The US-based investor brings a city-specific rather than a country-specific strategy to Europe, where it is aiming to acquire assets, using minimal leverage, to be held generally for the long term
Armed with funds raised in the US, Northwood Investors is targeting office, hotel and retail assets in core cities in Europe.
The New-York based firm, with around $2.3bn (€1.68bn) of commitments, recently added more than $1bn (€743.7m). The firm’s investment focus is city- rather than country-specific, with prudent use of leverage (currently around 40%), says managing director, Khaled Kudsi.
“We are looking at large cities with good fundamentals,” he says.
“Just like we’ll invest in US cities such as New York, Boston or San Francisco, we will invest in London or Paris.”
“We’re always cautious,” says Kudsi. “You can see that in how we have maintained a low leverage ratio in our portfolio.”
Backed for the most part by US top-tier institutional money (with 60% from foundations and endowments), Northwood Investors prefers low leverage with a focus on capital preservation, even if that means lower returns. The focus is long-term, with assets likely to be held for around seven to nine years.
“If you’re investing in cities such as Paris, Stockholm or London, then you will fare pretty well over the long term,” says Kudsi, who knows the Nordics well from his previous role at Blackstone Real Estate Advisors, where he was a principal for nine years.
In July, the firm made its first inroads into Europe through the acquisition of a circa 75% stake in a Paris office asset from Beacon Capital Partners.
Défense Plaza acquired
The 31,160 m2 Défense Plaza building in the La Défense business district was bought for a number of reasons, both macro and micro.
“We like big cities with liquidity and Paris certainly has that going for it,” says Kudsi. “The asset itself is a superior building.”
The asset is, unlike its many neighbours, not a tower and that also appealed, as did the fact that it is multi-let.
“Having a large floorplate means you can put a lot of people on one floor,” says Kudsi. “We can get around three times as many people on one floor than in a tower, which allows for improved efficiency.
“When you then look at the tenancy schedule, the expirations don’t all come at the same time. That means we can avoid taking binary risk.”
Kudsi says the transaction was a “very good way to get into a market, with a good product, without having to start making leasing decisions from day one”. Beacon continues to oversee the day-to-day management of Défense Plaza along with Northwood’s direction.
“It’s a question of time before we have an office in London but until then, this makes sense,” says Kudsi, who envisages that the firm will hire “quality” staff in Europe when asset management is then required.
“Maybe the next investment that we make will require us to find someone and that then gives us the genesis of a base in London.
“What we have to look at is whether or not there is an opportunity here in Europe in the long term,” says Kudsi. “We would argue ‘absolutely’ and we would invest in the best talent to realise that opportunity.”
Back in the US, the firm has created both hospitality and retail platforms.
“We have the in-house capability to manage assets and maximise returns,” says Kudsi. “No-one looks after an asset better than its owner.”
Northwood Investors will, says Kudsi, try to invest equally in the office, hotel and retail sectors. But because of concerns over job growth, Northwood is more cautious on office investments. London’s West End is more attractive than the City, where Kudsi says he says some concerns about job growth and supply.
www.northwoodinvestors.com
