The former executive chairman of Valad Europe Martyn McCarthy is making his return to the European real estate investing market through his company Arrow Capital Partners.
He has teamed up with, Christian Bearman, the former head of corporate development and private equity at Valad Europe who is the company’s head of Europe and a partner.
Managing partner, McCarthy will officially remain based in Sydney, although he will be highly engaged with the European business.
Arrow has been backed by AMB Capital Partners, the investment vehicle of the Bennetts, one of the richest families in Australia and a mining dynasty that has taken a significant minority share in the business.
The company will invest across a range of sectors and strategies as well as undertaking development projects, from core-plus through to opportunistic in both equity and debt. It will not manage co-mingled vehicles but will team up with capital partners to undertake either specific deals or build portfolios in line with a particular theme or strategy.
Arrow will use capital from AMB and the partners of the business to invest 5% – 10% in deals to ensure alignment and has already begun targeting the light industrial and last mile sector in Southern Europe.
It will be able to use AMB’s capital to secure assets and then bring in joint venture partners where appropriate and AMB may choose to take additional stakes in certain deals over and above the typical level of capital committed by it and the Arrow business.
Arrow will have a local presence in the countries where it invests and already has offices in Sydney, London, Amsterdam, Rome, Madrid and Berlin. It currently has a team of 10 that is expected to grow to 13 by the second quarter of next year.
The team includes investment manager Katherine Parker, who was previously a senior fund manager at Tesco Pension Investment and was also previously a fund manager at Valad Europe; Kurt Wilkinson, partner and head of Asia Pacific who was previously president and chief operating officer of Brookfield Property Partners in Australia and partner Chris Koo, the former head of risk management at GE Capital Real Estate in Australia and New Zealand.
It is especially looking to partner with investors that are looking to diversify away from their home markets with capital flowing in a number of different directions – out of Asia Pacific and into Europe, out of the US and into Europe, out of Europe and into Asia Pacific and out of the US and into Asia Pacific.
McCarthy left Valad Europe at the end of 2015, less than a year after the business was bought from the management and Blackstone by Cromwell Property Group for €145m. Bearman had been chief executive of Situs Europe until September last year having left Valad in 2016.
Arrow was established shortly afterwards and it has been operating predominantly in Australia and New Zealand having invested in the office, luxury residential and retail sectors. It teamed up with Starwood Capital on the private equity firm’s first equity deal in Australia and has linked up with Cerberus Capital Management to buy mortgage business Bluestone Holdings Australia.
McCarthy says that Arrow’s access to capital and ability to put skin in the game is a significant differentiating factor to some other investment managers.
“All the team participate and share in the upside and profits in order to create alignment. We have our own balance sheet through our investment from AMB and the partners will also be writing their own cheques. It takes time to raise and deploy a fund, as well as bringing with it a lot of overheads in terms of servicing, compliance and regulations and this model allows us to be nimble.
“It is about having the right people and the right culture where people want to work with us and where as much as 50% of the promote is shared with the team rather than a couple of partners taking it all for themselves.”
Bearman adds, “A fund is not a preferred option as you are then tied to lifecycle of the fund and you don’t have money burning a hole in your pocket. We are not building a business to sell like a Valad. This is a long-term investment vehicle with us as partners where we get to pick and choose the right markets to be in.”
Bearman says that although aspects of the European market are considered by some to be late cycle there is still enough variety and opportunity to deploy capital, particularly with a flexible structure.
“If you take Europe as a whole in terms of the fundamentals of interest rate inflation and good growth, even with quantitative easing being reduced somewhat over time it is still the most stabilised market and attractive compared to others like the US which is probably towards the end of its rapid growth cycle. It hasn’t got to the stage where Europe has irrational, exuberant growth”
Arrow has assessed opportunities in the UK but is likely to hold off investing before the political situation around Brexit comes clearer but Bearman does expect to be doing deals in the country soon after.
“If you take a scenario where if we have a bad Brexit there is going to be a fundamental readjustment in pricing and that might be an interesting point to enter and if not then the UK is still a great place to invest on a longer term basis in a more stabilised environment,” he says.
For AMB the ability to enter Europe with a trusted partner was imperative, having long toyed with the idea.
“We’re invested in Australia and the US predominantly and had been looking at Europe for over five years,” says Vaughan Taylor, executive director at AMB.
“We’ve come across to here on multiple trips and we know we could be that Aussie investor that every fund manager targets but we don’t know them or their ability to price risk or price different markets at different points in the cycle but these guys have a platform and they are all experienced working across all those markets. Being able to tap into that and leverage it so we can opportunistically deploy into specific deals and mandates was what made it an exciting opportunity for us.”
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