Charlie Ferguson-Davie’s CIO letter to Investors (Q2 2017)
We’re halfway through the year and much has happened but what has changed!? The recent election may have left Theresa May in a weaker position but we still have a Conservative government leading us to Brexit, it may now be ‘softer’ and there is scope for further political volatility but wasn’t that the case before? We have been poised for volatility and uncertainty as a consequence of the vote to leave the EU a year ago and this election result is in my view just part of that journey, with more disruption to follow.
Taking the real estate listed sector as illustrative of the wider real estate market, the index of quoted real estate companies is broadly flat on the year at the time of writing (though you could have made 15% by timing the trough in December and the peak in May). The index is also down some 15% on the peak in the summer of 2015 (though it has been down as much as 20% a number of times). Volatility is higher when you look at individual companies and demonstrates that there are opportunities to take advantage of if you are patient and you get your timing right.
FTSE EPRA/NAREIT UK Index
Real estate volumes were c.30% down in 2016 on 2015 and so far this year are in line with the same period halfway through 2016 (Q1 2017 was 20% lower). These volumes illustrate to my mind that there are fewer active buyers ‘in the room’ than in 2015, which should result in a less competitive environment and more attractive pricing.
The bars in the chart below show the UK real estate transaction volumes since 2000 and you can see the recent peak in 2015 surpassed the previous peak levels seen in 2005-2007. I have added the subsequent 3 year total return (which includes the income return) experienced from investments made in each year – it is not surprising to see that in years with high volumes the subsequent return is poor and it is better when volumes are lower! This (and the listed sector index) supports why we were slow to invest MREFIII through 2014 and 2015, accelerated in the second half of 2016, and why we think the uncertainty expected over the next few years will be good for MREFIV.
Source: Capital Economics
Some of the real estate headlines would suggest that nothing has changed since 2015 – for example The ‘Cheesegrater’ (The Leadenhall Building) and the ‘Walkie Talkie’ (20 Fenchurch Street) towers being sold for £1.15bn and £1.3bn respectively to Chinese investors at c.3% yields, well above recent valuations. Asian investors in particular have been attracted to London because of the fall in sterling and an ongoing view that despite Brexit the UK will remain a safe haven and London a global financial centre.
Indeed pension funds, insurance companies, local authorities, private investors etc. still find the income yield that UK real estate offers as attractive, especially relative to other options. And the world is awash with capital because of QE, low rates and growing economies, especially in Asia where the goal is to increasingly invest overseas. As such, long dated income, ie real estate with leases of over 10 years in length, is now even more sought after post Brexit.
On the other hand; short income (lease lengths of under 4 years), empty buildings, land; which are all considered to carry more risk; are all cheaper now. This is because investors are more cautious about the short term risks and will not underwrite as aggressively as in 2015 – and there is less competition to buy. This creates an arbitrage opportunity for the value-add asset manager to create value by turning the land/empty building/shorter income into the long term income that the institutional investment community is searching for.
However, there are a very few forced sellers, LTVs are generally lower than in 2007 and interest rates are so low that interest costs are not causing ICR issues. There is also generally a lack of occupational supply that meets current market needs as in the main there has not been over-development, which might ordinarily be another cause of pressure. Nonetheless, there are some possible exceptions – City of London offices, prime central London residential and retail. These are the sectors that we are most nervous of.
In the City, recent and ongoing development activity combined with slower than anticipated take-up and Brexit risks for the financial sector imply the vacancy rate could head towards 10% from the c.6% today. If this were to happen rents would fall, as would values, and so we think there is more risk on the downside than upside opportunity.
We also believe that too many prime residential apartments were built for off-plan sales, particularly aimed at Asian investors and the combination of the market turning, Brexit, higher SDLT (12% over £1.5m and an extra 3% surcharge for investors), the removal of some CGT/inheritance tax/identity protections for overseas investors, are all propelling a falling market.
The retail sector continues to be affected by the internet and legacy supply issues in the high street and shopping centre subsectors and we prefer to look to the beneficiary of this technological revolution which is the logistics sector.
There are some active sellers, notably the REITs, some of which are trading at discounts to NAV and are being encouraged to refocus on fewer sectors, and the open-ended funds which are holding record levels of cash and are generally waiting for more certainty before being tempted back into the market. Some global private equity investors are also deciding to sell rather than risk extended hold periods eating into their IRR performance.
Our view remains that although there are certain sectors to be wary of and there should be general caution about where we are in the real estate cycle, there are nonetheless (and will continue to be) pockets of systemic undersupply or stress for us to be able to originate attractive opportunities in the themes that we have conviction about.
The themes are (i) Build to Rent / Multifamily (ii) Student Accommodation (iii) Logistics (last mile in particular) (iv) Mixed Use distress (v) real estate that will benefit from new Infrastructure. Of course, there is also senior housing but that is an opportunity for MAREF/Audley. Hence the ‘Beds and Sheds’ label!
Demographics, structural changes, technology and societal shifts are very strong drivers of demand and will continue regardless of Brexit or a changing economic landscape. At the same time these sectors are undersupplied due to many years of a lack of development since the GFC.
Marc Gilbard’s CEO letter to Investors (Q2 2017)
You will have seen my previous Linkedin comments over the last 12 months, written as a result of significant events in the UK with unexpected results, principally related to Brexit and Politics. My intention in this latest note is to highlight the most impactful aspects of our current thinking in relation to UK economics, politics, social behaviour and real estate (closing with a reminder of our position on Brexit).
Economics: Growth in the UK is slowing, consumers and businesses are nervous with regards the impact of Brexit and the outlook through the eyes of many is one of rising inflation and interest rates alongside a weak currency and general economic uncertainty. On a relative and absolute basis this is not an attractive platform for UK investment and it’s hard to argue against. However, I do believe that this negativity is based in the short term (c.2 years) and in the medium term (3-5 years) UK economic performance will be a lot more robust. This optimism is primarily because of my outlook with regards the Brexit outcome (see below), alongside my belief that likely economic underperformance will allay concerns over the level of domestic inflation and, as such, interest rates will remain low. In my opinion, the Bank of England will look more to GDP growth than it does to 2% CPI.
Politics: I have said before that I try hard not to let my personal party-political views colour my commentary. It is, of course, hard not to be biased or cast a vote out of self-interest, but choosing the best political leaders (available) in the interests of the UK is how most of us would say we view the intended workings of the democratic electoral system. I know there have been times when I have voted outside my comfort zone because I think change is needed or lessons need to be learned. For example, I am currently of the view that the general election outcome of a hung parliament is very possibly a good result for an easier won softer Brexit because of the need for a more cross-party debate and agreement. It may make other policies harder for the Government to enforce but our main goal must remain the relationship with the EU and increasingly with the rest of the world.
Nonetheless, watching the behaviour of certain Labour and Conservative Party MPs and listening to their rhetoric we must be aware that their goal will be to disrupt policy and process as much as possible. As for those at the top of those political parties, I don’t think it will ever again be a Corbyn vs May general election contest so there is more political personality change to come in the next few years – and despite all pre-election speculation it is now more likely that May is where that change will lie rather than Corbyn.
