US giant fund manager Principal Global Investors has bought Internos Global Investors in a move that will create a new $78bn European-focused real estate investment platform.
Internos will be rebranded Principal Real Estate Investors Europe, but retain its existing teams and funds – although it will have the opportunity to enormously expand them.
Principal Global Investors is a top-10 US fund manager with $445bn of assets under management of which $74.9 bn are in real estate; however, its exposure to European real estate is currently minimal.
The Internos acquisition will give it exposure to $3.3bn of European real estate across a number of funds and what Principal Real Estate senior managing director Jay Davis described as a “beach front” for European expansion.
“Hopefully we can share some of our best practices with them as a global asset management company, and certainly the opportunity to bring some of our clients to their products, and potentially some of their clients may have interest in some of our products.”
The deal is subject to regulatory approval and will take some time to work through. As a result, there are no immediate new fund launches planned. However, Davis said he wanted to start a debt platform in the UK to mirror its stateside opportunities. The platform would either be developed itself or could be established via the acquisition of an existing debt platform.
“We are a very large commercial lender in the US, and we see the opportunity to perhaps bring these capabilities to Europe,” he said. “A number of our peers on the US lending side have already established platforms, some with balance sheet money and some by launching comingled funds, and we are going to explore it and do it in the right way at the right time.”
Principal’s US real estate business has four key arms, private equity, public equity (REITs), private debt and commercial mortgage backed securities. It manages $27bn of debt.
Internos has eight offices in Europe and employs 100 people. It has 80 investors investing in 18 active mandates across 1,000 properties that is active in eight countries.
Chief executive Andrew Thornton says the platform has the potential to easily expand activity – although he would not be drawn on how much it hopes to have under management in the next five years.
“It’s not going to be fast and furious set of new products,” he said.
“When we launch something it will be something that we know has legs, it’s going to deliver what it says on the tin, and is going to be something we are able to scale.”
Currently, Internos has a number of European focused funds open to investment, across the hotel, office, care homes and residential spheres.
Executive chairman Jos Short said: “What we would like to do with Principal is opportunistic. They have a very strong performance track record in value-add opportunities in the US, they do a lot of ground up development for example.
“If you were looking at what new products we could do together that Internos would not do on its own, partnering on an opportunistic fund could be one.”
The deal follows a string of consolidations in the asset management sector, including Aberdeen with Standard Life, Janus with Henderson and AEW with Ciloger, where regulatory approval, lower fees and mandates are pushing managers towards larger platforms.
“We are reaching the end of quantitative easing and seeing monetary policy tightening,” said Thornton. “We are in a world where the regulatory side of things has been stepped up. We are seeing clients who have had a good run in real estate, and it is always dangerous when it is easier to raise capital than deploy it. You have got to be very cautious and disciplined in your approach.”
Berkshire Capital advised Principal.
Internos funds
Internos Hotel Real Estate Fund
First closed in 2012, with €75m equity, then tripled to €245m from seven German institutions. Focuses on acquiring existing, leased 3-4* hotels in major cities in the core Eurozone, maximum 40% LTV. To date bought 16 hotels. Fully invested with AUM of €500 million.
Internos Hotel Real Estate Fund II
Launched May 2017 with first close of €133m from seven German institutional investors. Target LTV of 50% for value-add opportunities.
The ICE Balanced Fund
Launched in 2017, open-ended, Pan-European diversified core fund invested in traditional real estate. Seeks long-term stable income. Targets expansion to a GAV of €1.2bn by 2021.
ICE Office+ Fund
Balanced, geographically diversified office property fund with long-term value stability. Focused on prime European properties. Target volume of €600m. At present, €162m invested in seven properties.
Euro Logistik 1
Targets prime logistics assets in European countries for capital and income returns. Tenant covenant strength prioritised. Planned equity of €200m – €225m.
Novapierre Allemagne
Launched 2014 by PAREF Gestion, a French SCPI management company. Internos acts as IM and AM in Germany. The first French fund dedicated to retail investors to be 100% invested abroad. Invests exclusively in retail properties in Germany targeting retail parks.
The Internos Care Invest II Fund
Will invest in portfolio of specialist healthcare assets throughout Germany. A balanced, regionally diversified health property fund with long-term value stability. To launch in 2018 with an indefinite term and a planned €150m in equity.
To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette
This article was first published on 30 November.
