Global real estate investment management firm Heitman currently has its head of European real estate private equity, Tony Smedley, in Asia Pacific talking to investors about the investment opportunities in the region.
Heitman has a long-established business in Europe and Tony Smedley joined early 2018 to broaden its private equity operations and accelerate the success of the firm’s endeavours in the region.
Historically, Europe has tended to be a relative laggard in the global property space compared with North America, but, due to the changing landscape of global markets, that is changing. In the last five years, for instance, global property firm Heitman, has overseen about 7 billion euro (A$11.4 billion) of transactions across Europe.
Tony Smedley, the managing director in charge of Heitman’s private real estate equity business in Europe, a couple of weeks ago had 25 meetings with investors and consultants in Sydney, Melbourne and Adelaide over the course of four days. He reported there was a lot more interest in European real estate investment because of the heightened level of activity in the region, the diversification benefits and the long-term growth potential offered by its various markets, particularly in certain sectors such as Living. After all, it’s the world’s second biggest market for a lot of things, including property.
Smedley advised the European Living Sectors was the key area of focus and believes this is an excellent opportunity that Is also counter cyclical. The Living sectors includes, Senior Housing, Student accommodation, Micro Flats & Rented Residential.
“Our CEO, Maury [Tognarelli] has been making sure that we are investing heavily in the world ex-US markets so that we become a truly global real estate investment manager… Heitman has had a strong presence in Europe for 23 years and we have been adding talent and expanding our platform in different parts of the market,” Smedley said.
Heitman has just made its first allocation to the Dublin market, closing a residential development there, and has just done its first residential development in Paris.
“The multi-family market is growing strongly, as is senior living,” he said. “We have a ‘living’ strategy.” This strategy follows Heitman’s thematic style of property investing, in the US, Europe and everywhere else. It goes to the changing ways that people live their lives. Other examples include self-storage, because of the increased mobility of jobs and living accommodation, student housing and opportunities in the redevelopment of carparks.
With senior care, there are various forms, from semi-independent living through to high care, including potential medical services on hand, which adds an extra element of operational risk.
With carparks, Smedley said, whatever your view of the future, there was likely to be fewer cars. And a lot of carparks are in desirable parts of a city. Heitman favours inner-city locations for carparks.
And then there’s retail. “We have looked hard at how the public markets have priced retail,” he said. “We are beginning to see that private markets are trading at significant discounts. In retail, there will be winners and losers, but the whole market is being tarred with the same brush. That’s not necessarily accurate. All bets are not off.”
He said the firm’s working assumption was that the retail sector would be smaller in the future. But some retail outlets, such as supermarkets, could be more profitable in smaller spaces.
“Some people say that logistics [warehousing and transportation of, usually, internet-purchased goods] represents the new retail,” he said. “But we’re a bit more cautious about that apparent trend. What’s known as ‘big box warehousing’ will at some stage reach its peak.”
And then there’s the UK and Brexit, which everyone, in Australia at least, wants to ask him about. “We’ve been investing in the UK despite Brexit,” he said. “As and when a deal is finally agreed, we think there will be a bounce in the UK market. There will be more capital flowing back into the UK. However, we tend to be looking at assets which are less correlated with the impact of Brexit.”
Taking a global view and joining the dots between the major property themes over the longer term, the lines between education (student housing), living (multi-family and senior housing) and working (retail and office) are becoming increasingly blurred.
“The long-term future is about mixed use,” Smedley said. “We as a property business need to become a service business. Occupiers of properties will want more flexibility. I think our industry is probably too hung up on having long leases.”
Beau Titchkosky, Heitman managing director of client servicing and marketing for Australia and New Zealand, said that, as a reflection of the growing importance of the Australasian footprint, his firm would hold its first symposium in Australia next month. Separate events would be held in Sydney, on November 19, and Melbourne, on November 20.
The keynote speakers would include Kevin Warsh, a global macro advisor to the firm, Maury Tognarelli, Heitman’s global chief executive and CIO, and Mary Ludgin, the firm’s global head of research.
“We now have A$4.1 billion invested [from Australian and NZ investors] in13 different mandates in this region,” he said, “in a mix of property-related private equity, private debt and listed REITs.”
Greg Bright is publisher of Investor Strategy News (Australia)