As a final speculative statement, it is not inconceivable that there will be increasing support (vocal at least) for a second Brexit referendum. In my opinion one or both of two events needs to occur for this to happen in reality. The first is a shift in attitude in the EU that would allow the UK to substantially achieve what David Cameron set out to negotiate in 2015 and ultimately led to the Brexit referendum, namely sovereignty of the UK (including immigration). The second would be the finalised Brexit Heads of Terms being materially different or worse than the voter could have reasonably anticipated. I don’t believe the House of Commons can decide alone to remain in the EU, having heard the voice of the majority, but they can decide to call for a second referendum. Unlikely but possible and perhaps this will become the Labour Party ‘cause’ if it decides its newly found popularity is on the wane.
Social Behaviour: Whether it is political, economic, technological, leisure or real estate there has been and will continue to be significant social change amongst us and it has been repeatedly misread. At Moorfield we spend a great deal of time debating social change and how we think it impacts on what we do in providing accommodation for others. The subject is so big that my intention is only to point out to you that we are aware. Some of the societal changes we are all experiencing are definitely for the good and some are definitely not (and of course some are neutral and simply for change’s sake) but ignoring is not an option.
Real Estate: At the risk of repeating what you will have recently heard from us, I think I can put our current outlook and approach into a relatively small number of bullet points:
- We believe we are in the mature stages of the real estate cycle.
- We believe there is a value correction due in areas of the real estate market that are over-supplied or are experiencing record levels of rents and yields. We don’t believe this will come in the form of a real estate ‘crash’ but we have no intention of participating in any of these areas.
- We believe there is an arbitrage opportunity in buying short term income and risk assets and selling stabilised long term income and lower risk assets.
- We have very strong conviction that there are some systemically undersupplied areas of the real estate market that will continue with high occupancy and rental growth despite the real estate cycle.
The Brexit Outcome (as previously set out plus some minor updates):
Medium term: it is our opinion that the UK will remain a safe haven for international investment capital for all the reasons we are familiar with. We also believe that the UK and the EU will need to reach an appropriate compromise on their relationship going forward, because we believe they effectively have to at some point – for the economic and social health of all those directly and indirectly involved (and many that have not as yet understood the likely global impact) and a softer rather than harder exit now appears more likely! Negotiations will take time, may well include transitional agreements and time extensions and will, no doubt, involve plenty of intermediate venom and vitriol magnified by the salivating media. However, the end result will likely be pros and cons for both sides of the divide but, we suspect, not materially worse going forward than at present, once the dust has settled. Wilful blindness on our part? Perhaps, but hindsight will have to be our judge on this.
We also believe that a UK unfettered by the ‘unelected eurocrats’ and free from imposed EU restrictions will be able to negotiate trade deals with economies that are faster growing than the EU – such as China, India, Canada, Japan, the US and more. The Election result has not materially changed our opinion on this medium term outlook, other than an expenditure policy versus the current austerity measures might see GDP growth benefit (at the cost of increased tax and debt).
The charts below show the growth in EU exports to the UK, while the UK has been growing its exports elsewhere – the EU is just as keen on a close trading relationship with the UK!
UK Exports & Imports by Trading Group
Source: Capital Economics
Short term: it is our opinion that the UK negotiations with the EU and the reporting on it will cause concern, confusion and disruption. Not a comfortable environment for anyone, but one in which opportunity lies for investment funds such as ours that like short term weakness as long as it translates into a means to create medium (and longer) term value. The Election result has magnified this perspective and does not take away from the investment themes we are currently pursuing.
Long term: it is our opinion that the UK may be better off out of the EU (and the Executive Committee of Moorfield all originally voted to remain!) for reasons that are much more about the EU and the Eurozone than they are about the UK or its reliance or role in the EU. We have no crystal ball of course and we are talking about the unpredictable world of politics rather than the world we more readily understand of business, real estate and finance – however, we can’t immediately see how the mechanics of the EU and eurozone can continue without some major changes.
We are told by the politicians that the answer to the broken experiment that is the eurozone lies in federalisation (i.e. greater monetary and fiscal union). But the voting public across the EU would appear to be pushing hard for greater nation-state independence. So how does that work? Have I not just described opposing forces? The bullet of a Le Pen victory has been dodged for the EU project but it’s a story far from over. Le Pen victory would have likely resulted in a disastrous event for the EU as an ‘in-out’ referendum similar to the one in the UK would have been called for (as it would have been if Wilders had triumphed in the Netherlands – and perhaps still will be if Grillo succeeds in Italy) and the result of the referendum(s) would be by no means predictable. President Macron and others seem to have recognised the need for change in the EU structure – but what change, what resultant impact and at what cost….short, medium and long term.
Am I being too pessimistic about the EU and the Eurozone? Well, it is worth remembering that Europe, despite some recent GDP growth, has clearly not yet properly recovered from the effects of the GFC. Low growth, high unemployment and unrecognised losses are still present across the continent and many of the issues that were headlines a few years ago are likely to be so again in the future.
The Brits may be relentlessly snatching defeat from the jaws of victory on a number of political fronts currently but it could still prove to be the case that we have escaped the EU in a timely manner!
Customer, Customer, Customer! The importance of a consumer focused approach to Asset Management by Sadie Malim
Real estate is one of the oldest asset classes known to mankind …… pretty obvious when you think about it, after all even Fred and Wilma needed somewhere to live. Cave drawings have been found that suggest rudimentary forms of currency were exchanged in return for shelter as early as 30,000 BC. Homo erectus then left the caves and tribal way of life and formed agrarian societies, whereupon defensible property rights were developed and the trade-off of occupancy for a fee paid to the “owner” of the property was established more widely. Fast forward to the present day and the landlord-tenant relationship remains widely accepted across most areas of commercial and residential real estate. However, at Moorfield we have long been of the view that there are some enduring industry dinosaurs that have time-travelled along with this fundamental relationship – creatures of habit that need to be chased into extinction:
Principally, your tenants are your customers is the key mantra that must be adopted. We have seen first-hand the difference brought to an asset when it is managed in a way that proactively focuses on customer experience – from the visual aesthetic of the approach to a building (inside and out), to the level of concierge services, community events and amenities on offer. It can breathe life into both an asset and its immediate area and gives the landlord multiple opportunities to communicate and engage with its customers. Retailers and hoteliers have long understood the importance of the psychological factors which generate loyalty, cooperation and ultimately maximise revenues – and in a world which is demanding greater flexibility, the rest of the real estate world needs to catch up.
So what does this require? A shift in deeply ingrained attitudes principally across what is meant by branding, amenities, design and customer service. Let’s look at each of these briefly in turn:
Branding – branding is not just a logo and some engaging visuals. In my opinion, the term “brand” in our sector refers to the identity of the asset; the life and soul which needs to permeate every level of its design, operation and customer interaction consistently and which itself informs the bricks and mortar stage of a development or refurbishment. It’s easy to see how well known brands such as Nike, Apple and Facebook all display their brand as a lifestyle, reflected in their corporate ethos and values as well as their marketing campaigns. The Instagram generation are looking for lifestyle inspiration that reflects their values and preferences, not just products with pretty packaging. But what does this mean for real estate?
We want our customers to identify with our brands and relate to the spaces and identities we create, and we want to make it as hard as possible for them to leave by providing relevant and value-add services that will assist them with their important task of enjoying their own lives (residential) or talent retention (offices) – all communicated through channels which resonate with them.
