate yield 8.5%

This simple example suggests that, even before fees and costs, a real estate yield of around 8.5 percent is required in order to justify an investment. Given that many index-linked leases trade at a yield of 4–5 per-cent, providing sufficient real return is challenging.

The alternative is to invest in assets with low levels of obsolescence and to be prepared to exit an asset before reducing lease length and obsoles-cence have a material impact on its value.

Adopting this strategy does not require any income amortisation, allowing an investor to

receive a potentially higher income return in a larger investment universe.

An example of investments with low obsoles-cence is mid-market, leased hotels. These invest-ments can provide long-leased indexed income but offer low depreciation. Hotel operators contin-ually invest capital back into their hotels in order to maintain the quality of the hospitality offer to guests. Moreover, many of these types of hotel investments include a contractual requirement for operators to reinvest a percentage (around 4 per-cent per year) of their revenue back into the hotel.

Income riskWhile a lease with fixed increases linked to index-ation removes the “market” impact of the income return, and instead links it directly to inflation, it also brings with it some inherent risks.

The income from this type of lease can move more or less directly with inflation; real estate fac-tors can disrupt that link in total performance. These include local supply dynamics and drivers of ten-ant affordability, which impact the market rent of a building. The market rent may, therefore, not be linked to inflation. As shown in the “Indexed lease income at risk” chart below, an excessive increase in indexed income over and above the market rents can put future income at significant risk.

Such a situation puts not only future income at risk but also the value of the investment. In a situation where the indexed rent is significantly above the market rent, the excess income is at risk should there be an event that requires the real estate to be re-let on current rental terms. More-over, the rent at the end of the lease can drop drastically. Pricing an asset in this way can lead to fundamentally overpaying for it.

Indexed lease income at risk

Source: Invesco Real Estate, February 2013. For illustrative purposes only.

The Letter – Europe | 29 | April 2013

An alternative approach is not to rely solely on the length of a lease and the quality of the tenant to preserve value, but to adopt an active manage-ment strategy to ensure that the real estate does not run the risk of value erosion as the indexed rent increases, should the tenant fail to pay the rent, as shown in the “Managing income risk via active management” chart above.

A more active strategy involves removing an overreliance on long-leased income and, instead, having a proper appreciation of real estate rental levels and values. By selling a piece of real estate or renegotiating its lease before it becomes too “overrented”, it is possible to reduce or remove the “at risk” income. Furthermore, it places less reliance on investing just in long leases but per-mits some shorter income duration in a portfo-lio. In turn, the approach enables investments in a deeper pool of real estate and in assets that are less aggressively priced. Therefore, an active approach has the benefit of not only potentially reducing the portfolio risk but also providing a higher income return.

Sector concentrationThe interest in long-leased, indexed strategies and limited supply means pricing is becoming more aggressive. It is important, therefore, to maintain some investment flexibility and not to focus simply on the “in-vogue” sectors. Having a relative view on pricing is a fundamental skill to have. For example, a 25-year indexed supermar-ket lease will typically trade at around 4–4.5 per-cent and is likely to be subject to sale restrictions and income caps and collars. Whereas a business hotel let to a global operator, also subject to a 25-year lease but without sale restrictions, caps

or collars, may trade at around 6–7.5 percent. If a strategy is extended to continental Europe, a similar hotel may trade at around 7–9 percent, which even after hedging currency exposure can provide an income premium.

The key to effective returnsReal estate has a meaningful role to play in invest-ment portfolios where linking to inflation is important, a role that has the potential to increase significantly in a low bond yield environment. Considered, disciplined management and an appreciation of the asset class are key to deliver-ing an effective return.

Real estate with a long lease may disguise weaker underlying real estate fundamentals, leav-ing an investor exposed to declining value. Learn-ing from continental European investment with a very well-developed market for index-linked but shorter leases shows risk can be managed through selective investing and an understanding of the residual real estate fundamentals: it is still pos-sible to create a portfolio offering a relatively high income yield with few voids, stable capital val-ues and inflation linkage without having to focus solely on long leases.

An understanding of the real estate, its market and the tenant is a prerequisite, but performance can be delivered with more certainty through active portfolio management, an awareness of the value profile and exit discipline. Adding sector expertise can then be used to enhance the avail-able returns. v

Simon Redman (simon_redman@ldn.invesco.com) is managing director – client portfolio management, Europe, at Invesco Real Estate, based in London.

Managing income risk via active management

Source: Invesco Real Estate, February 2013. For illustrative purposes only.

S h o p

Talk

The Letter – Europe | 30 | April 2013

What is EIOPA, and what is its role?

EIOPA was established as a result of the reforms to the structure of super-vision of the financial sector in the European Union. The reform was ini-tiated by the European Commission, following the recommendations of a Committee of Wise Men, chaired by Jacques de Larosière, and supported by the European Council and the European Parliament. EIOPA is part of the European system of financial supervision that consists of three European supervisory authorities, the various national supervisory authori-ties and the European Systemic Risk Board. It is an independent advisory body to the European Commission, the European Parliament and the Council of the European Union. The main objectives of EIOPA are: better protection for consumers, with the

aim of rebuilding trust in the finan-cial system; ensuring a high, effec-tive and consistent level of regulation and supervision, taking account of the varying interests of all EU mem-ber states and the different natures of financial institutions; greater har-monisation and a coherent applica-tion of rules for financial institutions and markets across the European Union; strengthening the oversight of cross-border groups; and promo-tion of a coordinated EU supervi-sory response.

What do real estate invest-ment market participants such as insurance companies and pension funds need to know and understand about EIOPA?

Insurance and pensions are both important sectors in the financial system and play a unique role in

For many people, the global financial crisis of 2007–2008, and what has or has not happened since, was living proof that the regulatory system was not fit for purpose. It failed to flag up the weaknesses in the system, to allow timely interven-tion and corrective action, and it did not provide the protection for end-users that governments and authorities thought was in place. Beneficiaries of retire-ment income arrangements — past, present and future — have suffered particu-larly from the subsequent and continuing downturn in financial markets. The European Union (EU), through the European Commission, has been particularly active since 2007 in putting forward new mechanisms aimed at dealing with these regulatory shortcomings and preventing a recurrence of the perceived fail-ings and excesses of the past. The real estate investment industry is now coming to terms with the effects — some intended, some possibly not — of inter alia the incoming Alternative Investment Fund Managers Directive (AIFMD), Solvency II and the European Market Infrastructure Regulation (EMIR). Further regulatory changes at EU level are in the pipeline. Editor Richard Fleming spoke recently with Gabriel Bernardino, chairman of the European Insurance and Occu-pational Pensions Authority (EIOPA) in Frankfurt, about planned changes and improvements to the regulation at EU level of insurance companies and pension funds, and possible effects on the real estate sector.

