NEW YORK CITY-When AREA Property Partners’ global chief executive officer Lee Niebart asked a small audience of CRE professionals whether they’d invest capital in Europe, only a few lowly hands went up. “That presents a challenge,” Niebart said, during a panel discussion held by Property Investor Europe magazine at DLA Piper’s Midtown Manhattan headquarters on Tuesday morning. “At the end of the day, our business is not to make stupid mistakes,” he added. “We have to be somewhat defensive when nobody raises their hand to invest in Europe that we have to be very, very careful in what we do.”
The panelists discussed the benefits--and risks--of European commercial real estate investment amid economic turbulence and sovereign debt issues. Despite those problems, Robert White, founder & president of New York-based Real Capital Analytics said property sales are performing well in Europe, showing $32.2 billion in investment during the third quarter alone.
Much of the activity, White said, is driven by Asian and Canadian capital in the UK, France, Germany and Poland. “It is probably just the tip of an iceberg,” he said, adding that one of the biggest things that separates Europe from every other market is a high proportion of institutional capital. “It is causing this risk aversion and the defensive acquisitions, the institutions still comprise about 50% of the European buyers,” he said. “We are starting to see an uptick in the cross-border activity within Europe and that capital is much more willing to explore a greater array of markets. Capital is flowing, and London is capturing the greatest portion of that, and Germany increasingly so, but it is still centric on the major markets.”
Michael Shields, managing director at New York-based ING Real Estate Finance USA, said as a lender, the big challenge in these different markets is varying degrees of capital availability, which he said is “non-existent” for construction and development. “There has been a tsunami of regulations, and it is going to continue in Europe,” Shields said. “There is a lot of uncertainty there. If you keep tabs on all the balance sheet reductions that we are hearing about in Europe, it could be up to $2 trillion of lending capacity gone.”
But despite the economic uncertainty, consumer spending and confidence remains relatively stable, the panelists agreed. With office remaining flat year-over-year, retail remained the favorite asset class among the participants. “You wonder sometimes because of the fundamentals of the economy, but nevertheless, it is happening,” said Olaf Schmidt, head EMEA and Asia Real Estate Practice at DL Piper in Milan. “Throughout Europe, the prime assets still go well. Shopping centers are probably still a destination for institutional money if they are very strong assets.”
That strategy has worked for AREA, who has developed 6.5 million square feet of metropolitan retail in Poland, and plans to develop ground-up shopping in Frankfurt, which Niebart said is the equivalent of Fifth & Madison in Manhattan. “We are still opportunistic in trying to find the best opportunities in the most stable countries,” he said.
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