The second element is the movement towards communal living/working. It will not have escaped the attention of most in our industry that there is an increasing focus on the BTR, micro-living and co-working sectors and much discussion has ensued regarding the mix of amenities and services these developments provide and the trade-off against personal demised space. This has been a tried and tested approach for decades in the hotel space – I remember first visiting the, then desperately trendy, Hudson hotel in New York in the early noughties where my microscopic sized room was compensated for by fabulous communal spaces and amenities and design-led rooms which invoked aspiration despite their diminutive square footage.
Office space is also moving in this direction, with increased hot desking and an emphasis on collaborative endeavour. In our multi-let offices, whilst we remain a step away from the co-working spaces, we recognise the importance of amenities such as on site showers, gyms, café areas, lockers and lounges/shared spaces that are vital in appealing to modern occupiers, as well as being key to enabling us to offer our additional services. It’s hard to use on-site events to create a sense of community if you don’t have the space available or if the space you have is uninspiring and inflexible!
Moving to the third element – the importance of occupational design (rather than architecture). At Moorfield, we are design-led in our approach to our assets because we think aesthetics are what inform most people’s initial perception of a space – in a world where people are becoming increasingly discerning in this respect. Housebuilders and hoteliers have understood the importance of this for years and we are simply extending this principle into our rental homes, student accommodation and traditional assets.
Last but not least, there are the service levels. Of course, it is essential that there is a system in place to respond to maintenance issues swiftly and automated notification systems that have been adopted by the likes of Amazon and Ocado (and almost every app driven service provider) will become mainstream and expected. However, we also offer concierge style services across most of our office buildings and across our BTR and student accommodation in recognition of the pressures on people’s time. Getting the right service and events tone is essential – too little and you lose the opportunity to create a community and to drive additional revenue streams, too much and you overwhelm your customer base who will then “switch off” from engagement.
We live in a consumer world that has seen considerable changes in behavioural patterns over the past two decades – from the rise of the online shopper, the advent of social media and a re-evaluation of life/work balances by the millennial generation. I think that embracing all of these changes and trying to prioritise quality of life experience is key to remaining ahead of the game in real estate investment. Our occupiers are our customers and that is how we should treat them.
Moorfield Audley Real Estate Fund raises additional £85m
The Moorfield Audley Real Estate Fund (MAREF) has successfully raised a further £85 million from existing investors to take the total raised to £285m.
Moorfield Group, the UK real estate private equity fund manager, created MAREF to acquire Audley, the leading UK retirement village developer and operator, in December 2015.
Audley, one of the UK’s fastest growing companies, is the UK’s market leading luxury retirement village provider and is ramping up for a period of significant and sustained growth. This latest fund raising round creates a total war chest of over £700m to be invested over the next five years, drawn from a combination of equity, development income and investment debt.
To date, the fund has attracted institutional investors from the US and continental Europe, and this new funding will support the acquisition and development of new Audley Villages in key locations, as well as sites for its new mid-market proposition, Mayfield Villages. Investors have been attracted to Audley’s vision of creating a best-in-class product, differentiated from its competitors in many ways and not least by its innovative business model, with Audley both developing and operating the villages.
As well as the 15 villages that sit under the Audley Villages brand, which when completed will provide at least 2,000 units nationwide, 500 units are currently planned at future Mayfield Village sites.
Marc Gilbard, Moorfield Group CEO, said: “Over the nine years we have worked with Audley we have seen that a strong management team, premium design and ambitious growth plans have led to the business being a significant success story. The retirement living sector has become one of the biggest growth areas in UK real estate. We decided to raise the additional capital from our present investors in the fund and we are very pleased to have reached our target.
“The new capital will give Audley the opportunity to acquire new sites, develop existing sites and allow the expansion of the business. We continue to expect to see a strong return for our investors as Audley capitalises on the clear demand for quality living options for the older generation in the UK.”
Nick Sanderson, Audley CEO said: “This latest round of fundraising further underlines what we at Audley and Moorfield have known for some time; retirement living in the UK is a growth market, principally as a result of the significant shortage of retirement housing and growing demand is now vastly outstripping supply. Market penetration is less than 1% in the UK, compared with 17% in the USA, and 13% in Australia and New Zealand.
“This new investment will allow us to explore new sites for both the Audley and Mayfield brands, delivering the products and services that our customers demand. We are a profitable business with a robust balance sheet. Our vision is to continue transforming the market by providing choice and high quality housing, and investment such as this will allow us to maintain our heritage of innovation and realise this vision.”
Audley’s brands serve two distinct audiences. Audley Villages is the luxury retirement brand, delivering a first class experience and award winning design to owners. Typically, heritage properties are adapted to incorporate existing features from the original buildings, bringing them back to life by turning them into modern, high specification houses, apartments and communal spaces, akin to a boutique hotel. Owners also benefit from access to luxurious Audley Club facilities which include a restaurant, bar/bistro, library, a health and wellbeing centre and swimming pool. All owners can also take advantage of the highest quality care in their own home.
Responding to customer demand, Audley last year launched Mayfield Villages, a mid-market proposition for which the first location will be announced shortly. The premise behind Mayfield is to offer the same level of service as Audley Villages, with high living standards and excellent care, but at a lower price point. These will be larger villages, typically in urban/suburban environments.
Audley was ranked 73rd in the 2016 Sunday Times Virgin Fast Track 100 league table of the UK’s fastest growing private companies by sales growth over the past three years, and CEO Nick Sanderson was 8th in the 2016 Health Investor Power Fifty Most Influential Leaders’ Awards. He was also handed the inaugural Pathfinder Award for innovation in healthcare at the same ceremony.
A post UK Election commentary by Moorfield – an update from Chief Executive, Marc Gilbard
Personality and Popularity: Very few believed that Jeremy Corbyn could win a popularity contest (against almost anyone) but effectively that’s exactly what he did against the ‘Maybot’. Only a few months ago it seemed that the election of Corbyn as the head of the Labour party (principally as a result of support from Union members) may herald the beginning of an era where the Labour party became unelectable, however, Corbyn and his team expertly played the election game, tapping into the British dislike for complacency and arrogance and using social media channels to win an almost cult-like status amongst the younger generation. Clearly May was badly advised, absent at the wrong times, unwilling to properly engage, arrogant and overly confident in her popularity and in her approach – and the Conservative manifesto was very badly conceived and presented. The opinion polls about May’s popularity misled her and all her advisors. Corbyn on the other hand, the victim of an aggressive and vitriolic press campaign from several major newspapers, fulfilled the role the British people love to get behind – the underdog, whilst also tapping into the widespread feeling that austerity needs to come to an end. In giving the public a “personality” and a “cause” to support, he was able to leverage off the social media and alternative media channels and emerge looking like a hero. He is also, of course, a seasoned campaigner with resilience, endurance and a thick skin as his stock-in-trade! Corbyn won the popularity contest last Thursday – but has he peaked?
Young voters: 18 – 25 year olds (+) are very concerned for themselves and their futures! They do not like the thought of leaving University in debt (as a result of university tuition fees that Labour promised in its manifesto to remove) and they do not like the thought of struggling to get on the housing ladder. They also believe that Brexit will result in fewer available jobs and long term economic damage. The thought of a hard Brexit alongside ongoing austerity fills them with dread – so in the idealist world in which many of them reside, and having never seen the impact of a socialist government, they decided they wanted change and Corbyn was alone in offering it. The Conservative party will need to very carefully consider how they address this demographic in the future.