A conversation with Gabriel Bernardino

with Richard Fleming

Gabriel Bernardino Chairman

European Insurance and Occupational Pensions Authority (EIOPA)

The Letter – Europe | 31 | April 2013

people’s lives and in the economy. Extreme events like the earthquake and tsunami in Japan in 2011 or Superstorm Sandy on the US Eastern Seaboard last year remind us of the relevance of adequate insurance cover, but also show us how resilient insurers and reinsurers need to be to cope with these events. Pension funds are facing another problem, which is the rapid ageing of the popula-tion: in the years ahead, we may face a sudden lowering in the value of pensions for members and beneficiaries, a higher concentration of costs for employers, and ultimately intergenerational conflicts. In this regard, the task of the supervi-sory authorities is to reform the pension systems in Europe in order to ensure that the institutions for occupational retirement provision — IORPs, as we call them — will be able to fulfil their prom-ises on a long-term basis. This will be beneficial for members, beneficiaries, employers and IORPs; for example, in the promotion of long-term invest-ment or in contributing to the sustainability of public finances.

In general, in the context of the financial crisis, the creation of the European supervisory authorities is a fundamental change that provides a huge opportunity for the European Union and its member states to ensure a convergent approach to regulation and supervision and to contribute to the implementation of a true single market.

How would you summarise the changes that are taking place in the insurance and occupational pension sectors?

In the area of insurance, the new regulatory regime — Solvency II — is enshrined in the Solvency II Directive, which was adopted by the European Parliament and the Council of the European Union in 2009. EIOPA is working on its imple-mentation. However, the intention that Solvency II will be brought into effect in 2014 needs to be revised. The decision about the new timeframe will be taken by the European Union’s political institutions. Under the best scenario, Solvency II could start to be implemented either in 2015 or 2016; it all depends on the length of the legal and political process. At the end of the day, we’ll prob-ably go for 2016, but it remains to be seen.

At the same time, we want to use the delay in implementation of Solvency II to tackle possible problems in a consistent and convergent way. In the EIOPA Opinion on interim measures related to Solvency II that we issued in December 2012, we indicated that interim measures are needed because there is a risk that the delay of a final agreement on Solvency II could induce a num-ber of European supervisors to develop national solutions for sound, risk-sensitive supervision. Instead of the consistent and convergent supervi-sion across the European Union that we’re look-ing for, different national solutions may emerge

— to the detriment of a good, functioning inter-nal market.

The interim measures involve the develop-ment of guidelines for the national competent authorities. These are related to those parts of Solvency II that are unlikely to be influenced by the finalised Omnibus II Directive, and will cover the system of governance, ORSA (the Own Risk and Solvency Assessment), the pre-application of internal models, and reporting to supervisors.

In the area of occupational pensions, the ini-tiative of reviewing the IORP Directive belongs to the European Commission. At the Commission’s request, EIOPA has provided technical advice and is currently carrying out what we call the Quan-titative Impact Study, the QIS, on those elements of this advice that are related to the holistic bal-ance sheet concept. But the final version of the reviewed IORP Directive will be proposed by the European Commission. In both cases — Solvency II and EIOPA’s advice on the review of the IORP Directive — the principal objective is the intro-duction of a risk-based regime, a completely dif-ferent way of looking at and managing the risks. The risk-based approach will allow insurance undertakings and IORPs to better identify, under-stand and manage their risks.

The effects of Solvency II will only be known when it comes into full force. Already, however, the real estate invest-ment market believes that Solvency II and its increase in capital requirements could have a significant negative impact on real estate allocations by insurance companies. There are suggestions that the European Commission — which is where new EU regulations start their life — is contemplating the introduction of a Solvency II–type measure for pension funds. What’s the position on that? What’s the objective? Should pension funds be worried? Should real estate investors be worried?

I don’t think so. We don’t want just to copy/paste the requirements for the occupational pensions sector from Solvency II because we fully under-stand that there’s a big difference between insur-ance and occupational pension products. Our intention is to pick up the elements that — in terms of governance and risk management — are similar between those two areas. If risks are simi-lar, you should treat them in a consistent way. And if risks are different, you should treat them in a different way. That’s what EIOPA advocates in its advice on the IORP Directive review.

EIOPA sits above national regulatory bodies, safety nets and protection/res-cue mechanisms. Is it the case that

The Letter – Europe | 32 | April 2013

EIOPA could ever seek to get involved in, or influence, the asset allocation deci-sions — how much in equities, how much in bonds, etc — of individual insurance companies or pension funds?

We fully understand that each insurance under-taking or IORP has an individual risk profile. That’s why it makes no sense, and it’s actually not our task, to impose any exact quantitative require-ments on asset allocation. The aim of EIOPA is to develop regulatory standards that will allow the industry — the insurance companies and pension funds that make up this sector — to decide inde-pendently on asset allocation, taking their own risk profiles into account.

We might take some supervisory decisions in some specific circumstances but it’s not the role of regulation or supervision to decide on asset allocation by market players — it’s up to them to define their own investment policies and they will be the ones that best match their liabilities. It’s not up to regulation or regulators to inter-fere with specific decisions on asset allocation. What we will do for insurance and pensions at the European level is draw up a set of high-level principles in terms of ensuring investment diversi-fication because that’s fundamental to the protec-tion of members, beneficiaries and policyholders. Regulation and the single rule book at European level are written in such a way that they are free of any kind of limitation. Pension funds define their own policies in a way that best represents the interests of their members. It’s for supervisors to analyse them, but it’s not our role to define individual asset allocations.

The European Commission, as the secre-tariat for the European Union, proposes EU legislation. EIOPA advises the Euro-pean Commission, the European Parlia-ment and the Council of the European Union. Can insurance companies and pen-sion funds — and their beneficiaries — be

confident that EU legislation will achieve its intended purpose? That it will not have adverse unintended consequences? How can possible misunderstandings about market mechanisms, particularly investment risk, and contradictions best be dealt with? Are the people you advise listening to market concerns?

In its work, EIOPA maintains a close dialogue with the representatives of industry, consumers and academics. Two stakeholder groups — the Insurance and Reinsurance Stakeholder Group and the Occupational Pensions Stakeholder Group — form an integral part of EIOPA’s organ-isational structure. The goal of these two groups is to facilitate EIOPA’s consultation with stake-holders in Europe on such issues as the regu-latory environment and the implementation of technical standards as well as guidelines and rec-ommendations that apply to the insurance and occupational pensions industry. Each group has some 30 members. The stakeholder groups can submit opinions and advice to EIOPA on any issue related to the Authority’s tasks. Additionally, the stakeholder groups are expected to notify EIOPA of inconsistent application of EU law as well as inconsistent supervisory practices in the EU member states.

