Barings Targets €3 Billion of European Real Estate Investment in 2021 With Offices, Logistics and Residential Remaining Key Conviction Calls
Barings, one of the world’s largest diversified real estate investment managers, announces that it completed c. €2 billion of real estate transactions in Europe in 2020, across equity and debt. Looking to 2021, Barings is targeting €3 billion of investments across debt and equity as it looks to respond to COVID-19 related market disruption and prudently deploy the capital it raised for its core and value-add strategies in 2020, as well as its separate account and co-investment ventures.
Disciplined approach to divestments helping drive outperformance
Having delivered exceptional sales results – in particular in late 2019 and early 2020 – with c. €1.7 billion of disposals, Barings continues to remain disciplined in its approach to disposals. 2020 marked the first time in four years that Barings acquired more assets than it sold. 78% of disposals took place in Germany, followed by both France and Italy with c. 11% each. A number of these divestments were completed significantly ahead of business plan, including the sale of a Paris office property that had been completely refurbished and let to a well-known fashion brand. The sale to a French institutional investor on behalf of a value-add strategy produced an IRR of more than 40%. Barings also sold a German office development in Berlin to an international investor on behalf of an opportunistic investment strategy, delivering an IRR of more than 35%.
Having surpassed €2 billion Gross Asset Value during the year, this approach helped Barings’ flagship core strategy outperform the INREV and MSCI benchmarks. In the latter it was ranked number one on a quarterly and three year basis.
Local network integral to supporting transaction volumes throughout the pandemic
Barings’ local European office network allowed it to visit and assess opportunities despite the restrictions on flights and international travel brought about by COVID-19. Providing execution certainty for counter parties also led to Barings transacting 94% of its acquisitions off market. In Germany €612 million of equity investments were completed in 2020, accounting for 53% of total acquisitions (2019: 56%). This was followed by Sweden, where 21% of purchases were made (2019: 10%), as Barings continued to increase its investment activity in the Nordics.
2020 also saw the appointment of John Ratcliffe as Head of Asia Pacific Real Estate, based in Barings’ Sydney office. In this newly created position, Ratcliffe has begun working with senior management to develop the business’ Pan-Asian and Australian real estate platform covering both equity and debt.
Investors’ appetite for risk driving core+ and value-add investment
Compared to 2019, Barings noted an increased risk appetite amongst its client base, which is reflected in a noticeable shift from pure core investments comprising just 14% of the total acquisition volume in 2020 (2019: 40%), to core+ and value add, which accounted for 57% (2019: 40%)and 28% (2019: 21%) respectively.
Offices, logistics and residential remain key conviction calls for 2021
Industrial and logistics remains one of the Company’s long term conviction calls, with the social and technological drivers accelerating in 2020 due to the pandemic. Although just €38.8 million was invested in residential in 2020, compared to €125 million in 2019, Barings’ living portfolio now comprises some 1,130 residential units and 267 student beds completed or in development. The asset class will become a key target in 2021 with about €350m to be invested in this sector over the next 12 months.
Further growth of the debt platform planned for 2021
Barings completed c.€375 million of senior and whole loan investments in 2020, while its existing loan portfolio of €2.6 billion performed well, benefitting from minimal exposure to sectors like retail and hospitality. 90% of the loans originated in 2020 were in the student accommodation, logistics and office sectors. With c. €850 million ready to deploy across Europe, Barings has a further pipeline of c.€450 million of opportunities that are already at advanced stages for 2021.
Barings has also approved Australia and New Zealand as new lending jurisdictions with the business hoping to make its first debt investments in the region in 2021.
Charles Weeks, Head of Real Estate Equity – Europe and Asia-Pacific at Barings, commented: “2020 was an unprecedented year that started well but was soon heavily impacted by COVID-19, which led to a number of highs and lows as the pandemic took hold. Against this backdrop we were very pleased with how Barings performed, not just in ensuring the safety of all our stakeholders but also how quickly we were able to adapt to the new environment and continue to seek opportunities for our clients. In this respect, 2020 was a highly successful year for our European platform, characterised by strong capital raising into our Core and Value Add strategies; c. €1.16 billion of investment into our offices, logistics and residential conviction asset classes; as well as a disciplined divestment programme that helped us deliver another year of outperformance for our clients.
“With the vaccine now being rolled out, we ended 2020 with a sense of optimism and light at the end of the tunnel, albeit under no illusions as to the heavy impact the measures undertaken to control the virus will have on the global economy. Our expectation is that 2021 will be an extremely busy year for the transaction teams. All our capital sources are looking to deploy fresh capital into real estate markets across Europe across core, value add and opportunistic returns spectrum, as well as into most market sectors but especially industrial and logistics; transitional offices; and residential.”
Gunther Deutsch, Head of Real Estate Transactions – Europe at Barings, commented: “Despite the challenges of last year, we can look back at a very successful 12 months having exceeded our three year average transaction volume in 2020. We also used this year to strengthen our local transaction teams, which proved a significant advantage as the pandemic restricted travel opportunities. We also transacted around €190 million of sale-and-lease-back acquisitions, predominantly in Sweden and Spain, which is a strategy we expect to develop further in 2021, where there is an opportunity to benefit on steady income and reversionary income opportunities through active asset management initiatives.
“In 2021 we are aiming to invest over €2 billion in our strong conviction asset classes, offices and logistics, and will place an additional focus on the “everything with beds” sector, including Build to Rent, student housing and micro/serviced living. We will be looking to make these acquisitions in our preferred European geographies: the Nordics, the Netherlands, Germany, the UK, Italy, France and Spain.”
Sam Mellor, Head of Real Estate Debt – Europe & Asia-Pacific at Barings commented: “2020 was a challenging investment environment where we benefitted from the strength of our “boots on the ground” real estate platform and disciplined, thematic investment approach. The performance of our existing loan portfolio was extremely strong with no defaults and minimal exposure to the sectors hardest hit by the pandemic, enabling us to focus on new investments with our borrower partners.
“We closed a significant number of deals in western Europe, with a focus on the living, logistics and office sectors. Having local teams able to meet with sponsors and visit assets was invaluable in enabling us to transact during government-imposed lockdowns. 2021 is looking very promising as we have a strong pipeline of loans in advanced stages and significant dry powder having successfully raised fresh capital in 2020.”
Barings Real Estate
Barings Real Estate (BRE) offers a broad range of global investment opportunities across the private debt and equity investment markets. BRE invests in all major property sectors and offers an expansive range of financing solutions to real estate borrowers. BRE also specializes in providing government and government-sponsored entity lending products through our wholly owned subsidiary, Barings Multifamily Capital. Follow us on LinkedIn at www.linkedin.com/showcase/barings-alternative-investments.
Barings is a $354+ billion* global investment manager sourcing differentiated opportunities and building long-term portfolios across public and private fixed income, real estate, and specialist equity markets. With investment professionals based in North America, Europe and Asia Pacific, the firm, a subsidiary of MassMutual, aims to serve its clients, communities and employees, and is committed to sustainable practices and responsible investment. Learn more at www.barings.com.
*Assets under management as of September 30, 2020