A huge increase in US investment in European property looks likely after an influential US economist advised American funds to quadruple their worldwide real estate holdings.
Barton Biggs, head of global strategy at Morgan Stanley, has advised US pension and life funds to increase the percentage of funds held in property from 3.8% of total assets to “perhaps 15%”. This implies a $600bn increase from the $200bn held.
His advice, given against the downturn in returns on US equities, lies behind the news last week that $19.2bn of so-called “opportunity funds” are targeting Europe.
The announcement was made by John Carrafiell (pictured), head of the European real estate group at Morgan Stanley, to the British Council for Offices conference in Berlin last Friday. Carrafiell said these funds are looking to deliver returns of between 15% and 20% by investing in UK management buy-outs, large prime properties and real estate being divested by public and private corporations in Italy and Germany.
One such fund is Westbrook Partners which, with $1.25bn to spend, has opened an office in Berkeley Square, W1, in the past eight weeks.
Jeff Caplin, who heads Westbrooks new London office, said it has already spent around $400m in France and expects to spend a further $300m on the Continent and Britain over the next two years. “The UK has an attractive deal flow. There is a lot of opportunity for off-market, relationship-driven deals. The high-risk, high-return stuff is still there to be done.”
However, Roger Orf, managing director of Pelham Partners opportunity fund, is cautious about a UK bonanza.
“There is a general feeling that, as night follows day, if the US market drops off the UK does to. There is certainly a lot of American money out there, but Germany and Italy are cheaper.”
Funds already operating in the UK with a local partner include the Whitehall fund which, with Green Properties, bought the £400m P&O estate, and the £3.5m MEPC management buyout funded by GE Capital with Hermes.
Caplin said his fund was looking for portfolios and offices that were in “fringe locations that could show relative value, such as Midtown”. He added: “Agents are of more value introducing partners rather than deals.”
EGi News 01/06/01
