As part of our review of investment activity in 2022, we analyse five transactions that stood out in their sector or grabbed attention for other reasons, with trophy offices, affordable housing, last-mile logistics and retail all in the spotlight.
DEAL 1
DEAL FACTFILE
BUYER: NPS
VENDOR: CK Asset Holdings
ASSET: 5 Broadgate
LOCATION: London
SIZE: 65,000 m2 of office space
PRICE: £1.21 bn
Big lot size trades before valuation downgrade
For those investors looking to sell big lot sizes, timing is everything. With interest rates expected to rise, a price correction was somewhat expected over the year and it was accelerated by the fallout from the Russian invasion of Ukraine in late February.
As such, one of the most timely deals of 2022 was the closing in early March of the 5 Broadgate office acquisition in the City of London. First signed at the end of 2021, the £1.21 bn (€1.4 bn) transaction reflected a sub 4% yield for a phenomenal asset which today would probably trade for a yield closer to 5%, or about £200-300 mln less.
Long-term investor Korea’s National Pension Service emerged as the buyer of the asset after a bidding war with the Hong Kong Monetary Authority. The vendor, CK Asset Holdings, bought the property in 2018 from UK REIT British Land and Singaporean wealth fund GIC for £1 bn. The complex is fully let to global investment bank UBS which is committed to the building until 2035 under a rental agreement with fixed rental uplifts.
The so-called groundscraper comprises more than 700,000 ft² (65,000 m²) of space over 12 floors. Colliers, which advised CK Asset Holdings on the disposal, said the deal is the second largest in London after the 2017 sale of the Walkie Talkie.
A few months after the trade, another £1 bn+ asset sale with similar credentials failed to go through due to the rising cost of debt. Indeed, Korean investment firm KB Securities and IGIS Asset Management are understood to have pulled the plug on a €1.3 bn deal to buy Credit Suisse’s office headquarters in Switzerland.
The so-called Uetlihof building was sold for CHF 1 bn to Norwegian sovereign wealth fund Norges Bank Investment Management in 2012. The lease for the Uetlihof asset officially runs until 2037.
‘The first half of 2022 was the strongest we have ever seen, then pricing started to change in the second half,’ said Chris Brett, head of capital markets Europe at CBRE.
‘Real estate fundamentals however remain strong, and investors’ appetite is still there, with some investors waiting on the sidelines and adopting a wait-and-see approach. This means that while we see and feel a tough time at the moment, I believe this is only temporary; once there is more price discovery, we will still see plenty of capital coming into the sector.’
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DEAL 2
DEAL FACTFILE
BUYER: LaSalle’s value add business
VENDOR: Nuveen Real Estate
ASSET: McArthurGlen Designer Outlet Cheshire Oaks and McArthurGlen Designer Outlet Swindon
LOCATION: UK
SIZE: 60,390 m2
PRICE: £600 mln
YIELD: 6%
LaSalle seals largest UK retail deal in years
After being shunned by investors for over two years, retail assets regained their appeal in 2022 with the UK in particular seeing the largest retail property transaction in years. In January, LaSalle Investment Management, the global real estate investment manager, acquired two prime outlet centres, McArthurGlen Designer Outlet Cheshire Oaks and McArthurGlen Designer Outlet Swindon, from Nuveen Real Estate. The deal price of £600 mln (€715 mln) is believed to reflect a yield of 6%.
Cheshire Oaks is the largest designer outlet in the UK, spread over 400,000 sq ft (37,160 m2) and comprising over 160 individual units. The smaller of the two assets, the 250,000 sq ft Swindon Designer Outlet, is ranked in the UK’s top 10 centres by turnover. The portfolio, which will continue to be managed by McArthurGlen, benefits from an inflation-linked and turnover-based lease model.
Defensive retail assets which survived the pandemic have emerged as a safe bet over 2022 and are expected to continue to perform strongly over 2023. Investment into the European retail sector was significantly higher last year than in 2021 and might be boosted further in the near term by the impending €500 mln+ sale of the PEP shopping centre in Munich. Italian investor Generali is rumoured to be close to signing the acquisition of the asset, which was put up for sale earlier in 2022 by Nuveen Real Estate.