Furthermore, one of the essential elements of the way that EIOPA works is public consul-tation, which allows all the interested parties to share their opinions with EIOPA and at the same time allows EIOPA to be aware of concerns and problems that industry representatives may have. EIOPA publicly consults interested parties in pre-paring advice to the European Commission — that’s what we did with our advice on the IORP Directive review — and also in drafting its own recommendations, guidelines and standards. In 2011, for example, EIOPA conducted public con-sultations on draft guidelines and standards for reporting and disclosure and on draft guidelines for the Own Risk and Solvency Assessment. We also hold different pre-consultations and meetings with industry representatives. These tools aim to ensure a clear and complete knowledge of market situations and needs, and a wide sharing of regu-latory and supervisory policy.

At a press conference during the annual conference of the National Association of Pension Funds (NAPF) in Liverpool in October 2012, you said in response to a question that “we are not a bunch of lunatic, crazy guys in Frankfurt, OK? We know about pensions.” It’s a colour-ful image. Are you finding some of the press and industry comments on EIOPA’s reform proposals ill-founded? Are you misunderstood?

The Letter – Europe | 33 | April 2013

Solvency II could start to be implemented

either in 2015 or 2016; it all depends on the

length of the legal and political process.

We can always try to improve, but I think we’ve been quite good at communicating what we are doing. Misunderstandings are always possible. Our work on insurance company and pension fund regulation is politically sensitive. It’s clear that we’re in a situation where economic indica-tors and demographic trends tell us that, going forward, things will not be as rosy as they were in the past — we have a low interest rate environ-ment, and rising longevity is a fact. So we need to bring more reality into the valuation of these insurance and pension commitments.

I do believe that people understand what we’re trying to do. But we advise, we don’t decide. The European Commission, the Euro-pean Parliament and the Council of the Euro-pean Union decide. We have recommended a basic framework. There are various options on how to implement this framework. When we get to what we call the holistic balance sheet, we will have supervisory answers. It’s not our inten-tion, for example, that a new regulatory system will force pension funds to close down. And there will be a transition period that will give sufficient time for people to adapt. Yes, there is sometimes some misunderstanding, for example on the respective roles of the European Commis-sion and EIOPA, but I think that people are now much more aware.

What has interested you most about what’s happened in the markets in the past five years?

Let me just pick one issue that relates to what we have been talking about. There’s a clear lesson from the global financial crisis that, irrespective of economic conditions, if you fail to recognise risk properly, you’ve got problems. The problems will stay there if you don’t deal with them. The lesson for us in the financial and pension sectors is that we need to have regulatory regimes and we need to look at the reality, not just in terms of the valuation of assets and liabilities but also in terms of risk.

It is a big lesson, because if you don’t have a good assessment of risk when it enters the finan-cial system, there is only one thing that we know — later on, someone will pay. Risk doesn’t disap-pear. You’ve seen what happened in the banking sector, basically you had poor underwriting at the beginning and a poor understanding of the risk, and in the end someone had to pay. The problem in this crisis is that most of the time the ones who end up paying are the taxpayers. We have to take this as a lesson for the whole financial sector; we have to assess risk going forward; we have to deal with reality. We also have to do this in the pen-sions sector. We need to value the promises that are made nowadays in a more realistic way, and we have to ask whether we’re not on the way to

some kind of intergenerational conflict. That is the biggest lesson from these crisis years.

Is this risk aspect dealt with by the raft of new regulation that is coming down the track? EU regulation such as IORP II, Solvency II, AIFMD. Dodd-Frank in the United States. Basel III. Is there a danger with this extent of new regulation, and its implementation and compliance cost, that providers of pension and insurance products could find it all too much? Can they cope with it all?

Let’s turn it round. Did we fail because we had too much regulation, or too little regulation? I would say that in some areas we failed because we had too little regulation — and especially because we had regulation that was not really looking at the reality. There’s no such thing as a perfect regulatory system, especially in complex sectors like finance, banking, insurance, pensions. We are building pro-jections, expectations, looking at the future. No-one can capture all that complexity and all the elements.

But that is one of the lessons that I men-tioned — to cope with the evolution and the complexity, the regulatory system needs to rec-ognise the reality of the risk. That’s what we’re doing right now. I don’t think that we’re going to have much more regulation than we had in the past. Probably what we will have is a dif-ferent kind of regulation that needs to be com-pounded in the real world and that was lacking during the financial crisis. Supervision is fun-damental. We need to have good risk-based regulation, and we need to compound that with good and much more consistent supervision. We can’t continue with the old system of dif-ferent supervisors in different countries using completely different ways of looking at prob-lems. That is what caused many of the problems in the banking sector.

Can we cope with all that? We need to cope with that. It’s clear to me that self-regulation doesn’t work. We need the right proportion of regulation and the right kind of risk regulation. Otherwise, we’ll just keep having problems.

So it’s better regulation and better supervision?

Yes, and especially better supervision; this is for me fundamental. You cannot rule everything. v

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Recently, Sheila Hopkins, managing director – Europe and infrastructure with Institutional Real Estate, Inc, spoke with Klaus Schmitt of PATRIZIA Immobilien AG. The following is an excerpt of their conversation.

PATRIZIA wants to become the “leading fully inte-grated real estate investment house in Europe”. What does this actually mean?

The best way to understand this is to look at the individual words: “real estate investment house” means that, in the future, we will continue to focus our activities on real estate. We were born and bred in real estate, and we want to remain in real estate. This covers all asset classes, from residential to commercial. So at the moment, we already manage real estate assets worth approxi-mately €7.5 billion, 60 percent of which is com-mercial and 40 percent of which is residential. As an investment house, we want to make co-investments for our investors, or together with our investors.

What does “fully integrated” mean?

The “fully integrated” part refers to the fact that we can cover the full spectrum of value-chain activities through our own in-house human resources, at every level, independent of demands in individual countries. In Germany, we span every part of the value chain. This full cover-age is something that differentiates us from the competitors.

Where in Europe is PATRIZIA already active?

In addition to our home market of Germany, we are growing more and more in other European countries. We already have locations in Great Brit-ain, France, Luxembourg, Denmark and Sweden. Last December, we also acquired the British real estate investment and asset management company Tamar Capital Group. In future, we want to be represented in all of Europe’s major core markets. Today, we are active as an investor and service provider with around 600 employees in more than 10 countries.

What’s PATRIZIA’s goal in this area?