Manifesto: This is where the problems for the Conservatives really began. Hard Brexit, dementia tax, school lunches, pension raids, rising tuition fees, ongoing austerity, further cuts in public services … and so on. Hardly an inspiring and positive message for voters to get behind. It was ‘same old/same old’ in many respects in this post-GFC austerity focused UK and much of the electorate have had enough of this approach. The Labour manifesto was as ridiculous as the Conservative was uninspiring, but at least it was filled with feel good promises. The policies contained therein were tantamount to bribery and certainly there was no proper explanation of where the c. £100bn of expenditure was going to be sourced, other than from the ‘broad shoulders’ of the wealthy! Nonetheless, this old school socialist approach won the hearts and minds of many as the battle became, in part, austerity vs expenditure.
Brexit: Both the Conservative and Labour parties are committed to Brexit – that means 84% of the popular vote is effectively represented, albeit the maths is not that simple. Most people accept that Brexit will happen – the Liberal Democrats and the SNP who are very vocal opponents of Brexit both lost votes and seats. However, the issue is more about hard vs soft Brexit and I must say I have been growing increasingly uneasy about the hard Brexit approach the more I learn of what that might mean. Perhaps the fact that the Conservative Government are in a minority now and must form strategic alliances with those in favour of a soft Brexit will mean a more cross-party approach to Brexit and stand the UK in a better position to agree with the EU a mutually beneficial departure programme and package. Perhaps, without intending it, the voting public have just made an acceptable Brexit to all parties more likely.
Scotland: The Conservatives increased their number of seats in Scotland from 1 to 13 through a relentless campaign opposing any repeat referendum on splitting the UK. This electoral gain has helped to halt in its tracks the Scottish National party’s push for a second independence referendum and has, therefore, created a more stable outlook for Scotland and the United Kingdom. But I suspect that it is too important for the SNP to drop and so we can expect to hear a lot more about it – especially post Brexit when the terms are known. However, it feels as if the Union is stronger now than pre-election.
General Election and Conservative Party Leadership: I can’t imagine there is anyone in the Conservative party who would want to face another General Election in the near term, far too high risk. However, if it proves they simply can’t manage the Country even with the support of the DUP then perhaps there will have to be one. My guess is that the Conservatives feel Corbyn will remain in situ and in a position of strength until once again he says or does something to cause a fall from grace and, alongside lessons learnt, they will stand a much better chance to gain back the majority at that time than they do now. The leadership of the Conservative party is another matter. I believe May will stay as PM for a few more months to allow the dust to settle and then she will resign due to the loss of her credibility – leaving the way clear for someone like David Davies or Boris Johnson. The only issue that troubles me on this reasoning is that May has been elected by 42% of the popular vote and so actually has at least earnt the right to the keys of No 10 – which is more than you can say for anyone else.
The future certainly contains more unknowns now than before the election, however if it results in a faster more acceptable Brexit then perhaps it will all have been worthwhile. Moorfield stands by its existing investment strategy.
A post UK Election commentary by Moorfield
- Hung Parliament
- Conservatives stay as minority government (albeit with 43% of the national vote) but need Democratic Unionist Party of Northern Ireland to get a majority in the House of Commons
- Conservative Leadership election possible
- Another General Election in the near future possible
- Very much a two party system again – at least for now
- Brexit continues but will be from a position perceived as weakened
- Softer Brexit more likely
- SNP sent a sharp message in Scotland
- Austerity and public spending become the focus.
- Don’t be complacent about the younger voters!
Democracy has once again delivered a shock to the political system! Certainly aided by the employment of social media and those who use it (i.e. principally the younger voters) alongside one very effective and one shockingly ineffective campaign strategy. But what were the public voting on – not so much about Brexit I suggest (although a softer Brexit would appear preferred by the majority) but more about austerity and spending on public services and especially from the 18 -25 year olds. Had it been principally about Brexit, the Liberal Democrats (who were strongly opposed to Brexit) would have picked up many more votes, but instead the Country focused on only the two main parties, at least outside of Scotland. In Scotland, SNP were given a sharp reminder that their seemingly singular focus on independence and a second referendum was not being well received and this is going to cause a great deal of confusion for them as they have little else to differentiate their platform.
I am going to work on the basis that our observations on the outcome of the General Election will need to come in at least two parts: (i) our initial reaction (below) and then, (ii) a more informed commentary as the dust settles and the ‘experts’ forensically analyse the result and its likely impact.
So back to basics and what we have learned from the General Election results so far, other than the Conservatives had a disastrous campaign and Labour, in opposition and without expecting victory, could promise the world through throwing money at every perceived problem without justifying properly where it was coming from. As I say above, it would appear that the principal differentiator between the Parties was about matters that are not directly Brexit related, although it is hard to completely ignore the tide of opinion over the hard and soft options. Both the Conservatives and Labour agree that the British public want to exit the EU and so this is what must be achieved with as little damage as possible. There is an argument that says a deal with the EU is more rather than less likely now as the weaker position of the Conservatives will mean a softer approach to the EU, but contrary to this is the argument that the UK are now in a weakened position.
Certainly, if the Conservatives have any sense at all, their response to the Election result will be to go back to the drawing board and amend their policies on austerity and public spending as well as seeking cross-party support for Brexit related matters. They should also address the demographics and realise the young seem not to like the Conservative approach to life generally.
Our Brexit related views:
Over the past few months, we have described what we believe to be the short, medium and long term perspective of Brexit. What is it that we have been saying and then how have our views changed as a result of the Election outcome? I set this out below:
Let’s start with the medium term: it is our opinion that the UK will remain a safe haven for international investment capital for all the reasons we are familiar with. We also believe that the UK and the EU will need to reach an appropriate compromise on their relationship going forward, because we believe they effectively have to at some point – for the economic and social health of all involved (and many that are not yet) and a softer rather than harder exit now appears more likely! Negotiations will take time, may well include transitional agreements and time extensions and will, no doubt, involve plenty of intermediate venom and vitriol magnified by the salivating media. However, the end result will likely be pros and cons for both sides of the divide but, we suspect, not materially worse going forward than at present once the dust has settled. Wilful blindness on our part?……Perhaps, but hindsight will have to be our judge on this.
We also believe that a UK unfettered by the ‘unelected eurocrats’ and free from imposed EU restrictions will be able to negotiate trade deals with economies that are faster growing than the EU – such as China, India, Canada, the US and more. The Election result has not materially changed our opinion on this medium term outlook beyond what I have said above, other than an expenditure policy versus the current austerity measures might see GDP growth benefit (at the cost of increased tax and debt).
In the short term: it is our opinion that the UK negotiations with the EU and the reporting on it will cause concern, confusion and disruption. Not a comfortable environment for anyone, but one in which opportunity lies for investment funds such as ours that like short term weakness as long as it translates into a means to create medium (and longer) term value. The Election result has magnified this perspective and does not take away from the investment themes we are currently pursuing.
In the longer term: it is our opinion that the UK may be better off out of the EU (and the Executive Committee of Moorfield all originally voted to remain!) for reasons that are much more about the EU and the Eurozone than they are about the UK or its reliance or role in the EU. We have no crystal ball of course and we are talking about the unpredictable world of politics rather than the world we more readily understand of business, real estate and finance – however, we can’t immediately see how the mechanics of the EU and eurozone can continue without some major changes.