Shopping centres in particular benefited from renewed investor interest, with a 157% surge in investment to €7.1 bn in 2022, the highest level since 2018, according to advisor BNP Paribas Real Estate. In the largest shopping centre deal of the year, which took the form of a corporate transaction, Oaktree Capital Management and the Otto family office took over Central European shopping centre landlord Deutsche EuroShop, in a deal valuing the company at around €1.4 bn.
Looking ahead, Patrick Delcol, head of retail Europe for BNP Paribas Real Estate, said the current economic climate ‘could slow investment in Europe’, with some assets being withdrawn from the market - as has already been witnessed with the O'Parinor shopping centre in Paris and the Islazul mall in Madrid – and investors taking a wait-and-see approach as they encounter financing difficulties due to rising interest rates. ‘However’, he remarked, ‘some segments, such as high street and shopping centres, may prove very busy in 2023 due to some players' need for liquidity.’
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DEAL 3
DEAL FACTFILE
BUYER: Brookfield
VENDOR: Befimmo shareholders
ASSET: Befimmo shares
PORTFOLIO SIZE: 950,000 m2
PRICE: €1.35 bn
LOCATION: Belgium, Luxembourg
Brookfield bets big on workers’ return to the office
Canadian asset management giant Brookfield poured billions into European offices in 2022, in a major vote of confidence in the sector. At a time of widespread concerns over the future of offices after the pandemic, the Toronto-based investor was able to buy prime stock at a bargain through a trio of major corporate deals.
In January, Brookfield announced it had taken control of German listed office landlord Alstria Office REIT in an operation valuing the firm at €3.5 bn. ‘The office sector is going through a fundamental transformation, driven among other things by evolving occupier demand and decarbonisation needs,’ commented Olivier Elamine, CEO of Alstria, who supported the deal. ‘There is substantial value for the company to be anchored with a sophisticated shareholder with a longer-term investment horizon than public equity usually allows for, notably during a phase of substantial investment.’
Then in February, Brookfield launched a €1.35 bn takeover offer for listed Belgian property landlord Befimmo and later managed to gain full control of the firm and take it private. Befimmo’s CEO Jean-Philip Vroninks said at the time he believed the deal was ‘the best path forward’ for the company as it navigates ‘the evolving environment for office real estate’.
The offer price was more than 20% below Befimmo’s net asset value, but a 52% premium on the share price shortly before the bid was made. Befimmo is a Belgian REIT focused on office buildings, meeting centres and coworking spaces. Its portfolio is worth €2.7 bn and comprises close to 63 office buildings and more than 950,000 m² of space.
In March, Brookfield doubled down by sealing a deal to buy Ireland’s largest listed office landlord Hibernia REIT, valuing the company at €1.09 bn. The company was worth about €780 mln in the market at the time, with its shares trading at a sharp discount to net asset value.
Hibernia, whose portfolio includes high-profile tenants such as Deloitte and Twitter, had reported ‘uncertainty’ over the future of the office market. ‘Hibernia REIT has traded at a persistent discount to its prevailing EPRA NTA per share,’ said company chairman Danny Kitchen. ‘The acquisition recognises the company’s prospects and the quality of its portfolio of assets and delivers an acceleration of the value we expect to be created from completion of Hibernia REIT’s major office development projects.’
Brad Hyler, managing partner and head of European real estate at Brookfield, said he was looking forward to supporting Hibernia REIT. ‘Given our significant office holdings around the world, we felt like there’s a reason why offices exist,’ Hyler told news agency Bloomberg. ‘Particularly the higher quality ones, where we thought people would come back. It was just a matter of time.’
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DEAL 4
DEAL FACTFILE
BUYER: Prologis European Logistics Fund
VENDOR: Crossbay
ASSET: 134-asset strong portfolio
SIZE: 1.14 million m2
PRICE: €1.58 bn
LOCATION: Italy, the Netherlands, Spain, France, Germany, Belgium, and Poland
YIELD: 4.25%
Prologis expands infill credentials with €1.58b buy
Investors in logistics are seeking to increase their exposure to the sector which is experiencing unrelenting growth in tenant demand and higher rental values.
US logistics property specialist Prologis is no exception. In March the firm reportedly entered talks with Blackstone to buy its €21 bn European logistics platform Mileway and although the negotiations came to nothing (the business was later recapitalised), the move is indicative of Prologis’ voracious appetite for growth.