When we set up the asset management com-pany in 2006, we were quick to recognise that the trend amongst individual investors was mov-ing more and more toward indirect investments. PATRIZIA WohnInvest has allowed us to run an asset management company with an exclusive focus on residential property. The trend toward indirect investments has intensified since then. With the acquisition of what is now PATRIZIA GewerbeInvest, we had a second asset manage-ment company under our wing in 2011, and this bolstered our commercial activities in the long term. This not only expanded our fund business

abroad but also granted us access to other groups of investors. The aim is to keep offering our insti-tutional investors innovative products and to offer them sound investments. We want to be the first port of call for all kinds of issues related to real estate, and to work closely with customers in the long term.

How important is Great Britain for PATRIZIA?

Great Britain, especially London, is of particular importance to us because many international financial investors are based there. The acquisi-tion of Tamar is an important milestone in this respect. The London company manages com-mercial real estate assets equivalent to approxi-mately €700 million. As well as in Great Britain and Germany, Tamar also operates in France, Ireland, Nordics and Benelux. With this acquisi-tion, PATRIZIA is therefore not only enhancing the commercial real estate division with the very important light industrial segment and strengthen-ing its presence on major core European markets, but is also significantly expanding in the promi-nent location of London. We are intentionally moving into the focus of investors in the English-speaking world. We believe that there is marked interest among opportunistic investors in partners like PATRIZIA with real estate expertise who also participate in the company’s success with a co-investment. London is the ideal location for this.

In which parts of Europe do you see particu-lar potential?

The Nordic real estate markets in Denmark, Nor-way, Sweden and Finland, which are particularly attractive for real estate investments, are also very important to us. The potential of the Nordics, as we call them, lies in their economic power and their stable legal systems. We are sure that we are only at the beginning of our journey here and can yet grow substantially in this market. Pros-pects for real estate markets in Norway, Sweden

klaus Schmitt is COO of PATRIZIA Immobilien AG. Upon completing his legal studies at the University of Bayreuth and the Ludwig-Maximilian Univer-sity in Munich, Schmitt worked for companies including Dyck-erhoff & Widmann AG, Munich, and Siemens Real Estate GmbH & Co. oHG as a legal

expert, four years of which were spent as head of the Legal Affairs Department. In 2003, he became head of the Legal Affairs Department at PATRIZIA Immo-bilien AG and worked as a manager at operating PATRIZIA subsidiaries. Schmitt has been a member of the PATRIZIA Immobilien AG Management Board since January 2006.

PATRIZIA Immobilien AG

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ionand Finland are similarly positive. Overall, approx-

imately €400 million has been invested in Scan-dinavia for our fund and around €250 million acquired from institutional investors there, which we have in turn invested in Germany.

While many companies specialise in one key mar-ket, PATRIZIA is developing from a residential spe-cialist into a real estate investment house in Europe. Why are you taking this path?

We are an investor and service provider, but one thing above all — a partner. This means we sup-port our customers in all important real estate decisions — regardless of whether it relates to residential or commercial real estate. It’s important to hold the reins at all stages of the value chain and to avoid being dependent on buying in sup-port from third parties. This is the only way to ensure that we’re offering our customers the full potential value.

What value-add does this give the customers or PATRIZIA’s business partners?

For us, one thing’s certain: Operating as a gen-eralist allows us to provide our customers and business partners with optimal results. We can take full responsibility for top quality, as all the services we deliver are provided by our own in-house staff. By working across the board, we avoid unnecessary interfaces and can thus achieve the best result, without running into snags. On top of this, being set up in this way really does allow us to leverage every opportunity for our business partners, as we can always select the most eco-nomically coherent path to realise the real estate investment. Independent of the client brief, this allows us to focus on providing the best solution.

Is further growth planned for residential and com-mercial real estate?

Growth shouldn’t be considered an indicator by itself, so it shouldn’t be an end in itself. Growth only makes sense when the consequences of growth can be dealt with properly and when this brings tangible benefit to our customers or for our shareholders. The bigger PATRIZIA becomes, the more opportunities this creates, and these can be harvested to the good of our business partners. The way we’re set up, we could actually expand our assets under management by €1 bil-lion every year.

What is planned in the area of real estate spe-cial funds?

We’ll have one or two new products on the mar-ket per year in this area. The products will be developed jointly with our customers through our two asset management companies, PATRIZIA Woh-nInvest and PATRIZIA GewerbeInvest. The addi-tional purchases will be fairly significant for our funds, so we expect to grow in this area. Last year alone, we recorded real estate transactions valued at approximately €3.2 billion and obtained €1.1 billion equity from institutional investors.

This development significantly strengthens services provided to third parties. What happens to PATRIZIA as an investor?

Of course, we will also find ways to invest the equity we own within the company in future. In late 2011, we set up a fund called PATRIZIA Wohn-Modul I, opening up our established investment areas in residential privatisations and project devel-opment to investors. In the future, this type of activity will be restricted to co-investments. In col-laboration with our business partners, we will make co-investments in this area and in transactions.

Last but not least, looking to the future, where do you see PATRIZIA in 2015?

We will systematically continue down the path of European expansion we have been on. In doing so we want to grow organically but also exter-nally, that is by further acquisitions. PATRIZIA looks for new market opportunities that allow us to grow in moderation without overburdening our own organisation. By 2015, PATRIZIA will be over-seeing at least €10 billion of assets under man-agement. In addition to Germany, Great Britain, France, Denmark, Sweden and Luxembourg, we’ll have offices in other European countries, staffed by our own people. We’ll have realised signifi-cant investments in all core European markets as a highly regarded business partner for residential and commercial real estate. v

CORPORATE OVERVIEWWith around 600 employees in over 10 countries, PATRIZIA Immobilien AG has been active on the real estate market as both an investor and service pro-vider for nearly 30 years. PATRIZIA’s range includes the purchase, management, value increase and sale of residential and commercial real estate. As a recog-nised business partner of large institutional investors, the company operates in Germany and other countries and covers the entire value chain in the real estate industry. At present, the company manages real estate assets worth €7.5 billion. A good 80 percent of this is on behalf of third parties, primarily as a holder of a real estate portfolio for insurance companies, pension fund institutions, sovereign wealth funds and savings banks. Via its asset management companies, PATRIZIA GewerbeInvest KAG and PATRIZIA WohnInvest KAG, the company issues special real estate funds in accord-ance with the German Investment Act, and is now one of Germany’s top names in this area.

CORPORATE CONTACTJames Muir

Managing Director PATRIZIA Immobilien AG Berkeley Square House

Berkeley Square London W1J 6BD

T +44 (0)20-7887 1580 M +44 (0)7803-894694 james.muir@patrizia.ag

www.patrizia.ag immobilien@patrizia.ag

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Investment

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The Letter – Europe | 37 | April 2013

Funds in the marketThe list of funds on the following pages is a sampling of the European offerings currently in the market.