We are told by the politicians that the answer to the broken experiment that is the eurozone lies in federalisation (i.e. greater monetary and fiscal union). But the voting public across the EU would appear to be pushing hard for greater nation-state independence. So how does that work? Have I not just described opposing forces? We think that the bullet of a Le Pen victory has been dodged for the EU project but it’s a story far from over. Le Pen victory would have likely resulted in a disastrous event for the EU as an ‘in-out’ referendum similar to the one in the UK would have been called for (as it would have been if Wilders had triumphed in the Netherlands – and perhaps still will be if Grillo succeeds in Italy in September) and the result of the referendum(s) would be by no means predictable. President Macron and others seem to have recognised the need for change in the EU structure – but what change, what resultant impact and at what cost….short, medium and long term. The UK Election result does not change our opinion.
Am I being too pessimistic about the EU and the Eurozone? Well, it is worth remembering that Europe, despite some recent GDP growth, has clearly not yet properly recovered from the effects from the GFC. Low growth, high unemployment and unrecognised losses are still present across the continent. This week’s rescue of Banco Popular by Santander (bought for 1 euro and requiring 7 billion euros of fresh investment) and the re-emergence of debt issues in Greece (where the IMF and Germany are again in disagreement about the right way forward) are a helpful reminder of the risks in continental Europe and the issues facing the eurozone.
The Brits may be relentlessly snatching defeat from the jaws of victory on a number of political fronts but it could still prove to be the case that we have escaped the EU just in time!
Finally on UK real estate investment, post the Election, we will hold the line on the view that Brexit related disruption and caution in the short term will see many investors nervous of the UK. However, this is an opportunity as long as you believe the medium term is a more settled environment. We also continue to believe that investing in discounted assets with short term income will enable value-add returns to be achieved if those investments can be actively managed into assets with longer term stabilised income, which is also true of select development projects that show the same stabilised income characteristics.
Moorfield Logistics Partnership acquires two logistics units in Huddersfield for £25.9m
Moorfield Logistics Partnership (MLP), on behalf of Moorfield Real Estate Fund III and Moorfield Group, the UK real estate private equity fund manager, has acquired two modern and institutional quality logistics units in Huddersfield, West Yorkshire from Aviva Investors.
The acquisitions are the second investment into MLP, following the purchase of a £30 million logistics portfolio in the Midlands and North of England from M&G Real Estate in October 2016.
Unit one is 385,498 sq ft with good eaves height, a service yard and car parking provision and is let to Instore Ltd, which operates 340 stores across the UK including Poundstretcher and Ponden Mill.
Unit two is a 47,556 sq ft steel portal frame warehouse with good eaves height, a service yard and car parking provision and is let to the Council Borough of Kirklees.
Charles Ferguson-Davie, Moorfield Group CIO said: “We established the Moorfield Logistics Partnership to create a portfolio of industrial and logistics units that meet current occupier requirements.
“Both of these assets are of institutional quality with good covenants and are in line with our strategy to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset.
“It has been well documented that there is a national shortage of good quality industrial and logistics units. Strong demand from occupiers for assets in the right locations and the undersupply mean that we see the potential for further rental growth in the sector.”
Moorfield completes acquisition of high quality office building at Cobalt Business Park, Newcastle
Moorfield has purchased Cobalt 23 on the Cobalt Business Park in Newcastle in partnership with Highbridge. The 128,500 sq ft vacant high quality office building was bought out of receivership.
The building has the largest floorplates on Cobalt Business Park and could be occupied on a single-let basis or sub-divided for multi-let occupancy.
Cobalt Business Park is the largest business park in the UK and the premier office park in the north east. It is currently 90 per cent let and comprises a number of blue-chip occupiers, including Accenture, Hewlett Packard, P&G, IBM, Siemens and Santander. The park was developed as an Enterprise Zone and almost all the other office buildings on the site are fully let.
Charles Ferguson-Davie, Moorfield Group CIO said: “We saw this as a good opportunity to purchase a modern office building on the premier business park in the North East in conjunction with the developer of the Park, which is due to benefit from new infrastructure investment. We will together with Highbridge invest in the building and re-launch it to the market as either a single let HQ or for multi-let occupancy.
“There is very little good quality available office supply and we believe that we can offer a very attractive proposition to corporate occupiers requiring high quality space in a well-connected location.”
The Newcastle office market has seen improvement in recent years and the vacancy rate is low; helped by positive net absorption, limited new development and conversions of office buildings to alternative uses. Rents are growing and with a lack of development pipeline the fundamentals are set to remain robust.
Cobalt Business Park is set to benefit from substantial infrastructure investment including c.£75m of road improvements, including the new triple-decker roundabout being added to the A19 and the recent installation of a 25 mile dark fibre network connecting Cobalt business park to Newcastle city centre and improving the park’s connectivity. There is also the potential introduction of a Metro station on the park, which has received in principle funding approval.
Guy Marsden, of Highbridge Properties Plc said: “Cobalt 23 is an office that provides the best of both worlds. It is a significant energy efficient, environmentally sustainable office building which has the flexibility to be sub-let in floors .
Cobalt Business Park is located five minutes from the A1, 10 minutes from Newcastle city centre and 20 minutes from Newcastle International Airport. Both the city centre and the airport can be accessed by the Metro and the park offers a regular shuttle to the nearest station.
The agents for the building are BNP Paribas and Bray Fox Smith.
Moorfield Group invests in IPSX
The International Property Securities Exchange (“IPSX”), which will be the first regulated exchange dedicated to the admission and trading of securities in commercial real estate assets (CRE), today announces that Moorfield Group (“Moorfield”) has invested in the current IPSX funding round. The terms of its investment are not disclosed.
Moorfield is a leading UK specialist private equity real estate fund manager and has been investing in UK real estate on behalf of global institutions for over 20 years. Moorfield invests in single assets, portfolios and real estate based operational businesses and has invested in over £3.4bn of assets across almost every real estate sector, including logistics, office, retail, PRS, senior living and student accommodation.
The commitment from Moorfield follows prior investments from a number of leading players in the CRE industry, including British Land, four of the Partners in Tritax Group, and M7 Real Estate, all of whom were attracted by the alternative investment model offered by the IPSX platform.
Commenting on the announcement, Anthony Gahan, Chairman of IPSX, said: “As we move towards launch, our dialogue with the wider real estate industry and associated ecosystem continues to discover strong demand for a new class of commercial real estate securities with regulated trading platform that will provide greater transparency, liquidity and attractive yields to investors. As a leading UK private equity real estate fund manager with a track record of pioneering innovation and emerging sectors, we are extremely proud that Moorfield has joined our other investors in their support for IPSX and as a further demonstration of the appetite from the industry for innovation in CRE investment.”
Marc Gilbard, CEO of Moorfield added: “I am a keen supporter of the IPSX proposition and feel that the creation of a liquid flexible market for the realisation, investment and trading of a range of real estate assets is long overdue. In broadening the access to an asset class which is only currently available directly to institutional, professional or high net worth investors, IPSX will also provide significant benefits to many other real estate investors. Of course it will also provide some much needed real time valuation evidence. I would encourage all professional investors to support the growth and launch of this platform.”
Moorfield completes acquisition of £50m Manchester MediaCityUK Build to Rent scheme
- Moorfield and Glenbrook will develop a 270 unit scheme at Erie Basin, adjacent to MediaCityUK in Salford Quays –
- Planning permission recently granted for 270 homes –
Work on the last undeveloped site overlooking Erie Basin in Salford Quays is set to start following the partners’ acquisition of the site from Peel and the granting of planning permission. The Build to Rent (BTR) development will create 270 new homes, residents’ gardens, amenity space and car parking.