Later in 2022 the firm dramatically expanded its urban infill exposure by signing the purchase of a portfolio of 128 buildings and six developments in seven European countries. The US giant struck the €1.58 bn deal with Crossbay, the last-mile logistics specialist created by Mark. Overall, the portfolio added 1.14 million m2 in Italy, the Netherlands, Spain, France, Germany, Belgium, and Poland. The sale reflected an exit yield of 4.25%, reflecting the quality of the portfolio and enabling Crossbay to crystallise strong returns for its investors, according to Mark’s CEO Marcus Meijer.
The acquisition was made on behalf of Prologis European Logistics Fund (PELF), with the firm saying it was in line with the fund’s investment strategy of increasing its urban infill real estate portfolio, which will be approximately 54% post-acquisition.
Prologis’ Europe chief, Ben Bannatyne, said: ‘This acquisition underscores our ongoing ability to provide our customers with quality urban logistics locations and opportunities beyond the real estate near highly populated areas that serve their growth needs. With the ongoing growth of ecommerce, locations near dense population centres are becoming increasingly important to our customers.’
The latest research from global real estate adviser, CBRE, shows that the supply of European logistics space dropped to a new low in 2022, with average vacancy rates across the region sitting just under 2.3%, a decrease of 50bps year-on-year.
The low availability levels are restraining the number of units that can be offered to occupiers and have left many requirements unmet. The imbalance between supply and demand continues to put pressure on rents, with several locations reporting further increases in their prime rents over 2022. ‘The success story in the logistics sector continues and we continue to see huge demand from occupiers, which in turn translates into a growth of the capital looking to enter the sector,’ commented Chris Brett, head of capital markets Europe at CBRE.
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DEAL 5
DEAL FACTFILE
BUYER: Allianz
VENDOR: Heimstaden Bostad
ASSET: 99 residential assets
SIZE: 9,300 homes
PRICE: €1.66 bn
LOCATION: Stockholm and Malmö, Sweden
Private capital homes in on affordable housing
Affordable, rent-controlled housing is luring more and more private investors thanks to its strong demand, predictable yields and compelling social impact.
Allianz took its first steps in the sector last year by first acquiring a 300-unit affordable housing portfolio in Nuremberg, Germany, in a €135 mln off-market forward purchase, and then investing in a €3 bn rent-controlled residential portfolio in Sweden. In the latter deal, the German group formed a joint venture with Sweden’s Heimstaden Bostad to gain exposure to a 99-asset portfolio in Stockholm and Malmö.
Allianz invested SEK 7.9 bn (€770 mln) of equity to buy a 56.25% capital share and a 49.85% voting share in the assets on behalf of Allianz companies. The 99 properties include 3,377 homes in Malmö and 5,932 in Stockholm, making the JV one of the largest private residential owners in the Swedish capital.
All the properties have regulated rent with an economic occupancy rate of 99% and provide stable cash flows and attractive yields on a risk-adjusted basis. ‘Our renewed interest in the residential sector is a deliberate adjustment to our investment strategy; the sector’s stability makes it highly attractive to long-term investors. The fundamentals in the Nordics are strong, the residential market is well-established and we have actively targeted growth in this region,’ commented Annette Kröger, CEO North & Central Europe for Allianz Real Estate.
Kröger believes the private rented sector’s long-term, stable and diversified cash flows ‘fit the objective of core investors’ and Allianz saw the regulated market in Sweden as a positive factor in this respect. ‘The residential sector had proved highly resilient during the pandemic,’ she said, ‘with lower vacancies and better risk-adjusted returns compared to commercial real estate’. She noted that Allianz particularly likes affordable and mid-market rental housing.
The German investor is by no means the only one. With European rental prices increasing by a staggering 16.5% over the past year, investors have been rushing into the private rented sector. They have either bought directly or teamed up with developers. Savills Investment Management in particular backed two UK housing development firms, BTR specialist Pitmore in August and Simply Affordable Homes in November. Commenting on the deals, the company said: ‘One thing is clear, the public sector cannot afford to meet demand for social housing on its own, and the private sector is increasingly keen to help fund new developments.’