The private equity industry has a long affiliation with real estate. While some private equity players left the sector with their fingers burned in 2008, many more were quick to see the potential of real estate in 2009 and 2010.
It is perhaps surprising then that French private equity firm Ardian has only now decided to invest in European commercial real estate markets.
Established in 1996 as an arm of insurance giant AXA, the company is now an independent private equity investor in Europe and the rest of the world.
However, despite having $50bn (£32.8bn) of assets under management and investments in more than 130 companies, the company has not explored real estate before.
It is aiming to invest €2bn (£1.4bn) in the European commercial real estate in the next five years. Its real estate arm is its fifth, alongside its direct investment, private debt, fund of funds and infrastructure vehicles.
Bertrand Julien-Laferrière, the company’s newly appointed head of real estate, says the decision to move into the sector reflects the demands of its investors.
“This decision has to do with Ardian’s strategy to strengthen its business relationship with its clients and to respond to its clients’ needs in the most global way,” he says.
Countering the argument that it is too late in the cycle for a private equity firm to start investing in property, Julien-Laferrière says it is still a good time to be in the market.
Julien-Laferrière speaks with long experience, having been, among other things, chief executive at Société Foncière Lyonnaise and chairman and chief development officer of Unibail-Rodamco.
He argues that persistent low interest rates in Europe and the amount of capital looking for a home make the time for investment ripe even as the real estate market reaches its peak.
With more than 350 employees and 10 offices around the globe, the company has the mass, and capital raising potential, to make an impact on European real estate.
The company expects to start formal fund raising at the start of next year. Julien-Laferrière says that the business is in “no rush” to start deploying its new capital.
One of the reasons Ardian is yet to formally start fund raising is that it is still fine-tuning its investment strategy.
“There is no limit on the sectors that we shall consider in the long run since, as with any other activities at Ardian, the objective is to grow and to become more global. Since we need to start with something, we feel that it is appropriate to focus first on core-plus and value-added commercial real estate with a pan-European view,” Julien-Laferrière says.
He feels that the key to success will be to “be flexible and adapt continuously to secure the best value in a rapidly changing environment” and also to “make sure that you do the work at the property level in order to catch the value creation potential of each individual asset”.
One location Julien-Laferrière will not rush into is London, which he considers to be overpriced. But the rest of Europe, especially France, Italy and Germany, still has strong potential, he says.
These are also the markets in which the company has its strongest base of experience and staff expertise.
The company may have a strong presence in these three countries but it will need to develop real estate-specific skills too. Julien-Laferrière suggests that this will be accomplished through hiring a “top person” in each country, as well as a small team, and he expects these to be in place within three to four months.
Despite its late entry, the
company says it is in the real estate business for the long term, even if the market takes a turn for the worse in the next couple of years.
Julien-Laferrière says: “We are not dealing with a short-term project. Our objective is to develop the new pillar of our business with a long-term view and we shall therefore invest if and when we feel the conditions are met to fulfil our clients’ objectives.”
With a mature investor base and track record of getting things right even in a downturn, Ardian could become a sleeping giant that wakes up in real estate investing.
