Eurofund Group is on the lookout for more mall acquisitions in the UK, after teaming up with Henderson Park on a £140m deal to buy the Silverburn shopping centre in Glasgow from Hammerson.
Following the Silverburn deal, which formally completed last week, the jv has around £300m equity to spend on acquisitions and reinvestment into rejuvenating properties.
Ian Sandford, president of Spain-headquartered Eurofund, which will act as Henderson Park’s operating partner on the mall, pointed to the burgeoning opportunity that the UK market offers.
“We’re opportunistic,” Sanderson told EG. “We looked at the UK a lot, always looking from a continental perspective back to home, and could never understand the market. Then a few things happened that made us think about it a bit more seriously.
“The model we’ve got – transforming centres, managing through data, listening to retailers, understanding rent as a function of what they can earn from their shop, which we apply in continental Europe all the time without even thinking about it – suddenly [became] valid to the UK, because the UK model has broken. Then you saw what happened with intu and Hammerson, and we realised there was an opportunity.
“The other part that goes with it is the growing number of asset management businesses. We have a slightly different operating model – we don’t play the game to make fees. We will effectively co-invest with our partners on the basis that we [cover] costs during the hold period, and we are all incentivised on the exit. No one is playing that model.”
Retail hits the floor
Sanderson also called the bottom for the UK retail market but said he did not think there was any uptick.
“One’s got to hope in the future that more core money sees stability, that it will return; that funding sources will feel more comfortable about [financing deals]; and pricing of debt comes in a bit,” he said. “Until one of those three things happen, that’s where we are. But I don’t think any of those things will happen quickly.”
Despite securing financing on the Silverburn deal – through a senior loan from BentallGreenOak – Sandford said the lending landscape remained “difficult”.
“It’s constrained, it’s stopping the market from moving forward,” said Sanderson. “We have debt on Silverburn but that’s because of our relationships with the banks, not because they were saying they wanted to lend into shopping centres. Until that changes, that is the level we are going to be at.”
The group’s criteria for shopping centre acquisitions are central locations – “large and flexible enough that we can bring the changes we want to bring,” according to Mike Rhydderch, senior adviser, corporate finance at Eurofund. He added that the company “tends to prefer self-contained destinations, where you can control the whole environment”.
“A lot of people talk about buying centres to transform them but that’s not what we want to do,” said Sandford. “We want to buy centres that will essentially remain great retail destinations but then probably take down some of that retail element to convert to other uses in order to reduce the supply and increase the tension.” He cited Eurofund’s Ubbo centre in Lisbon, where it has opened a circa 168,000 sq ft hospital, as an example of the various types of uses it can add to locations.
Thinking logistically
In Silverburn, Eurofund intends to bring in driver lounges for online food delivery services. The company is also looking at ways to convert surplus space into last-mile logistics uses across its centres. Rhydderch highlighted that car parks and storerooms in particular can be used more efficiently outside of trading hours.
“The location requirement for a shopping centre is that it’s easy to get to,” said Rhydderch. “Flip it round the other way and this also means a brilliant distribution centre, because it’s right at the nerve centre of a dense population.”
Rhydderch said that from a sustainability perspective, these methods make more sense than demolishing centres for redevelopment. “Why don’t we take something that is OK, in the right place, add carbon recycling and apply some brainpower, instead of just chucking loads of money at it?” he posits.
Eurofund has previously bid on centres such as Solihull’s Touchwood centre, which was eventually acquired by The Ardent Companies for £90m last July, as well as crunching the numbers on the Trafford Centre before its lenders took control.
The next market that Eurofund intends to focus on is Italy, where it has opened an office. Outside of its focus on shopping centres, the group is also seeking to expand its co-living business.
It has invested more than £20m of its own capital into its first location – a former student site in Kingston that it has converted into a 63-room scheme – under its Tribu brand, set to open in Q2. Secondary student accommodation and failed hotels are on the wish list for further expansion.
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