The real estate arm of Massachusetts Mutual has acquired a UK asset as part of a thrust into Europe and will be looking at UK, European and Nordic assets as well as debt investments
The much-anticipated wave of debt refinancing in Europe could provide rich rewards for those with equity, and some US funds are eyeing those opportunities with more than passing interest.
Among them is Massachusetts Mutual which, through the European end of its Cornerstone Real Estate Advisors unit, is about to make a multi-faceted entry into the European property markets, bringing with it both equity and debt.
Towards the end of February Cornerstone completed the acquisition of a light industrial asset in Sittingbourne in the UK county of Kent.
“It is not a huge deal but it is the first in what will be an investment programme. This is the first-ever US capital that Cornerstone has invested,” says Cornerstone’s European CEO-elect Charles Weeks, who takes over when current CEO Iain Reid retires in March.
The acquisition was for Mass Mutual itself but the firm is looking at other opportunities for US investors. “Hopefully, there will be a number of other acquisitions going on in the not-too distant future.”
Initially these will be in the UK but Cornerstone could be looking further afield “in fairly short order”, says Weeks.
Perhaps of more immediate significance are plans by Mass Mutual and its clients to stake large amounts in the debt market. Weeks envisages a number of deals completing this year in individual lot sizes of between $20m (€14.9m) and $40m (€29.7m).
Initial focus on the UK
Initially, the focus will be on the UK. “If you are in the US and making your first investments into Europe, there’s a comfort factor about investing into the UK and in particular, London. But the longer-term strategy will be to roll it out into other markets,” says Weeks.
Mass Mutual has not invested in the European debt market before.
“We are looking to set up our own debt investment teams in Europe and that is a longer-term strategy for the European business. Cornerstone in the US is a very significant investor in debt – we have about $20bn invested in real estate debt in the US and would like to try and spread these skills to Europe.”
“At the moment, Mass Mutual looks at Europe as an attractive market and prospectively a market with tremendous growth potential, bearing in mind all the refinancing that is coming up.”
The first transactions are likely to be on behalf of Mass Mutual itself, but could expand further down the line. “They want to establish themselves, get to know the market and the dynamics of the market and how to operate efficiently within the market. Once they get comfortable with that then we may look to expand to secure new third-party capital,” says Weeks.
This new line of business follows what Iain Reid has described as “a momentous year of achievement” for the Cornerstone group and for the European unit. Although the figures are not split geographically, Cornerstone completed more than $8bn in transactions in 2011 including equity acquisitions and disposals of $2.4bn and debt investment of about $5bn. The firm also raised capital of $2.3bn.
Weeks is emphatic that his appointment as CEO in Europe does not herald a change of direction. It is very much a planned succession although it does represent the end of a successful partnership that began when Reid plucked Weeks from the ranks of DTZ in the mid 1990s after having read a letter published in Estates Gazette which Weeks, then a newly qualified surveyor, had written on property derivatives.
Weeks joined Reid at BZW Property Investment Management, followed him when BZW became Barclays Property Investors and when that subsequently provided the basis of Aberdeen Property Investors, where the two remained until April 2004. They then left Aberdeen to establish Protego Real Estate Investors with Hugo Llewellyn. Protego was sold to Cornerstone in 2004.
Their experience at Aberdeen goes some way to explain Cornerstone Europe’s current emphasis on the Nordic region.
Opening in the Netherlands
Protego started in the UK and then rapidly opened an office in the Netherlands to gain easier access to capital.
“We then set up an office in Stockholm and that was again more about access to capital rather than being a market that we wanted to invest into,” says Weeks. That changed and the firm’s Nordic Retail Fund now has more than €1bn of shop property in Sweden and Finland. Cornerstone has teams of 14 people in each country.
The expertise built up in the region has precipitated Cornerstone’s latest fund initiative, the Swedish Social Infrastructure Property Partnership, currently at the due diligence stage of fund raising.
“Basically it is a fund that acquires public real estate assets – schools, hospitals, libraries, prisons, courthouses – all owned by municipalities, counties or the state in Sweden. We are looking to assemble a portfolio of these assets as they tend to be let on long leases to government or quasi government tenants for lease terms of about 20 years, and all are Swedish CPI-linked.”
Weeks refers to the fund as “super core” and its net distributions will be around 7% with an IRR of 9%.
Cornerstone is looking elsewhere in Europe. “There are one or two obvious gaps in our armoury,” says Weeks. France and Germany are top of the list and Weeks wants to fill these to build a truly pan-European platform.
Expanding European operations
“With Mass Mutual behind us, we are in a strong position to look at corporate transactions for the right things. The brief of the business is to expand the European operation and expand the business without compromising standards. That is the strategic desire of Cornerstone as well as Mass Mutual and is a key part of what we will be doing over the next three to five years.”