SPONSORFUND

PRODUCT STYLE PRODUCT TYPE

TARGET CLOSE DATE

TARGET FUND SIZE

(M)

MINIMUM INVESTMENT

(M)MARkET FOCUS

PROPERTY TYPE FOCUS

CONTACT PHONE

Aberdeen Asset Management Aberdeen Property Fund Sweden

Value-added Closed-end fund

— €500 €1 Sweden Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Property Fund Denmark

Core-plus Open-end fund

— €1,000 €1 Denmark Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Property Fund Norway I IS/AS

Core-plus Open-end fund

— €1,033 €0.6 Norway Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Property Fund Norway II ASA

Value-added Closed-end fund

— €1,250 €10 Norway Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Property Fund Finland I KY

Core-plus Open-end fund

— €500 €0.5 Finland Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen European Balanced Property Fund

Core Semi-open-end fund

— €700 €3 Europe Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Property Nordic Fund I SICAV-FIS

Core Semi-open-end fund

— €500 €10 Nordics Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Dynamic European Property Fund of Funds

Value-added Semi-open-end fund of funds

— €500 €1 Europe Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen UK Property Fund of Funds

Core-plus Open-end fund of funds

— £250 £0.1 United Kingdom

Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen UK Balanced Property Fund

Core Open-end fund

— £200 £1 United Kingdom

Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen European Opportunities Fund of Funds

Value-added Closed-end fund of funds

— €100 €10 Europe Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen Pan-Europe Core Property Fund

Core Open-end fund

— €750 €20 Europe Unconstrained (diversified) Roberto Varandas +44 (0)20-7463 6437

Aberdeen Asset Management Aberdeen German Residential Fund

Core Closed-end fund

— €900 €10 Germany Residential Roberto Varandas +44 (0)207463 6437

Aberdeen Asset Management Aberdeen Residential Sweden Fund

Core Closed-end fund

— €300 €10 Sweden Residential Roberto Varandas +44 (0)20-7463 6437

AEW Europe AEW Europe Logistics

Core Closed-end fund

01/06/2013 €1,200 €20 Europe Logistics Schalk Visser +44 (0)20-7016 4845

AEW Europe CTS Development Partners

Opportunistic Closed-end co-investment programme

— €200 €20 Germany CBD office Schalk Visser +44 (0)20-7016 4845

AEW Europe Senior European Loan Fund 1

Core Closed-end fund

— €500 €10 Europe Unconstrained (debt) Schalk Visser +44 (0)20-7016 4845

AEW Uk AEW UK Core Property Fund

Core Open-end fund

— — £0.1 United Kingdom

Suburban office, CBD office, retail, regional malls, big box retail, power centre retail, neighbourhood shopping centres, community shopping centres, industrial, self-storage, mini-warehouse, retail warehouse

Dana Eisner +44 (0)20-7016 4883

The Blackstone Group Blackstone Real Estate Debt Strategies II

Value-added Closed-end fund

Q2 2014 $3,000 $10 United States, Europe

CBD office, retail, industrial, multifamily, hotel/resorts, debt

Melissa Skidell +1 212-583-5039

The Blackstone Group Blackstone Real Estate Special Situations Fund

Value-added Open-end fund

— — $5 United States, Europe

CBD office, retail, industrial, multifamily, hotel/resorts, debt

Melissa Skidell +1 212-583-5039

BNP Paribas Real Estate Investment Management Shopping Property Fund I

Core Open-end fund

— €250 €1 France Retail Romain Welsch +33 (0)1 55 65 24 20

CarVal Investors CVI Europe Real Estate Partners

Opportunistic Closed-end fund

— €500 €50 United Kingdom, France

Suburban office, CBD office, retail, industrial, multifamily

Matthew Hanson +1 952-984-3632

Clavis Walden Investments Piccadilly UK Commercial Property Income Fund

Core, core-plus Open-end fund

— £400 — United Kingdom

Unconstrained Robin Hill +44 (0)20-7287 5587

Investment

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The Letter – Europe | 38 | April 2013

Funds in the market

SPONSORFUND

PRODUCT STYLE PRODUCT TYPE

TARGET CLOSE DATE

TARGET FUND SIZE

(M)

MINIMUM INVESTMENT

(M)MARkET FOCUS

PROPERTY TYPE FOCUS

CONTACT PHONE

DTZ Investment Management Aurora Europe Property Fund

Value-added Semi-open-end fund of funds

— €400 €5 Europe Unconstrained Martin Gilbert +44 (0)20-3296 3273

East Capital East Capital Baltic Property Fund II

Core-plus, value-added Closed-end fund

— €50 €1 Eastern Europe

CBD office, retail, regional malls, retail warehouse

Torbjorn Odenhagen +46 (0)8 5058 8516

Forum Partners Forest Wohnen

Value-added Closed-end fund

31/12/2013 €100 €5 Germany Multifamily, debt Andrew Walker +44 (0)20-7399 3801

Frogmore Property Co Frogmore Real Estate Fund Partners III

Value-added Closed-end fund

— £350 — United Kingdom

Unconstrained Paul White +44 (0)20-7016 6000

Genesta Genesta Nordic Fund II

Core-plus, value-added Closed-end fund

31/12/2013 $400 $10 Scandinavia Office, retail, logistics, other David Neil +46 8 506 497 14

