Rob Wilkinson
AEW Europe

A 2016 of returning highs has set the stage for a 2017 in which AEW Europe expects to shine, as Rob Wilkinson explains

AEW completed €3.8 billion worth of transactions across Europe last year, including €3.2 billion in acquisitions. What was the strategy at play in 2016, and did it pay off?

We were pleased with what we achieved last year, although there was less deal flow overall. Our transaction figure has actually increased since these figures were released, as a couple of deals that we did on our debt platform pushed the total to over €4 billion. It was down from 2015, an extraordinary year, but in 2016 we achieved our second-highest level of deals in our history and the capital-raising side was very positive at €3.3 billion.

We’ve continued to invest across a broad range of strategies, from core deals to opportunistic ones, and have diversified into markets where we have not been very active since the financial crisis. Particularly, we have invested in Spain, Denmark, Copenhagen, Belgium and the Netherlands. We have moved away from focusing on deals in the UK, France and Germany and now look for greater value outside of those markets where prices have increased significantly.
We also noticed a shift from the core space towards core-plus and value-add transactions. For AEW in Europe, deals in the core space fell from about 70 percent of total deal in previous years, to about 50 percent in 2016.

This is mainly driven by pricing—as core pricing has become so expensive, we’ve increasingly focused on non-core real estate where there is less competition among investors. Last year, we significantly increased our investment in alternative real estate such as the
hotel and senior housing space. This is a trend that will increase for us going forward as a diversification play away from the traditional three main sectors.

What effect did the merger with CILOGER have on your plans for 2017?

We brought in over €5.5 billion in assets under management on completion of the acquisition, which meant we had €26 billion in assets under management in Europe at the end of 2016.

It was a sizable but manageable acquisition. If you are trying to merge two businesses of the same size doing exactly the same thing, it can be more complicated, but this was an additional business managing funds for retail investors in France. Apart from the additional scale it brings, CILOGER gives us access to another distribution network, but fundamentally it’s not changing what we do.

This is an area of the market that has seen considerable expansion in recent years. Retail investors, as much as institutional ones, are looking for somewhere to invest their money when bonds and equities are not offering very high yields. The equity market has been somewhat volatile and so real estate has been a beneficiary. The growth of this area of our business has been significant, so the merger is more about revenue synergies than it is about cost synergies.

The RESIDYS Fund recently closed. Is French residential real estate a major target for AEW?

Investors’ interest in alternative forms of real estate is growing significantly, and residential is one of these.

Interestingly, the residential sector has typically offered very stable but low yields compared to commercial real estate. We are now at a point where the differential in yields isn’t that great and investors are leaning towards having more residential in their portfolio.

Last year, we were able to get the RESIDYS Fund from launching in the market to closing in a matter of months, but we’ve been in French residential real estate for as long as we have existed. This fund is a blend of traditional residential, but has the ability to forward fund development projects, as well as the ability to invest in senior housing projects.

It is an institutional fund, and we got just over €100 million on first close—our target is around €400 million. Traditionally with institutional funds, you often have three or four closings. We are actively working on a number of prospects for the second close.

We have seen some commentary around less capital being raised last year. We bucked that trend, although that may partially be down to the type of projects we were working on. I also think the figures get distorted in some years by some of the largest managers that raise enormous funds of multiple billions.

There is generally still good investor appetite for the right sort of real estate funds. What helps is if you have a specific strategy that an institution cannot replicate, such as residential, logistics or shopping centres. These are specialist asset classes and most investors would acknowledge they’re not in a position to manage them. We have managed assets in these sectors for several decades and have a good pipeline of deals.

AEW has also opened a new office in Madrid. How important is on-the-ground knowledge for increasing the Madrid portfolio?

We started investing in the Spanish market again a couple of years ago when we raised a fund to focus on value-add investments. The Paris and London markets had already re-priced to some extent and we started to look into markets such as Madrid where we were of the view that the occupational market was likely to improve but that pricing did not yet reflect this. We completed two office acquisitions there for that fund, and added two retail acquisitions in prime locations for another fund.

