Jon Zehner heads real estate at JP Morgan. He talks to Erica Billingham
US investment banks are often accused of a fickle relationship with property. In the good times, cynics say, they pile in, recruit scores of highly-paid people and throw money at the sector. When the bubble bursts, they shut up shop and lose interest altogether.
This charge cannot be levelled at Jon Zehner, the grandly-titled head of global real estate investment banking at JP Morgan. Zehner is no fly-by-night Wall Streetwhizz-kid. A Harvard graduate, he joined the bank in New York in 1981, joined the bank’s real estate division, and stayed.
Today, Zehner runs JPMorgan’s35-strong property team – split between New York, London and Hong Kong – from JP Morgan’s London office at Victoria Embankment. Last year his team advised on £18bn-worth of mergers and acquisitions worldwide, according to Securities Data Company, the consultancy that tracks who does what in corporate finance.
The number sounds huge, but pales beside the £27bn of deals executed by competitors Merrill Lynch and Morgan Stanley, which are ranked first and second respectively above third-placed JP Morgan in SDC’s league table.
Mergers and acquisitions
But in Europe, the gap between JP Morgan and the top two, Schroders and Morgan Stanley, is narrower. JP Morgan was behind £4.3bn of mergers and acquisitions last year, which included Cushman & Wakefield’s £70m tie-up with Healey & Baker and BAe’s £285m sale of Arlington (see table).
Europe is where Zehner is focusing his attention. He has just lured two equities analysts, Andrew Causer and Andrew Penny, away from HSBC to research European property companies.
They are joining just before the demerger of one of JPMorgan’s major European clients, Dutch giant Rodamco, which intends to list part of the group on the UK Stock Exchange later this year
Zehner is highly-regarded in the UK. “Jon’s not your typical Wall Street financier. He doesn’t just wade in and tell you what to do. Of course he has his views, but he’s prepared to listen to what you have to say as well,” observes one chief executive.
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Some of JP Morgan’s property mergers and acquisitions |
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The US investment bank was behind £18bn of deals worldwide last year, £4.3bn in Europe |
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Date |
Deal |
Price |
Country |
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Jan 98 |
Security Capital bought distribution company Frigoscandia |
$395m |
US/Sweden |
|
Jan 98 |
RoProperty bought asset manager RREEF |
$250m |
Netherlands/US |
|
Sep 98 |
Cushman & Wakefield merged with Healey & Baker |
£70m |
US/UK |
|
Sep 98 |
Corporate Property Investors merged with Simon Property |
$5.9bn |
US |
|
Oct 98 |
BAe sold Arlington to PRICOA |
£285m |
UK/US |
|
Dec 98 |
TrizecHahn sold portfolio to Rouse Company and Westfield |
$2.5bn |
US |
|
Jan 99 |
Hammerson sold Canadian business to OMERS |
£238m |
UK/Canada |
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Source: JPMorgan |
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Urban renewal
Zehner’s reasons for choosing an investment banking career do not seem typical either. Money was not the prime motivation. He says he was inspired by the 1970’s urban renewal programmes in the US and wanted to do something in property before going to business school. “I stuck to my goal of doing real estate but got distracted by finance. This is my way of combining my love for the tangibility of real estate with something more intellectual, which is the finance side.”
As his title suggests, Zehner’s remit is to look at property globally, and he admits to spending a lot of time in aeroplanes.
“I am a big believer that the real estate business, although clearly a laggard, is like any other business in that it is becoming global,” he says.
The recent sales of the big four agents – Richard Ellis, Hillier Parker, Healey & Baker and Jones Lang – to US firms was just the start. Next in line to catch the globalisation bug are the traditional fund managers.
Zehner points to Lend Lease, Rodamco and La Salle as the only three groups with significant international reach. He is convinced that more will follow. And, he says, property companies cannot ignore the inevitable pressures to explore beyond their traditional borders.
“The easiest component to take global is the service part. The hardest part is the ownership of bricks and mortar,” he argues.
Hard it may be, but UK companies have to face the fact that investors will increasingly view them as part of one market – Europe. “I think the narrow country focus is going to go away. You’re going to find that British Land isn’t just competing with Land Securities and MEPC but with Unibail and Metrovacesa. And that’s going to be a shock to the system,” says Zehner. “I think you’re going to see more UK companies investing across borders. But that doesn’t mean they all will. It doesn’t mean they all should.”
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Zehner and the art ofreal estate
“Through those four deals you’ve seen the major players in this business emerge, and there really isn’t anybody else of the same scale.”
“Although we’re broadly in the same business, we add the corporate finance capabilities and the public markets structuring expertise. It’s not that they are financially unsophisticated, that’s not true at all. Where they are better than we are is in the bricks and mortar and local market supply and demand dynamics.”
“Transparency will hopefully moderate real estate cycles. There’s a lot more information out there about supply and demand. “The hope is – although you never know with realestate people – that when they have the information, they might think about it. They might not build that next office building which is just going to exacerbate the vacancyrate problem.”
“It’s not dead. But it’s not going to drive the real estate business in Europe. There are some major real estate companies in North America who are absolutely focused on Europe, not because they can get a great deal from a pricing perspective but because, given their clients’ needs, they have to be here.” |
Shift in attitude
But such a change also requires a major shift in attitude among their institutional shareholders, who remain highly sceptical after previous, unsuccessful, overseas forays.
“Currency risk is the big reason why UK institutions have been so down on British property companies investing across borders. Institutions in the UK are going to have to tell them that it’s OK. And I think the message they are receiving now is that it’s not OK. That is going to change.”
Hammerson, the only major UK company with significant European assets “does a pretty good job”, says Zehner, but needs to go further. “It is still not one of the biggest players in France and I do think you have to have critical mass. The challenge for Hammerson is to get to be one of the top three retail investors in France.”
Others need to start thinking about widening their horizons. And if they don’t? “I hate to say this, but look at the investment banks. The UK investment banks, as a rule, didn’t foresee the globalisation issue early enough and now most of them don’t exist.”