Henderson Global Investors Henderson Indirect Property Fund Europe

Core-plus Open-end fund of funds

— €1,000 €1 Europe Suburban office, CBD office, retail, industrial, alternatives

Andrew Friend +44 (0)20-7818 2439

Henderson Global Investors Henderson UK Property Fund

Core-plus, value-added Open-end fund

— £250 £0.1 United Kingdom

CBD office, retail, industrial Andrew Friend +44 (0)20-7818 2439

Henderson Global Investors Henderson High Income Real Estate Debt Fund

Core Closed-end fund

30/06/2013 £250 £5 United Kingdom, Germany

CBD office, retail, debt, unconstrained Andrew Friend +44 (0)20-7818 2439

Henderson Global Investors Henderson Senior Secured Real Estate Debt Fund

Core Closed-end fund

30/06/2013 £500 £5 United Kingdom, Germany

CBD office, retail, debt, unconstrained Andrew Friend +44 (0)20-7818 2439

Henderson Global Investors German Logistics Fund

Core-plus Closed-end fund

30/06/2013 €300 €5 Germany Logistics Thorsten Kiel +49 698-600-3138

Henderson Global Investors Henderson UK Shopping Centre Fund

Core-plus Closed-end, semi-open-end fund

31/12/2014 £250 £0.25 United Kingdom

Retail Amy Lynch +1 860-723-8613

Imorendimento IMO Pan-Iberian Retail

Value-added Closed-end fund

31/05/2017 €580 €5 Portugal, Spain

Retail, logistics Mariana Campos +351 22 607 5660

Imorendimento Historic Lodges

Opportunistic Closed-end fund

31/07/2017 €50 €1 Portugal Urban development, urban regeneration

Mariana Campos +351 22 607 5660

Imorendimento Gestimo

Value-added Closed-end fund

30/11/2015 €50 €1 Portugal CBD office, retail, multifamily, single family

Mariana Campos +351 22 607 5660

Imorendimento Multipark

Opportunistic Closed-end fund

31/03/2016 €50 €1 Portugal Retail, mixed-use Mariana Campos +351 22 607 5660

Imorendimento Natura

Opportunistic Closed-end fund

31/12/2016 €50 €1 Portugal Industrial, logistics Mariana Campos +351 22 607 5660

Imorendimento Continental Retail

Value-added Closed-end fund

31/12/2014 €150 €5 Portugal Retail Mariana Campos +351 22 607 5660

Imorendimento Prime Value

Value-added Closed-end fund

31/05/2016 €50 €1 Portugal Industrial, logistics Mariana Campos +351 22 607 5660

Imorendimento SII

Value-added Closed-end fund

31/05/2015 €50 €1 Portugal Urban office, CBD office, multifamily, single family, car parks

Mariana Campos +351 22 607 5660

Legal & General Property Legal & General Limited Price Inflation Income Property Fund

Core-plus Open-end fund

— £750 £1 United Kingdom

Public sector and investment-grade tenants, long lease with inflation linkage

Pete Gladwell +44 (0)20-3124 2770

Legal & General Property Managed Property Fund

Core-plus Open-end fund

— £2,000 — United Kingdom

Balanced, indirects, derivatives Pete Gladwell +44 (0)20-3124 2770

Legal & General Property The Leisure Fund

Value-added Closed-end fund

— — — United Kingdom

Leisure parks Dan Batterton +44 (0)20-3124 2771

LGT Clerestory Crown Small Cap Real Estate Fund II

Value-added, opportunistic Closed-end fund of funds

30/06/2014 $400 $20 United States, Europe, Asia, Latin America

Unconstrained Joanne Douvas +1 212-584-2021

Meadow Partners Meadow Real Estate Fund II

Opportunistic Closed-end fund

15/07/2013 $400 $10 New York City, London

Unconstrained, debt Jeffrey Kaplan +1 212-317-5944

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The Letter – Europe | 39 | April 2013

Funds in the market

SPONSORFUND

PRODUCT STYLE PRODUCT TYPE

TARGET CLOSE DATE

TARGET FUND SIZE

(M)

MINIMUM INVESTMENT

(M)MARkET FOCUS

PROPERTY TYPE FOCUS

CONTACT PHONE

Mesirow Financial MFIRE Global Real Estate Investment Programme II

Value-added, opportunistic Closed-end fund

30/06/2013 $300 $2 Global Suburban office, CBD office, medical office, retail, neighbourhood shopping centres, community shopping centres, industrial, self-storage, multifamily, hotel/resorts, single family, retirement housing, student housing, healthcare, mixed-use, securities

Todd Fowler +1 312-595-6022

Metropolitan Real Estate Equity Management Metropolitan Real Estate Partners Global VI

Value-added, opportunistic Closed-end fund of funds

28/06/2013 — — United States, Europe, Asia

CBD office, retail, industrial, multifamily, hotel/resorts, diversified, select co-investments, secondaries, debt

Erin Roeder +1 212-812-4947

Metropolitan Real Estate Equity Management Metropolitan Real Estate Partners International V

Value-added, opportunistic Closed-end fund of funds

28/06/2013 — — Europe, Asia CBD office, retail, industrial, multifamily, hotel/resorts, diversified, select co-investments, secondaries, debt

Erin Roeder +1 212-812-4947

MGPA MGPA Europe Fund IV

Value-added, opportunistic Closed-end fund

04/05/2013 €850 €10 Europe Suburban office, CBD office, retail, mixed-use

Paul Winters +44 (0)20-7591 2316

Niam AB Niam Nordic Core-Plus Fund

Core-plus Closed-end fund

30/06/2013 €300 €10 Nordics Suburban office, CBD office, retail, multifamily

Jennifer Andersson +46 (0)8 5175 8559

PATRIZIA Immobilien AG LB Büro Invest Europa I

Core Open-end fund

— €300 €5 Europe Office Wolfgang Speckhahn +49 821-509-10617

PATRIZIA Immobilien AG LB Handels-Invest Europa I

Core Open-end fund

— €300 €5 Europe Retail parks, commercial buildings, classic local shopping centres

Wolfgang Speckhahn +49 821-509-10617

PATRIZIA Immobilien AG LB Handels-Invest Deutschland I

Core Open-end fund

— €250 €5 Germany Retail parks, commercial buildings Wolfgang Speckhahn +49 821-509-10617

PATRIZIA Immobilien AG LB Wohn-Invest Deutschland I

Core Open-end fund

— €350 €5 Germany Multifamily Wolfgang Speckhahn +49 821-509-10617

PATRIZIA Immobilien AG LB Hotel-Invest Deutschland I

Core Open-end fund

— €150 €5 Germany Hotel Wolfgang Speckhahn +49 821-509-10617

PATRIZIA Immobilien AG LB Pflege-Invest Deutschland I

Core Open-end fund

— €162 €5 Germany Premium nursing homes Wolfgang Speckhahn +49 821-509-10617

Pradera Europe Pradera Open-Ended Retail Fund

Core Open-end fund

— €400 €0.5 Europe Retail Marina Ferri +44 (0)20-7539 5443

Prologis Private Capital Prologis Targeted Europe Logistics Fund

Core-plus Open-end fund

— — €5 Europe (developed)

Industrial Martina Malone +44 (0)20-7518 8711

Prologis Private Capital Prologis European Properties Fund II

Core Open-end fund

— — €5 Europe (developed)

Industrial Martina Malone +44 (0)20-7518 8711

Pramerica Real Estate Investors EuroPRISA

Core Open-end fund

— — — Europe Suburban office, CBD office, retail, industrial

—

Pramerica Real Estate Investors Pramerica UK Ground Lease Fund

Core Open-end fund

— — — United Kingdom

Ground lease investments only —

Revcap Advisors Ltd Kitty Hawk Capital Partners II

Value-added, opportunistic Closed-end fund

19/04/2013 £200 £5 Northern and western Europe

Unconstrained Nick West +44 (0)20-7495 6335

Rockspring Property Investment Managers Rockspring Hanover Property Unit Trust

Core, core-plus Open-end fund

— — £0.12 United Kingdom

Suburban office, CBD office, retail, regional malls, big box retail, power centre retail, neighbourhood shopping centres, community shopping centres, industrial

