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The run-up to the US elections in 2016 and the performances of some of the more flamboyant presidential candidates are also colouring the language used by media on this side of the Atlantic.

The Financial Times ran the following headline in its lead story on Friday: ‘Fed holds rates up as global worries trump strengthening US growth’. The news article followed the unexpected decision on Thursday by the Federal Reserve to hold off on an interest rate hike due to concerns about the global economy, in particular emerging markets like China.

In recent weeks there has been feverish speculation about whether the Fed would raise rates – currently at a historic low of between zero and 0.25% - for the first time since before the financial crisis. According to market watchers, Fed chair Janet Yellen did not provide any strong hints that a rise might be on the cards for the rest of the year.

That is good news for the European property sector, particularly sellers. Competition is intense as US private equity firms, Canadian pension funds, Asian and Middle Eastern sovereign wealth funds, new money from Turkey to India and global REITs all seek exposure to European real estate. But the most significant development in the last year has been the rise of US capital coming to Europe, Jonathan Hull, managing director of EMEA capital markets at CBRE, told PropertyEU’s global capital flows investment briefing in London earlier this week.

Indeed, US investors continue to outperform their Asian counterparts in terms of sheer volume, he said. In the past 12 months, they have pumped four times the amount of Asian capital into European property, he pointed out. ‘Asian names have grabbed the headlines because US money tends to come into funds and not directly into real estate, but US funds are more important.’

Moreover, the slowdown in the Chinese economy and this summer’s stock market crisis will not slow the flow of Chinese investments into European real estate, the panel agreed. In fact, quite the opposite: 'There is even more pressure on Chinese and Asian capital in general to diversify,’ said Thomas Beyerle, group head of research at Catella. ‘We can expect more money than ever looking to invest in European real estate.’

Private equity groups gorge on loans
US investors also continue to dominate the battle for Europe’s non-performing loan portfolios. Earlier this month it emerged that a string of US names is fighting it out for Ireland’s biggest loan portfolio, ‘Project Arrow’, the €7.2 bn portfolio being sold by Ireland’s bad bank NAMA.

Goldman Sachs is believed to be bidding jointly with US specialist investor CarVal Investors. Apollo Real Estate and Cerberus are also believed to be on the shortlist, with final bids due soon, according to those who track the market. Other names that have consistently popped up in the sales of loan portfolios include private equity giants Blackstone, Lone Star, JP Morgan Asset Management and Oaktree Capital.

While the number of US names targeting European real estate continues to grow, more established firms are beefing up their presence here. US asset manager Colony Capital for example is on the lookout for new investment opportunities in Europe in a bid to expand its presence on the continent, its new managing director of European investor relations Christophe de Taurines told PropertyEU. Based in the firm’s London office, De Taurines joined Colony Capital in July and will be responsible for expanding its investor relationships in Europe and helping shape its European strategy.

With around $19 bn of AUM worldwide, Colony Capital firm has been active in Europe since 1995. In Europe, Colony has offices in Paris, London, Luxembourg, Berlin, Rome and Madrid with more than 50 of its 300+ professionals working specifically in the region, De Taurines said in an interview. ‘We have been active in Europe and will continue to invest more in that market, deepening our ties with various partners in its investment space, which includes institutional investors.’

Colony typically seeks non- and sub-performing loans, as well as real estate portfolios or single assets, owned by banks, insurance companies, or controlled by defeasance agencies. Despite the mammoth sales of the last couple of years, there is still plenty of opportunity, De Taurines said. ‘Colony Capital is committed to deploying a meaningful portion of investible capital in Europe at a time when banks and other financial institutions are disposing of large portfolios of non- and sub-performing loans. A recent PwC report estimates there are over €1.9 tln of unwanted loans on the balance sheets of European banks, with €90 bn sold last year and an estimated €110 bn to be sold this year.’

Corporate moves
Colony also originates financing for real estate investors who require capital to reposition, develop, or simply acquire real estate assets and who have limited access to bank financing. In line with this latter strategy, Colony recently acquired a 50% stake in Hamburg Trust and set up a joint venture with Spanish outlet centre developer Neinver.

Colony Capital draws on a long tradition of propping up local specialists. In 2009, at the depths of the crisis, the US firm teamed up with London-based private equity firm Orion Capital Managers to acquire Goldman Sachs’ portion of the approximately €4.2 bn syndicated loan in listed Spanish company Inmobiliaria Colonial.

Spain’s largest listed property firm reported writedowns of over €5 bn in the years following the collapse of the local property market, but is back on the investment trail with plans to invest between €300 mln and €500 mln in acquisitions as well as development opportunities, CEO Pere Vinolas told PropertyEU earlier this year. Other European companies that Colony Capital has invested in include French hotel group Accor and French hypermarket chain Carrefour.

In that sense Colony and other US companies like it have spearheaded a trend that is becoming more popular among newcomers to real estate from other regions. A growing group of foreign investors is seeking to gain exposure to real estate by directly buying a company rather than buying a portfolio, Will Rowson, partner at Hodes Weill & Associates, told PropertyEU’s global capital flows briefing. ‘That is a sensible way to get into a sector and you also buy into their expertise so it is a double bet.'

The model also works for Middle Eastern and Chinese investors that want to increase their exposure to real estate, added David Ryland, partner at Paul Hastings Europe.

For now, however, US investors lead on all fronts. So far this year, they have continued to dominate cross-border real estate investments with €31.3 bn in the first six months of this year, followed by Canada with €13 bn and France with €10.4 bn. Following the Fed’s decision not to raise interest rates, the US will no doubt continue to trump other regions in the field of real estate as well.

Judi Seebus
Editor in chief