Meka Brunel reveals Ivanhoe Cambridge’s strategy for Europe, and why non-listed funds remain an investment route
Ivanhoe Cambridge has undertaken a quiet revolution in how it operates in Europe in the past three years. The real estate division of the €158bn Canadian pension fund Caisse de dépôt et placement du Québec owns €32bn of property around the globe, and in Europe it now looks like a significantly different company.
The investor, which joined INREV a year ago, has been selling off assets bought individually or in small portfolios or joint ventures before the downturn, and instead is investing mainly in platforms: forming joint ventures with sector specialists where it can combine its own scale and expertise with specialist knowledge to create value.
‘Core assets are very competitive at the moment, and so we have to look at ways and areas where we can create value,’ says Meka Brunel, Executive Vice President for Europe at Ivanhoe.
‘We are a very selective and careful investor and we want to make sure we create value for our shareholders. So if we can’t get access to core assets, we have to look at whether we can create them through development or value added strategies, or create platforms where we add value over time.
Our partners don’t need to be the biggest, but they do need to be specialists and the best at what they do.
‘We might be looking at opportunities that are very granular, almost micro markets, or things that are big pan-European opportunities. And in all cases we are very selective,’ Brunel explains.
Recent deals illustrate this approach, which have seen the investor; teaming up with TPG to buy and expand P3 and create a pan-European logistics platform; buying a 29.8% stake in Gecina alongside Blackstone, with Gecina becoming its Paris office platform; and investing ?800m in London’s private rented sector alongside Residential Land and Apollo Global (with plans to invest ?650m more).
‘It is difficult to create that value if you just own a one-off asset. That is part of the reason we haven’t invested in the retail sector during this cycle. For logistics and retail, you need a true management platform and to be able to provide service to clients that are national or international - there is no point in just owning one or two shopping centres. So far we haven’t found the right opportunity, but we have a few ideas.’
In that sense the sale of the Islazul shopping centre in Madrid to a joint venture between TH Real Estate and the National Pension Service of Korea for €232m in November last year is a symbolic transaction - it is the kind of deal where a global investor like Ivanhoe might be expected to be a buyer rather than a seller, but the asset did not form part of a wider retail strategy with a genuine platform through which it could add value.
Currently €5.1bn of its €32bn of assets under management are in Europe, with North America representing 70% of its assets, and it has no fixed allocation targets for any particular region. Brunel says the firm is very much led by individual opportunities.
‘We’ve done a lot in Europe in the last four to five years, but we have no obligation to invest anywhere,’ she says. ‘You have organic economic growth in both Asia and in the US, so that is a big appeal of investing there, and Europe doesn’t quite have that yet, but it is coming.’
Ivanhoe currently has 60 staff in Europe. Around 10 to 12% of Ivanhoe’s assets under management remain in non-listed vehicles. ‘Funds allow us to access areas that we otherwise might not access,’ she explains.
But to attract its capital, the alignment needs to be correct. Brunel says it is this, plus knowledge that are key to its choice of fund manager and joint venture partner, and that these attributes are more important than size. She explains: ‘We are looking for leadership: in terms of both the management of the company and leadership in their sector. Our partners don’t need to be the biggest, but they do need to be specialists and the best at what they do.’
Brunel puts the Canadian investor’s success in recent years down to the fact that it has avoided situations where its partner has a small co-investment and is taking large fees. ‘Alignment of interest is key. So that everyone has the same view of how we protect the equity we are putting in the market. If things go wrong, how do we improve returns when there isn’t as much liquidity in the market? What is the governance like, and how will the investment committee work?’
Everyone is talking about the UK reaching the peak, but globally speaking there is still room to create growth for the next two to three years.
There is no obligation for Ivanhoe to invest or allocate capital to any region in particular but Brunel says that investment in Europe continues to be favourable. ‘It looks like growth is back and that’s good news,’ Brunel says. ‘Until a couple of months ago I felt that the growth in Europe was just about capital inflows - the UK being a safety deposit box, people investing in the Eurozone because of the weak Euro, the low interest rates and quantitative easing, and that the economy itself was missing a little something.
‘But now I think that things are looking better. Germany and Spain are looking quite solid, Italy and France less so but they are not doing too badly. The investment market is solid not just in the UK but also the Eurozone, and you are starting to see economic and rental growth. In Spain rents have stopped going down and started to go up. Paris central business district rents have stopped going down and incentive packages are being reduced, and we will look to see what happens in the fourth quarter.’
On the perennial question of whether the London market is overpriced she says: ‘Everyone is talking about the UK reaching the peak, but globally speaking there is still room to create growth for the next two to three years. It is a robust economy, there is real job growth and the market doesn’t have any comparison with the peak.
‘Yield compression might be behind us, but there is still room for rental growth.’
Ivanhoe’s evolution may be well progressed, but it is still on the lookout for partners and opportunities in a market it sees as showing positive signs for growth.