Kathryn Dixon +44 (0)20-7761 3322

Swisscanto Anlagestiftung Swisscanto Investment Foundation Real Estate Switzerland

Core Semi-open-end fund

— — SFr 5 Switzerland Unconstrained Dirk Steiner +41 (0)58 344 44 65

Tristan Capital Partners European Property Investors Special Opportunities 3

Value-added, opportunistic Closed-end fund

30/09/2013 €750 €10 Europe Suburban office, CBD office, retail, multifamily, logistics

Monica O’Neill +44 (0)20-3463 8869

Source: Institutional Real Estate, Inc

The Letter – Europe | 40 | April 2013

E u r o p e

D e a l s

Sample of all-Europe transactions, January 2013 (€15 million or more, or equivalent)Buyer Seller Property

Location Country Price (M) Size

Price per square metre or unit

OffiCe

Google Hermes/London & Continental/DHL

Kings Cross Central Block A London United Kingdom

£550.00 68,189 m2 £8,065.82

Pramerica Real Estate Investors Risanamento SpA

118 Champs Élysées Paris France

€135.00 5,000 m2 €27,000.88

Fondo Immobiliare Euripide FIMIT SGR

Via Tommaso Grossi 1 Milan Italy

€100.00 13,000 m2 €7,692.31

Antirion Generali Real Estate Fund

Viale Don Luigi Sturzo 35 Milan Italy

€83.00 16,400 m2 €5,060.98

Competo Capital Partners BayWa

Arabellastrasse 4 Munich Germany

€80.00 38,000 m2 €2,105.26

ITV Plc LaSalle Investment Management

London Television Centre London United Kingdom

£56.00 40,319 m2 £1,388.92

Strathclyde Pension Fund M&C Saatchi

36 Golden Square London United Kingdom

£47.50 3,809 m2 £12,470.79

Barratt Developments PFA Pension

76 Marsham Road London United Kingdom

£45.00 20,438 m2 £2,201.78

Majorstuen Syndicate DNB

Essendrops Gate 3 Oslo Norway

NKr 385.00 11,300 m2 NKr 34,070.80

Talanx iii-Investments

Lübeckertordamm 4 Hamburg Germany

€45.93 15,000 m2 €3,062.22

Sator Immobiliare SGR Beni Stabili SpA

Via Piemonte 38 Rome Italy

€40.55 4,384 m2 €9,249.54

Primonial REIM Not disclosed

2 Avenue du Général de Gaulle

Charenton-le-Pont France

€40.40 10,269 m2 €3,934.17

USS Cordea Savills

Elan House London United Kingdom

£24.50 4,508 m2 £5,434.78

New Winds Group SL Inmobiliaria Colonial SA

Agustín de Foxá 27 Madrid Spain

€16.00 6,965 m2 €2,297.20

Threadneedle Property Warner Estate Holdings

America House London United Kingdom

£13.80 4,318 m2 £3,195.86

induStriaL

Clowes Group Christies International

40–42 Ponton Road London United Kingdom

£40.00 13,935 m2 £2,870.47

retaiL

Deka Immobilien Nexity

T8 Paris France

€54.00 7,200 m2 €7,500.00

CBRE Global Investors LHI Leasing

Anton Huber Strasse 1 Erding Germany

€38.00 16,665 m2 €2,280.23

ILG Ten Brinke Groep

Koldingerstrasse Pattensen Germany

€25.00 16,000 m2 €1,562.50

reSidentiaL

M&G Investments Genesis Housing Group

Stratford Halo (bulk condo) London United Kingdom

£125.00 401 units £311,720.70

Marcus Cooper Group Guinness Partnership Trust

Guinness Court London United Kingdom

£30.00 28 units £1,071,428.57

HOteL

M&G Investments Shiva Hotels

Hilton Hotel Heathrow Airport Terminal 5

Slough United Kingdom

£21.12 350 units £60,328.57

Source: Real Capital Analytics Currency note: €10 million = NKr 74.47 million = £8.63 million

The Letter – Europe | 41 | April 2013

M a r k e t

F o c u s

square metres of GLA with more than 150 stores. There are other smaller shopping centres such as the Tarup centre and the Svendborg Storcenter but these serve primarily local markets. It is anticipated that new retail space in the Thomas B Thriges Gade proj-ect will serve mainly local needs but a major retail scheme in the pipeline for Odense, VIVA by Steen & Strøm, is on an old abattoir site next to the railway station in the middle of the city. The scheme is due to open in October 2015 and expects to achieve 6 mil-lion visitors per year and annual turnover of DKr 1.25 billion (€168 million), including tax. It forms part of a wider project, named City Centre Odense, including a further 100,000 square metres of mixed-use space.

The office sector in Odense is relatively small, as most companies have their national headquarters in Copenhagen. Prime and non-prime rents remained stable over 2012: prime rents were DKr 950 (€127) per square metre per year. Prime rents in the indus-trial sector were also stable last year at DKr 275 (€37) per square metre per year.

Odense has accounted for 9 percent of all investment into real estate in Denmark since 2003. The vast majority of investors are of domestic origin. A recent deal included the sale of an office scheme on Blangstedsgårdsvej for €15.5 million in Q2 2012 at a yield of 9.6 percent. Retail attracts the majority of investment, accounting for 43 percent since 2003. Prime yields in the retail sector were 5.25 percent throughout 2012, 6.00 percent in the office sector and 7.75 percent in the industrial sector, and are expected to remain stable in 2013. v

Joanna Tano (joanna.tano@eur.cushwake.com) is a director in the European Research Group at Cushman & Wakefield LLP, based in London.

by Cushman and WakefieldOdense is Denmark’s third largest city and most famous for being the birthplace of Hans-Christian Andersen. It has a population of almost 170,000 and is located on the island of Funen in the strait between Zealand and the mainland. The city cele-brated its 1,000th anniversary in 1988. The famous Saint Canute’s Cathedral houses the remains of the 11th Century King Canute IV, later canonised.

Odense is home to several major industries, including shipyards, brewing and sales of fruit, vegeta-bles and flowers. It has the third largest cluster forma-tion of robotics technology in the world. The largest employer is the services sector (particularly adminis-tration, education and health), followed by transport.

REAL ESTATE OVERVIEWEconomic growth is set to resume in Denmark this year, following a slight contraction of 0.1 percent in 2012. GDP growth of 0.7 percent is forecast for the year. Consumer confidence is somewhat boosted by steady employment levels, falling inflation, low mortgage rates and an anticipated modest rise in real incomes in the months ahead. External trade is held back by euro zone weakness and a consequent lack of demand in key export markets. Should growth fail to return in 2013, it is likely that the government will step in to support the economy with extra measures.

