The European real estate investment arm of asset manager La Française Group has struck a first UK deal for its French funds and is already looking at what it might buy next as it seeks to build a sizeable British portfolio.
Spurred on by further clarity on Brexit and a tightening of yields on the continent, La Française Real Estate Partners International is targeting £1bn under management in the country, having taken the first step with a £48.5m deal to buy 90 Bartholomew Close, EC1, from Helical and Baupost Group.
“We’ve been quite patient,” says La Française Real Estate Partners International chief executive David Rendall. “We’ve kept dry powder from the end of 2016 until now, but felt that this asset had the right qualities.”
The deal, done on behalf of one of the group’s collective real estate investment vehicles, could seem like a big leap considering that contracts were exchanged during the country’s lockdown during the Covid-19 pandemic. But the business isn’t going in blind. Rendall’s team toured the property when it was put on the market with Fineman Ross and Ingelby Trice in January and had carried out due diligence despite deciding not to participate in the original bidding process.
That process saw Aberdeen Standard Investments make a £51m bid in February, above the £44m asking price. But Aberdeen walked away from the deal in March shortly after suspending trading in its £1.7bn Standard Life Investments UK Real Estate Fund and £1.1bn Aberdeen UK Property Fund, as concerns mounted over the economic impact of coronavirus and what it may do to property values.
“I think we’re rather fortunate that we did visit the asset,” Rendall says. “We were also fortunate that the sale didn’t go through and we already had done the analysis and the work.”
Even then, success was not assured. La Française Real Estate Partners International investment director Peter Balfour says that following Aberdeen’s withdrawal there were still several interested parties for the property.
He believes La Française was able to secure the deal as a result of the firm’s track record and the fact that it was able to make a full equity bid.
“We were seen by Helical to be a very secure buyer,” he says.
London shopping trip
La Française’s French funds started investing in other European countries in 2016 following the group’s 2014 acquisition of Cushman & Wakefield Investors, which was led by Rendall and Jens Göttler. That business was then renamed La Française Real Estate Partners International.
Since then the focus has been on Germany, Benelux and Ireland. Of €23.5bn of AUM at the end of 2019, about 10% was outside of France.
The firm has been eyeing the UK market for some six months, with plans to enter through its investment vehicles. “London was our primary focus and we were looking to make the first acquisition of a core asset that would give a good profile for the programme,” Rendall says.
The plan is now to build on this first purchase and create a £1bn UK portfolio of core office and possibly industrial assets. “It’s a realistic target, but it won’t happen in six months,” says Rendall, who is spending more time on “odd jobs” during the lockdown than big deals.
That portfolio is ultimately expected to include properties acquired on behalf of not only the French funds but also several Korean clients the group acts for.
La Française transacted around €1.5bn in continental Europe for Korean clients last year. But with tightening yields and a dearth of assets to attract Korean investors on the continent, Rendall expects them to look again at the UK market during the second half of the year, and says his clients have already been eyeing assets before the lockdown. “It’s logical that London moves up on that shopping list while the yield collection is there,” Rendall says.
Back to normal
There is little transactional evidence to indicate the impact of Covid-19 and the lockdown on the real estate sector in the UK, but Balfour and Rendall remain positive on the country’s attractions.
“The market is holding up remarkably well in terms of investment demand,” Balfour says, although he admits it is being slowed down by the logistical difficulties of inspecting buildings and conducting technical surveys.
“If we work on the basis that things at some point will get back to normal, London’s supply and demand at the occupational levels has been pretty tight for new stock, so there is every prospect that the market will bounce back,” he says. “There may be a yield spread increase, but for the best buildings prime yields will probably hold pretty firm.”
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