As our assets under management have grown significantly in this market, it became important to have resources on the ground. We were delighted when Carsten Czarnetzki, who was already with us in London, agreed to move to Spain and head our business there. Czarnetzki was the manager of the fund that bought the two office assets, so he was familiar with the market and moved to Madrid at the end of last year to open the new office.

The office deals have been successful—one had an occupancy level of about 67 percent at the time of acquisition and that is already up to more than 80 percent.

The two retail properties are both undergoing a redevelopment. One is already fully let to a retailer and the other one is almost there. We were buying into the recovery of the Spanish market, but also accessing real estate with an element of risk to it. The result was a lower price and a higher yield than we would have secured had we bought the properties already delivered and leased. We do see that as an interesting market going forward, and we expect to do further deals in the office and retail sectors, as well as logistics.

Finally, how important is the NGAM brand to AEW as a real estate investment platform? What kind of services does Natixis provide that strengthens AEW’s offering?

The wider Natixis Global Asset Management (NGAM) platform we are part of is very important to us. Firstly, it gives investors and the market a high level of reassurance, knowing we are part of a wider banking group.

Secondly, we are lucky that we have a shareholder that supports us in launching new products. That can involve co-investing in funds alongside our investors, creating a significant alignment of interests and also benefitting from their overall financial support.

NGAM has also adopted a multi-boutique model approach across its different asset management businesses. AEW is the real estate part of it, but it has its own powerful brand. The combination of NGAM’s support and the strength of the individual brand seems to have worked well for the various asset management businesses over the years.

Interviews
The latest interviews from Real Estate Investment Times
Features
The latest features from Real Estate Investment Times
Attendees at this year’s EPRA conference were forced to reckon with the social and political challenges facing the industry on a global scale
International institutional investors want in on the private rented sector in the UK, says independent property expert Sam Collins
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Alternatives continue to see rising demand from institutional investors in the Canadian marketplace. Tim Rourke, vice president of pensions and asset owners at CIBC Mellon, discusses how the country is well placed to meet it
Fund managers expect the private real estate industry to grow over the next three years, but Preqin’s Oliver Senchal warns against market consolidation
New regulations from the ECB have given real estate investors a lot to think about in the non-performing loans market, but appetite remains strong. Theo Andrew reports
Paul Conroy, real assets director at Aztec discusses the relationships behind co-investing and explains why it’s important to make sure it’s not just a marriage of convenience
With the number of cloud-based investment platforms seemingly increasing by the day, brokers are feeling the squeeze of a more efficient and transparent process, but there is room for both
Green investment is now recognised as generating higher returns, but more transparency is needed to attract investors, as Theo Andrew finds out
Country profiles
The latest country profiles from Real Estate Investment Times
Between Brexit and post-crisis recovery, Frankfurt’s office sector is booming, with particular interest coming from the world’s financial institutions, according to Andreas Krone and Lenny Lemler of NAI apollo
Africa has long been coveted as the land of real estate opportunity, but more needs to be done at a local level to break the market, heard attendees at the Second West African Real Estate Forum in London
Asset Servicing Times

Visit our sister site
for all the latest asset servicing news and analysis

assetservicingtimes.com
Callum Young of Savills tells Mark Dugdale why South Korea’s real estate market is attracting both domestic and international attention
UBS Asset Management Global Real Estate has launched a new business initiative in Brazil, in partnership with Brazilian consultancy Real Estate Capital. Senior adviser Miose Politi explains
A member of the EU since 2007, Romania boasts a property market that has been on the up ever since. Liviu Tudor of the Romanian Association of Building Owners explains
Alternative allocations are becoming mainstream for institutional investors, and Canadian companies are leading the pack, says Claire Johnson of CIBC Mellon
Amid cross-border restrictions and tightened belts, Luxembourg’s kingdom of real estate investment won’t be crumbling any time soon