Moorfield and Glenbrook will work together on the development, with construction due to begin this summer. Moorfield will fund the scheme and retain ownership when it is completed.
The site is located adjacent to MediaCityUK in the heart of Salford Quays with waterside views and the cultural, entertainment and leisure offer of an internationally recognised destination.
The development is the third BTR scheme undertaken between Moorfield and Glenbrook, following the 240-apartment development of The Keel at Queen’s Dock, Liverpool and the 232-apartment scheme now known as Trilogy in Castlefield, Manchester. It will be Moorfield’s fourth BTR development, after work recently began on the 280-apartment Forth Banks site in Newcastle.
When completed it will be a 220,000 sq ft 16-storey scheme, designed by award winning architects Shepherd Robson, consisting of 270 one, two and three-bedroom residential apartments with gardens, amenity space and car parking.
Charles Ferguson-Davie, Moorfield Group CIO said: “Moorfield has been a pioneer of the Build to Rent sector and we are pleased to be adding Erie Basin to our platform. With this new project, which is next to the vibrant and growing MediaCityUK, we are aiming to deliver another landmark BTR scheme, focusing on design and professional concierge style services to create an attractive place to live.
“The BTR sector is in its infancy and we are proud to be at the forefront of it as we have been with other sectors such as student accommodation and retirement living. BTR will form a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes and so help deliver much needed housing supply across the country.
“Moorfield is committed to BTR, which is underpinned by a structural lack of supply and strong demand, and we are progressing with a pipeline of exciting opportunities with an aim to build a c.2,000 unit platform.”
Ian Sherry, director at Glenbrook, commented: “This latest deal further demonstrates our confidence in the built to rent sector in the regions. Our ability to identify suitable sites for purpose built build to rent and then deliver viable schemes has enabled us to develop a long term relationship with Moorfield. We have achieved consent on over 1,000 apartments in the past three years and we continue to look for further opportunities across the UK.
“Erie Basin meets all the criteria when identifying suitable sites for Build to Rent. Visually, the building design is very impressive helped by its prominent dock side position. But what sets Erie Basin apart is its position next to MediaCityUK, which will provide residents with a quality address in a premium location and with excellent transport links to the wider North West.”
Graham Construction has been appointed as the main contractor. The scheme is due to complete in summer 2019.
Extracts from Charlie Ferguson-Davie’s CIO letter to Investors
What a year! Looking back now at the major events of 2016 it is staggering how much happened and how sentiment in the real estate market has swung from one extreme to another. In January last year concerns about the Chinese economy, large declines in equity markets and a $27 oil price led to a focus on the threat of deflation. The 10 year US Treasury yield hit an all-time low in July and negative yielding bonds became common place in the Eurozone. The UK had to deal with the threat and then reality of Brexit which damaged confidence and transaction volumes and led to dramatic REIT share price falls and the closure of open-ended funds. Sterling has also fallen some 15% but with Trump’s election the expectation of higher growth and inflation has seen a surge in the dollar and a rotation from bonds into equities, driving very strong stock market performance.
Whilst transaction volumes in UK real estate in 2016 were down c.30% on 2015, the year will still be in line with long run averages and there is plenty of capital looking to invest. Particularly now that the UK economy has shown resilience to the referendum vote (so far!). The majority of this capital is looking for long income of a minimum of 10 years, where the yield arbitrage over bonds is still healthy and the currency falls make the in-price seem more attractive to overseas buyers than pre-referendum. There are still very few shorter income transactions occurring and the less an investment looks like a bond and carries occupational risk, the more pricing has moved. However with very few forced sellers now that the open-ended funds have reopened there is limited transaction activity for the valuers to use as comparable evidence. REIT shares have been trading at c.20% discounts to NAV, with the stock market pricing in expected falls in values, particularly for the London focused companies.
I still like to examine the reasons for the bullish vs. bearish views on the market: (i) real estate offers an attractive yield relative to bonds and pension funds from around the world are searching for yield and increasing allocations to real estate; particularly now that bond yields are rising and inflation is expected to erode bond values. There has been limited development other than in London and in many markets there is a supply / demand imbalance and leverage is considered less of a risk today than in 2006/7/8. On the other hand; (ii) inflation will lead to an increase in base rates and the real estate yield gap risks being eroded, Brexit will damage London offices where there is the risk of oversupply in 2018-2019 and occupational demand will be weak for some time because of the uncertainty of Brexit. I think that if we take account of both sides of the argument we can position ourselves to exploit the current dynamic.
Brexit volatility and uncertainty in particular is an opportunity (assuming you believe, as we do, that in the medium to long term the UK will be able to forge its own path successfully outside the EU). Now, more than before, we can feed the demand for long income and pay less for shorter income assets with our value-add approach and asset management skill-set. In the meantime we will be looking to avoid the City of London and the majority of the office sector (unless as part of a Mixed Use or Infrastructure-led opportunity) and we remain unconvinced by the retail sector, which is oversupplied and continues to be affected by the growth in internet retailing. Instead, by focussing on demographics and structural/societal changes we can take advantage of some early stage sectors that are systemically undersupplied (eg Build to Rent (BTR), Student Accommodation, Senior Living, Logistics) as part of our “Beds and Sheds” strategy.
Extracts from Marc Gilbard’s CEO letter to Investors
2016 was a challenging year for investors throughout the world. Not only were there the usual economic, political and social/demographic obstacles to navigate, but additionally there were the seismic shocks of the mid-year UK Brexit vote followed by the year-end US election of Donald Trump. Of course, many other events of significance occurred around the world over this period, but from a macro-perspective not many of them would currently be classified as potential changers of the ‘world order’. This does not mean I am overlooking the significance of events in the Far-East, South America or the huge threat posed by Islamic State extremists and the rise of the far-right (populist-right) in Europe but, without the benefit of hindsight as yet, Brexit and Trump would seem to be the stand-out 2016 events to beat!
Taking those two premier events in chronological order, and without feeling the need to set out the details (considering the extent of coverage already given to this), I thought I would express my perspective following on from the conversations I have had around the world with business people, economists, politicians and commentators. There is no intention to be politically biased in my comments but simply to share my interpretation and set out how this may impact on our investment strategy.
I think it would be fair to say that prior to the ‘In/Out’ EU referendum outcome, many in the business community (and especially those in and around London) would have said that their heads and hearts were in two different places. Head says ‘In’ because who wants the disruption and resultant volatility of stepping into the unknown – we all had a taste of that in the global financial crisis. But heart says ‘Out’ because although we believe we understand the benefits of being part of the EU, it is not a good experience to be dictated to by unelected ‘eurocrats’ who seemingly waste vast sums of capital whilst flexing their undemocratic muscles at inappropriate times. In addition to this, many people in the UK and increasing numbers in the EU see the Eurozone as a failed experiment and the EU as now potentially broken in its current form, so why be part of it? Admittedly, if change is to take place then better to be sat at the negotiating table than peering in through the window, but at what cost?
Post the Brexit vote I was surprised by how relaxed many ‘In’ voters were at the ‘Out’ outcome. The familiar heads and hearts conversation often arose and so the actual disappointment was often understandably muted. Economic and political confusion was overruled by the positive attitude of making the most of the situation whatever was coming down the road, accepting that some changes would be for the better and some would likely be for the worse. Volatility and disruption led to opportunity if a positive stance was taken. Many business leaders were still the same as those in place at the time of the global financial crisis and had learnt to crisis manage whilst recognising opportunity through adversity.
