Are you planning to enter new markets or to increase your investment in specific markets, like Turkey?
Turkey is obviously a critical country for us as we have made two significant investments there. In August 2012, we purchased the retail real estate business of Rodevco, which consists of three shopping malls covering more than 100,000 m² of GLA, two development sites and a management platform.
In a series of transactions we acquired 100% of Multi Corporation, one of Europe’s leading shopping center investor, developer and manager. Multi owns the two largest malls in Turkey, Forum Istanbul and Marmara Forum, as well as a number of development sites and it manages some shopping centers for third parties. So, today in Turkey we have the dominant position, not only in terms of size but also in terms of asset quality and of quality of our people.
We have generally invested in the UK, France, Germany and now increasingly in Italy as part of our overall strategy, not just retail. We focus very much on buying lower risk-higher return assets.
What is your investment strategy?
We call our investment strategy ‘buy it, fix it, sell it’. We buy an asset that has a problem; it can be either a leasing problem, a need for redevelopment or the asset can be perfectly fine but the owner has a financial problem. We buy for less than it costs to build the asset, then we fix whatever is wrong with the asset-based on a business plan that we execute–and once we have done our job, we sell the asset to the long-term owner, such as a public company or a pension fund.
We execute that strategy not just in Europe but all around the world, not only in retail but also in other asset classes. In retail there has been particular opportunity for us as there has been a lot of distress in the market: assets that are underperforming, developers that have run out of capital, third-party managed funds that have come to the end of their investment life and need aid.
In retail, our focus in Europe has been on high-quality, regionally dominant shopping centers, which cover 50,000-100,000 m² and above in GLA rather than high-street retail or out-of-town retail parks. The reasons we like shopping centers is because there is a lot of work to do: once you can lease your shopping center in the 95% range, then you can start being very selective and thoughtful about your tenant mix and creating a good environment for customers.
We want to buy assets where we can make a difference. We want to put our capital to work where we can make a difference and there have been a large number of opportunities throughout the crisis to do that. Now with Multi’s platform we own or manage 80 shopping centers across Europe; this is a very powerful platform and a very exciting time for us.
What about other segments?
Blackstone has been active in London and Paris, which are two of the most vibrant and exciting office markets. As the economic crisis unfolded, there have also been some very interesting opportunities for us to look at office assets in the Netherlands. We have also looked in Milan and we have some office holdings in Lisbon and in Istanbul.
Having been in Europe for a very long time, we have excellent long-standing relationships with a number of people who are selling their properties. We have exactly the same investment thesis that we have in retail: we look for high-quality assets that will stand the test of time, where we feel very confident about our ability to lease those assets and deliver value for our investors.
In logistics, we would like to buy newly built high-quality, efficient and modern logistics properties in locations that are proven to be successful for logistics real estate.
In the hotel sector, we have been a very active buyer all across Europe. Our focus there is very much gateway cities so we have been active in London where we purchased Mint Hotels and in Dublin where we purchased The Burlington. We recently purchased the Concorde Opera hotel in Paris which also has a great location. Our focus in hotels is going to be much more on cities and urban environments where there is a significant business component and leisure component.
In residential, we have been very active in Germany where we built a multi-family business which partially got sold to Deutsche Wohnen, the highest quality multi-family company in Germany. We have also purchased an excellent residential portfolio in Madrid. So, in residential we are also focused on urban, semi-central areas where people want to live.
What about emerging markets? Are you active in the BRICs?
Blackstone has been fairly active in the BRICs. In China, we have recently acquired an interest in one of the leading shopping mall developers; in India we have been very active in investing in high-quality office assets for multi-national companies; in Brazil we have recently made some investments in residential developer. We have been much less active in Russia, where it is very difficult to access high-quality assets at a discount to physical replacement cost.
In Europe our two most significant emerging markets are Turkey, where we have the retail platform, and Poland, where we have seven shopping centers and we are developing an eighth right now. We are also extending our largest shopping center Magnolia Park and we have built a fairly sizeable logistics real estate business as part of our overall logistics business strategy.
Where would you say there is more opportunity, which markets should investors look into?
There is enormous opportunity all over the world. In Europe, the opportunity has really been one of distress. Many assets were acquired at the peak of the market, and then have been taken back by banks. As such, banks are unwilling owners of high-quality assets. We have great relationships with a large number of banks all across Europe and we work with them to buy the assets that they have difficulties managing at fair prices and then create value from there.
The crisis hit Europe and the US more or less at the same time but the US has rebounded much faster and Europe is recovering in slow motion. There has been an enormous opportunity over the past two years and continuing into the future to work with owners who want to convert their distressed assets into cash.