In the property sector, prime retail rents rose slightly in the past year: by the end of 2012, they stood at DKr 5,500 (€738) per square metre per year. One of the largest shopping centres in the Nordic region is located in Odense: Rosengårdcentret, in the south-east of the city, has approximately 100,000

Odense Denmark

OFFICEPrime rent: DKr 950 per square metre per yearRental change over past year: 0.0% Prime yield: 6.00% Yield shift over past year: 0 basis points

INDUSTRIAL (LOGISTICS)Prime rent: DKr 275 per square metre per yearRental change over past year: 0.0%Prime yield: 7.75% Yield shift over past year: 0 basis points

RETAILPrime rent: DKr 5,500 per square metre per year Rental change over past year: 10.0%Prime yield: 5.25% Yield shift over past year: 0 basis points

E d i t o r i a l

Boa rd

Hermann Aukamp, NAEV North Rhine Doctors Pension Fund

Max von Below, AM Alpha GmbH

Jenny Buck, Tesco Pension Investment

Adam Calman, The Townsend Group

Mark Chamieh, Pramerica Real Estate Investors

Paul Clark, The Crown Estate

Madeleine Cosgrave, GIC Real Estate Pte Ltd

Douglas Crawshaw, Towers Watson

Robert Van Dijk, Syntrus Achmea Vastgoed

Laurent Gabert, Pictet & Cie

Nicholas Gaynor, Deutsche Asset & Wealth Management (formerly RREEF Real Estate)

Tuomo Halttunen, Tapiola Group/Tapiola Real Estate

Sandra Hammond, Canada Pension Plan Investment Board

Niels Hesseldahl, Sampension KP Livsforsikring A/S

Lars Huber, Hines

Bill Hughes, Legal & General Property

Bas van den Ijssel, Almazara Real Assets Advisory

Giles King, CBRE Global Investors

Stefan Krausch, Meag Munich Ergo Asset Management GmbH

Wilson Lamont, AREA Property Partners

Ric Lewis, Tristan Capital Partners

William Lindsay, PCCP, LLC

Jason Lucas, Amstar Advisers

Martina Malone, Prologis Private Capital LLC

John Mancuso, Russell Investments

Hank Midgley, Rockpoint Group, LLC

Stein Berge Monsen, DNB Real Estate Investment Management

Rupert Nabarro, IPD|An MSCI Brand

Soren Nielsen, Realdania

Brendan O’Regan, National Treasury Management Agency

Pami Pihlström, Pohjola Property Management Ltd

Richard Plummer, Rockspring Property Investment Managers

Ville Raitio, Arbejdsmarkedets Tillaegspension (ATP)

Paul Richards, Mercer

Andy Rofe, Invesco Real Estate

Ben Sanderson, Hermes Real Estate Investment Management Ltd

Raymond Satumalaij, ASR REIM

Ajay Sharma, Heitman

Wolfgang Speckhahn, PATRIZIA Immobilien AG

Maarten van der Spek, PGGM Investments

Christian Stark, Migros-Pensionskasse

Gabi Stein, Tishman Speyer

Robert-Jan Tel, Stichting Philips Pensioenfonds

Stephen Tross, Bouwinvest

Schalk Visser, AEW Europe

Bernd Wegener, Versicherungskammer Bayern

Jeroen Winkelman, Bouwinvest

Albert Yang, J.P. Morgan Asset Management – Global Real Assets

The Letter – Europe | 42 | April 2013

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The Letter – Europe | 44 | April 2013

M a r k e t

P u l s e

the BuzzON REAL ESTATE INVESTMENT ACTIVITY IN

EUROPE

“With ongoing economic uncertainties through-out Europe, we expect the United Kingdom, France and Germany to capture most of the global capital flows in 2013 as investors favour risk-averse assets. Nevertheless, an increasing presence in Europe of opportunistic equity funds from North America could lead to a rising number of cross-border invest-ments in peripheral European markets this year.”

— LYDIA BRISSY, European research director at SAVILLS

by the NUMBERS

€25.31 billion

The commercial real estate transaction volume for Germany last year. According to Savills,

this was the highest level for five years and was 8.5 percent higher

than in 2011

46 percent

The proportion of this German transaction volume accounted

for by foreign buyers, up from 31 percent in 2011

Knight Frank’s recently released report on real estate markets in Africa suggests that the conti-nent is poised for strong growth. Dynamic eco-

nomic expansion, which has seen average GDP growth of more than 5 percent per year over the past 10 years, has led to increasing prosperity and the arrival of the four features that are common to many emerging markets across the world and that are seen as helpful to real estate investors — young populations, greater urbanisa-tion, the growth of the middle class and higher incomes.

According to Africa Report 2013, demand for high-quality commercial and residential property continues to grow across Africa on the back of the continent’s sustained strong economic growth and rising wealth. Africa’s “mega-cities”, such as Lagos, Nairobi, Accra, Lusaka and Dar es Salaam, are increasingly becoming the drivers of its economic growth and, as a result, says Knight Frank, are attracting growing interest from occu-piers, developers and investors.

Many African cities have severe shortages of high-quality office space and this scarcity of supply has led to extremely high rents in some cities, particularly where there is strong demand for office space from interna-tional occupiers from the oil and gas sector. Prime office rents in Luanda and Lagos are among the highest in the world. Despite recent construction completions, prime rents in Luanda, for example, at US$150 (€115) per square metre per month, are well above the levels seen in leading global office markets such as London, New York City and Hong Kong.

“Africa’s impressive economic progress is generat-ing a growing need for the construction of good-quality property in major cities across the continent,” says Mat-thew Colbourne, associate, commercial research, at Knight Frank. “The rising wealth of Africa’s middle class is leading to demand for increasingly sophisticated retail formats and better-quality residential property.”

Found: the lost continent

Selling down

SEB Asset Management’s once-mighty ImmoInvest fund is in liquidation, a victim

of the turmoil in the German open-end real estate fund sector.

SEB recently announced the sale of a considerable

portion of the ImmoInvest portfolio, at its height valued at €6.4 billion, including two hotels in Berlin, the 342-room Grand Hyatt Hotel at Potsdamer Platz in the Mitte district and the 505-room Maritim Hotel in the Tiergarten district. These were acquired for an undisclosed price by Al

Rayyan Tourism and Investment Co. A further sale by SEB, priced at €420 million, was that of a portfolio of 11 mainly office properties across Germany to Canada’s Dundee International REIT. Nine of the 11 properties, which have a total floor space of 137,200 square metres, were SEB ImmoInvest assets; the remaining two formed part of the SEB ImmoPortfolio Target Return Fund.

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