Headquarters buildings don’t get much slicker than 10 New Burlington Street, W1, even by Mayfair’s standards. Slotted neatly between Regent Street and Savile Row, the new Crown Estate and Exemplar development is the epitome of Scandinavian elegance, complete with fine art and steel fittings.
Equally slick and steely is the building’s top-floor tenant – New York-raised Bill Benjamin. Benjamin is senior partner and head of European real estate at Ares Management, the US-based fund manager that bought rival Area Property Partners 18 months ago.
The deal not only added Benjamin to Ares’ team, but brought with it $6bn (£4bn) of real estate assets, mostly equity investments in North America and Europe, adding to Ares’ $2bn of property – mostly real estate debt.
In his first interview since the takeover, the only American in the European business shares his advice on how to ensure the perfect deal, the dos and don’ts of conducting business in Europe and where he plans to spend the $1.3bn his team raised for the Ares European Real Estate Fund IV.
But first, the big buy. Ares’ parent company may have more than $60bn of assets under management and a raft of global connections, but with “just” $2bn of real estate debt on its books it needed, says Benjamin, “a real estate arrow in its quiver”.
With a 20-year legacy of European property investment and a track record of raising some $13bn over that time, Area provided just that arrow.
Now the merged company has almost $10bn of real estate assets and is fresh from raising more than $2bn from the closing of two funds – the $1.3bn Ares European Real Estate Fund IV and the $824m Ares US Real Estate Fund VIII – earlier this month.
The European fund will target investments in the office, retail, industrial and residential sectors.
And while Benjamin says that Ares has no “hard and fast asset allocation model”, a sizeable amount of the cash raised will be invested in the UK.
“The UK has served us very well,” he says. “It’s the largest, most liquid market in Europe. Based on the dynamism of the market, one can deploy 40-50% comfortably. We want to be in the large, liquid markets where we can always think about the last chapter of the book – whom to sell to.”
How the portfolio is split
The Ares European portfolio is roughly split as 30-35% shopping centres and retail parks, 30% offices in central business districts, 20-25% residential, 10% mixed use and a “smattering” of industrial.
Like many investors, residential is playing an increasingly important role in the asset manager’s portfolio. Over the past year alone it has spent £310m investing in two London residential developers – Mount Anvil and London Square. But for Benjamin, the residential opportunity was spotted much earlier than that. And he credits property grandee Gerald Ronson for turning Area towards the lucrative sector.
In 2010, Ronson began looking for a partner for The Heron, his £100m residential tower in the City of London. Area seized upon the deal, taking a 40% stake in the scheme.
“The business plan was to sell 50 units a year for five years. I think we sold 100 in two months,” says Benjamin.
Benjamin has been taking advantage of what he describes as the fundamental supply and demand mismatch in London housing ever since.
While investing in the developers of new homes, giving them the firepower to build close to £3bn of homes across the capital, will go some way to easing that fundamental mismatch, the real answer, reckons Benjamin, lies with government.
“There are 100,000 people coming to London every year. If the average household is two, then you need 50,000 new units a year, leaving aside depreciation and obsolescence. The industry is delivering 25,000 and the public sector is delivering nothing. There is a chronic shortage.”
‘Idiosyncratic’ policies
He puts this down to “idiosyncratic” planning policies across London’s boroughs, and the failure of the public sector to exploit its own land assets to the full by offering peppercorn rents to developers that promise to build the right kind of homes.
“Once upon a time, councils built thousands of units in London,” says Benjamin. “There is market failure. Government needs to deal with market failure at the lower end of the market.”
With more than 20 years of experience in the real estate market, Benjamin is not short on advice.
There are three things you need to get right if you want to do a good deal, says Benjamin – property, price and your partner. He asks himself several questions before making a vital investment decision. Is my building well located? Are its imperfections fixable? Is there an end user? How bad does the world have to get for my profit to be eroded? What is the quality of my partner?
The Isabel Test
“Then I have the Isabel Test,” says Benjamin, referring to his eldest daughter. “I have to be able to look her in the eye and say, ‘I’m putting your college fund into this property’.”
Knowing how to conduct business across markets is also a skill worth learning, offers Benjamin. “Going in as an aggressive outsider is a recipe for disaster,” says the American. “Ignore local cultures at your peril.”
Benjamin appears to have embraced the UK culture. After moving to London and expecting to stay for only two years, he has now been a resident for 14.
Perhaps it has something to do with the British reserve or the inability of the British to ever really be satisfied. He articulates it with an explanation of a dual meaning of the word “quite”.
“In America, quite means ‘very’,” he says. “Here it means ‘not just’.”
Quite.