I doubt there is anyone who could honestly say that they had predicted the positive (even bullish) market conditions that have been experienced since the Brexit vote. Perhaps this is the lack of clarity as to what an EU exit actually means for the UK or perhaps it is because of the belief that the UK will be better off as independent, especially considering the EU and Eurozone issues that must be faced in the near and longer term. Or, maybe it is because many believe that there is not much that will change in the UK/EU relationship once all the political posturing is over. Whatever the reason, very little changed in market momentum post June, other than a brief stall, and it can’t simply be put down to the immediate actions taken by the Bank of England, a collapse in sterling and a ‘stiff upper lip’! We should remember that there is also a natural economic cycle taking place alongside all these political events with a momentum of its own, even if it is accelerated or delayed by extraordinary events. As we all know, there are many component parts to an economic cycle, for example; inflation, interest rates, employment growth, consumer expenditure, house prices, business and government investment, oil price and more…. and even without the impact of our sentiment over Brexit (or Trump) all of these components come together in the ordinary course to create the cycle – and let’s not forget that none of us know as yet what the QE programme will eventually result in!
Despite the prolonged debate, that is still far from over, it is currently hard for anyone to see a way through to the other side of Brexit, as the fight over what would be considered a ‘hard’ or ‘soft’ version continues and this gives rise to whether the mandate given to the Government by the result of the referendum was ‘exit at any cost’. The current expectation is more weighted towards an extension of time being agreed for the Brexit timetable and a harder version (if that is appropriate terminology), however, this is ultimately a huge negotiation taking place and obviously no one will show their true colours for some while to come.
Well that’s a sub-heading I never thought I would type in the real world! Having said that, after the Brexit vote outcome we began to believe it was actually a possibility and whilst on a visit to the US (pre-election) we warned to expect the unexpected after our own UK experience and the rise of the populist movements elsewhere in the world. And so it came to pass. But once again the markets shrugged this off and in fact found the pro-business, pro-growth, anti-regulation Mr/President Trump a rather appealing prospect (at least to date) despite his colourful rhetoric. It’s not my job here to comment more widely on the US economy or political machinations other than to say that an economically strong US and one prepared to be a close ally of the UK is a very good thing for the UK in many respects, especially economically and in the upcoming confrontation with EU-27. The outspoken US President may well say what others silently believe – that the UK is probably better off out than in and actually the EU/Eurozone has many problems ahead that it will need to tackle efficiently and effectively in order to survive in its current form.
Brexit, President Trump, EU/Eurozone – UK real estate strategy
So what has changed as a result of Brexit, President Trump or a rising tide of concern over the EU/Eurozone once again? I think the answer is ‘it’s the economy stupid’. What we are trying to do is look through the politics and media spin to the economics underneath. Yes, the two are intrinsically linked, but let’s not get caught up in the noise and fake news coming from campaigners and journalists. Instead, let’s consider the impact that each of the economic factors that we are predicting actually has on the real estate cycle. It seems to me that, despite Brexit related acceleration in some areas and delays in others, the economy continues moving forward with most, if not all, the pros and cons that it would otherwise have had. We watch and predict; GDP growth for general economic health and sentiment, inflation to judge likely interest rate movements – and this sits together with employment and wage growth (and house prices) to judge consumers’ confidence and likely expenditure. We also watch business, government and foreign direct investment to gauge confidence and commitment to our economy – and additionally to educate ourselves as to likely areas for value enhancing impact. In other words, other than some yield weakness in short term income (reflecting increased concerns over occupier demand), not a lot has changed in our outlook for UK real estate since the start of 2016, although we are further into the cycle which therefore requires greater caution in the form of risk assessment. I still firmly believe there are investment opportunities that will meet our investment return thresholds despite our greater caution.
Newcastle’s first £37m Build to Rent scheme starts
Work on Newcastle’s first build to rent (BTR) development is set to start following a joint venture which will create 280 new homes in the city centre.
Worthington Properties, Moorfield Group and Panacea Property Development will work together to develop the £37 million Forth Banks site, with construction due to begin this month. Moorfield Real Estate Fund III (MREFIII) will fund the scheme and retain ownership when the development is completed.
The Forth Banks site is located near to Newcastle’s Central Station, adjacent to the Stephenson Quarter. The development, which will have views of the River Tyne, is to be built on a former brownfield site and is an area that Newcastle City Council has targeted for regeneration.
The development will be built by the Marcus Worthington Group’s construction arm, Worthington Construction and when completed will see 280 one to three-bedroom residential apartments in three blocks between seven and nine storeys high. It will also comprise a 3,000 sq ft (279 sq m) retail unit located on the ground floor.
The is the second joint venture the Marcus Worthington Group, Panacea Property Development and Moorfield Group have worked in partnership on, the first being an £18 million student development in Sheffield, which is now owned by MREFIII and operated by Fresh Student Living.
Russ Worthington, director of Worthington Properties said: “The Worthington Group has always been involved in ground-breaking schemes and the delivery of this project in Newcastle is something we’re very pleased to be involved in.
“It will be a key residential project in the city and one that is going to bring back into use a brownfield site and contribute to Newcastle’s ongoing renaissance, as well as creating jobs and providing a boost to the economy. Newcastle is a vibrant, growing city with several initiatives dedicated to regeneration, which we’re proud to be contributing to through the Forth Banks development.”
Charles Ferguson Davie, Moorfield Group CIO added: “Moorfield has been a pioneer of the new BTR sector through The Keel in Liverpool, which was one of the first schemes to open, and The Trilogy in Manchester which is under construction. With this new project in Newcastle we are aiming to deliver another landmark BTR scheme, focusing on design and service to create an attractive housing option in the city centre.
“The BTR sector is in its infancy and we are proud to be at the forefront of it. The sector forms a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes and so help deliver much needed housing supply across the country.
“Moorfield is committed to BTR as a sector, which is underpinned by a structural lack of supply and stron demand, and we are progressing with a pipeline of exciting opportunities with an aim to build a c. 2,000 unit platform. We have a track record of pioneering emerging real estate sectors such as student accommodation, budget hotels, luxury hostels and retirement villages and we think that BTR has enormous potential.”
Neil Patten, managing director at Panacea Property Development, said: “The Forth Banks scheme represents a strong commitment from Newcastle City Council to demonstrate support for BTR. We look forward to working with our joint venture partners to transform this previously underutilised brownfield site into a high quality residential scheme that can assist in the regeneration of other areas.”
The UK Housing Crisis by Charles Ferguson-Davie
There has been, and continues to be, a great deal of commentary on the subject of the housing crisis in the UK and a recent report from the CBI on the subject contains some helpful perspectives and recommendations. This is a topic of great interest to me, and to Moorfield, and I recently participated on a panel in the Property Week Retirement Living conference where we discussed some of the most pertinent issues.
A lot has been written about the need to focus on increasing housing supply rather than just stimulating demand and we would support that approach. The first time buyer market receives the greatest attention and most government support is aimed at increasing demand / providing finance to help people step up onto the first rung of the housing ladder. However, we think that more can be done to encourage an increase in the supply of housing and more development is required of all types and tenures of housing.
The CBI highlighted two areas of specific interest: (i) that the importance of the role of the Private Rented Sector (PRS) needs to be recognised and (ii) that the Government should give greater consideration to improving the attractiveness of specialist retirement homes to both developers and potential residents, through for example SDLT exemptions.
