Dutch retail investor and developer Redevco started out as the property arm of clothing chain C&A. It became a separate company nearly a decade ago but maintains its focus on the retail sector, which comprises more than 80% of Redevco’s €7.6bn investment portfolio. These properties are spread over 20 European countries including Belgium, the UK, Germany and France. The group plans to step up its investment drive into Belgium and the Netherlands while looking for bargains in the UK, where falling property values have generated buying opportunities.
Redevco will refine its strategy in order to expand the value of its portfolio to €10bn by 2010. “We’re going to be more critical about quality,” says Redevco’s chief executive, Jaap Blokhuis.
He adds: “As part of our active portfolio management, we’re gradually cutting back our portfolio of logistics buildings, and the mediocre-quality stores will have to go.” The firm will sell non-core assets, although it is not part of a strategy to reduce exposure to any market in particular. C&A still provides 32% of its rental income (see graphs on page opposite), although Redevco intends to lessen its dependence on its main tenant.
Redevco is fully owned by Cofra, a Swiss-based holding company backed by the Brenninkmeijer family. Cofra’s activities include retail, real estate, financial services and corporate investment. When it was the property arm of C&A, Redevco’s primary activity involved the asset management of retail properties. But after becoming an independent firm, the emphasis within its portfolio gradually shifted. Project development is now an integral part of its real estate business.
The company focuses on stable European economies that are less affected by the financial crisis. It is also attracted to regions in which retail stock is still limited, such as Belgium, and central Europe. The company’s geographical scope also includes Scandinavia, eastern Europe and, more recently, Turkey.
Redevco has access to both private capital and debt but chooses to play its equity card in the current market. “As an equity player, we are interested in funding schemes for which bank loans are difficult to get at the right conditions,” says Blokhuis.
After side-stepping the Nordic market for the past two years because it was overheated, Redevco is now buying assets in Finland. It has also strengthened its team in the Netherlands, where it will step up the pace of its investments to expand the portfolio from €550m to about €800m over the next three years. However, the company realises that it needs to be creative in its investment strategy because the Netherlands is an established market.
Major ongoing developments in the Netherlands include the Ravel project on Amsterdam’s Zuidas, where 15,000 m2 of retail space will be created, and the Factory Outlet Centre that Redevco plans to develop in Alphen aan den Rijn.
The group will also boost its investment portfolio in Italy, where it spent some €80m over the past year. Despite concerns regarding the country’s economy and transparency, Redevco plans to invest a further €150m there. “It is a tough market, but we should be present there as a European player,” explains Blokhuis.
This year, Redevco made its first major acquisition in Poland. It bought a portfolio of 18 retail assets from Enterprise Investors, one of Poland’s largest private equity funds. The properties are let on long leases to carpet retailer Komfort.
Redevco’s strategy in Poland is to focus on retail properties with development potential in the country’s largest city centres. The group is also considering entering into joint-venture partnerships with local developers.
In Spain, Redevco is riding the cycle. The firm bought a large retail portfolio from private equity firm Permira in 2005, of which part has since been sold and the proceeds have been reinvested. After acquisitions of €94m and sales of €74m, the portfolio is now worth a total of €700m. The company has also committed a further €84m to Spain.
A stake in Los Fresnos shopping centre in Gijon, in the north of Spain, was acquired from Testa Inmuebles en Renta for €45.4m last year. The 38,000 m2 shopping centre houses international retailers, including Carrefour.
Redevco entered the Turkish real estate market last year. Its €1bn investment plan involved six projects in five districts, and these have since made significant headway. With another 12 developments in the pipeline, some €600m has already been committed.
“The family that owns our company is among the strongest textile manufacturers and exporters in the Netherlands. They have been present in Turkey for more than 30 years. That means that they know Turkey well,” explains Patrick van Dooyeweert, Redevco’s managing director in Turkey.
The Gordion shopping centre in Ankara is under construction and will be complete by 2009. The mall will provide 50,000m2 of retail space, with 200 shops, a multiplex cinema and a hypermarket. Another shopping centre is being built in Erzurum. It is due to open in 2009 and will offer more than 30,000 m2 of retail space. Developments will also be built Manisa and Edirne.
One of two shopping malls to be built in Manisa will be among the largest projects in Turkey’s Aegean region, and will provide 55,000 m2 of floor space. The other centre will provide 17,000 m2 of retail space. Both are scheduled for construction in 2008 and completion in 2009. The company also acquired a 10,000 m2 business centre in Istanbul’s Ümraniye district. Redevco plans to expand its portfolio in Turkey’s biggest cities, and will focus on the retail sector.
However, Turkey’s real estate market recently suffered a huge blow after the country’s constitutional court annulled a law allowing the sale of property to companies established by foreign investors or to joint ventures involving foreign firms. The decision is due to come into force six months after its publication in the Official Gazette and deals already made will not be affected.
Although the government is expected to come up with some sort of compromise, the ruling could infringe upon Redevco’s future plans in the country.
“Turkey is one of our favourite markets because it has a powerful economy and attractive demographics,” says Blokhuis. “Yet the political situation is something we find concerning. It is not a reason to change our policy at this moment but the bottom line is that we want to see further improvements.” Reflecting the sentiment of several other international investors, Redevco is not fully convinced that the ruling will take hold because Turkey is so dependent on the income it receives from foreign investment.
This would not be the first time Redevco has experienced legal problems in Turkey. Its purchase of a development site in Edirne came under scrutiny after the local mayor was arrested over allegations relating to corruption. The firm bought the former Edirne Municipality building last year from Turkish contractor GPM, which had earlier won the site in a public tender issued by the municipality. Redevco is redeveloping the building to create a 27,000 m2 shopping centre that is expected to complete by 2010.
The group is helping the Turkish authorities with their inquiry. The case has not had any effect on the development and construction is ongoing. None of Redevco’s other projects is under investigation.
The UK market correction has presented Redevco with buying opportunities. Prices have escalated in recent years, leaving few attractive investment prospects. But the current bearish environment has hit values. “Now that prices have come down by 10-25% from their summer 2007 peak, we can start expanding the UK portfolio again,” says Simon Smith, managing director of Redevco’s UK business, in a company newsletter.
Redevco’s purchase of the Princes Square shopping centre in Glasgow is the company’s first acquisition since prices began to return to more attractive levels. The firm paid €150m for the mall last year, which includes 9,000 m2 of retail and leisure space and more than 11,000 m2 of offices. Refurbishment will take place on the interior and exterior of the building.
However, the redevelopment of Redevco’s 120 Moorgate in the City of London has been postponed. Although the group gained planning permission to develop 2,600 m2 of retail and 7,000 m2 of office space last year, works will be held off until 2011 because the City office market is likely to face oversupply in the short term. Instead, Redevco is letting available retail units and office space in the existing building on short leases.
Redevco will continue to expand its UK portfolio over the medium term, with a focus on identifying investment opportunities in the retail and office sectors. The company will seek deals that offer potential to add value, either through lease restructuring or redevelopment.