There is a great deal of investor interest in the PRS sector, principally through large scale, professionally managed, Build to Rent (BTR) communities, and this should be encouraged through government support as part of creating more housing supply. There are many who prefer to rent and increasing the supply of high quality product will give greater choice and help keep rents and house prices under check because of greater choice. At Moorfield, we are focused on this growth sector of the real estate market. We also support the idea, through our own investment and development programme, that the establishment of attractive senior housing will encourage downsizing and so free up family homes, and therefore this also will be part of the solution to unlocking the logjam on the housing ladder.
Moorfield has been a pioneer of the student accommodation sector through its Domain business which was sold in 2007 and is now using and evolving that experience to develop a BTR portfolio. The Keel in Liverpool www.thekeel-liverpool.co.uk which opened a year ago and is fully occupied, is one of the first BTR schemes delivered in the UK and we also have a pipeline of new developments, which will deliver over 1,000 homes. We also recently raised a £200m specialist fund to acquire and grow Audley www.audleyretirement.co.uk which is one of the leading retirement village developers and operators in the UK, and has c.1,500 homes being developed.
However, we are just scratching the surface, as we are a long way behind other countries in our provision of BTR and senior living and therefore we need to continue to make it easier for capital to invest and develop the homes that are needed, with further efficiencies in the planning system alongside a non-penal tax environment being critical. We do of course need to ensure that developers create the homes that customers desire and that all schemes are professionally and carefully managed.
Innovation is also required in the construction industry to help meet the demand for housing. The Farmer Review of the UK Construction Labour Model highlights the opportunity presented by BTR, where the scale of development could underpin investment in innovative ways of building and the development of new skills across the industry.
If Government and the private sector work together I believe that we can produce the step-change in delivery and mind-set that is required.
Renters have doubled in number over the last 15 years but renting only makes up 18% of housing in the UK vs. 32% in the US and 49% in Germany. In the US, ‘multifamily’ is a mainstream asset class with over $100bn of transactions last year but in the UK the institutions/commercial property investors only own 2% of the c.£800bn PRS market and a professionally managed BTR market doesn’t yet really exist.
The over 65s are expected to increase in number from 10m in 2012 to 17m by 2037 and the over 60s own c.£1.3trillion of mainly un-mortgaged housing with downsizing increasingly popular. However, only 1% of over 60 year olds live in specialist retirement accommodation vs. 17% in the US and 13% in Australia and New Zealand.
Sources: IPF, ONS, Demos, DCLG
Moorfield acquires £30m Logistics Portfolio
- First acquisition for newly created Moorfield Logistics Partnership –
New entity Moorfield Logistics Partnership (MLP), on behalf of Moorfield Real Estate Fund III and Moorfield Group, the UK real estate private equity fund manager, has acquired a £30 million logistics portfolio in the Midlands and North of England from M&G Real Estate.
The portfolio is made up of three assets (four individual units) in Rushden, Warrington and Deeside. Rushden comprises of two warehouses totalling 239,644 sq ft and is let to the multinational clothing corporation, Urban Outfitters; Warrington is a 94,234 sq ft warehouse let to the retailer, Next Group Plc; and Deeside is a 162,116 sq ft warehouse let to the paper and packaging manufacturer, Mayr-Melnhof Packaging UK Ltd.
This is Moorfield’s first venture back into the logistics sector following the success of Logistics Property Partnership, a 50% joint venture with SEGRO, which was sold in July 2014.
Charles Ferguson Davie, Chief Investment Officer, Moorfield Group, said:
“This acquisition is a seed portfolio for the Moorfield Logistics Partnership. We have established the new entity to target industrial and logistics units with lot sizes of up to £15 million and with short to medium term lease lengths. The ambition is to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset.
It has been well documented that there is a national shortage of good quality industrial and logistics units. Strong demand from occupiers for assets in the right locations and the undersupply mean that we see the potential for further rental growth in the sector.”
Moorfield to fund £40m Manchester Build to Rent scheme
- Moorfield committed to further BTR development pipeline
- Second BTR development with Glenbrook
- First BTR scheme, Liverpool’s The Keel, now fully occupied
Moorfield, the UK real estate private equity fund manager, has announced an agreement with Glenbrook, the property development company, to fund the £40 million development of a new Build to Rent (BTR) scheme at Ellesmere Street in Manchester City Centre.
This will be Moorfield and Glenbrook’s second development together, following the £30 million transformation of The Keel in Liverpool, the former HMRC building on Queen’s Dock, into 240 stunning waterside rental apartments. The Keel is now fully occupied.
The 232-unit scheme was granted planning consent by Manchester City Council in April and will offer over 200,000 sq ft of residential and ancillary accommodation across three buildings, ranging between eight and 12-storeys. Construction will commence on site at the end of July with completion scheduled for summer 2018.
Charles Ferguson Davie, Chief Investment Officer, Moorfield, said:
“Moorfield has pioneered the development of Build to Rent with The Keel, which is among the first of its kind in the country and has become one of the most desirable locations in which to live in Liverpool. With this new project in Manchester we are aiming to deliver another landmark BTR scheme, focusing on design and service to create an attractive housing option in Manchester.
“The Build to Rent sector is in its infancy and we are proud to be at the forefront of it. The sector forms a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes across the country and so help deliver much needed housing supply.
“Brexit has created much uncertainty, particularly for real estate investors and developers in the UK, but Moorfield is committed to the BTR sector and has a pipeline of exciting
opportunities with an aim to build a 2,000 unit platform. We have a track record of pioneering emerging real estate sectors such as student accommodation, budget hotels and retirement villages and we think that BTR has enormous potential.
“With the great success of full occupancy at The Keel in Liverpool validating our vision, we aim to develop and build a portfolio of consumer focussed, design-led, desirable modern rental homes for professionals, families and retirees alike and create new, professionally managed communities for City Centre living.”
The Keel in Liverpool is a new luxury development offering a range of studio, one, two and three bedroom apartments, complete with a residents’ only gym and waterside terrace. Surrounding a central quay and overlooking the River Mersey, the apartments enjoy an abundance of natural light, with waterside views, providing a luxury lifestyle in the city’s most inspirational location.
As the city’s first Build to Rent scheme, The Keel offers a new approach to private renting in the Liverpool market as the entire development is owned and managed by a single entity, rather than by many different private landlords. Tenants benefit from professional on-site property management and a 24-hour customer help service, meaning quality and management, both short and long term, can be controlled and enhanced. Services such as personal training in the onsite gym, laundry services and apartment cleaning are provided upon request through the Keel Concierge.
Brexit – A week later by Marc Gilbard
As it is now a week after the momentous decision taken by the UK to vote to leave the EU (17.4m/52% vs 16.1m/48%) I felt it appropriate to once again make some observations that I hope you will find of value:
- The UK stock market has not (yet) reacted as negatively as was initially feared and neither has the value of sterling. The most severe impact has been seen in the UK sensitive FTSE 250 and the decision to remove the UK’s AAA rating, but to date the FTSE 100 has shrugged off the result and there has been no sharp rise in the risk premium on UK assets.
- Pessimism and optimism with regards inflation, interest rates, real incomes, job security, further monetary easing (hence sterling and gilt levels) and UK competitiveness continues to be heavily debated. I can’t see how this will not remain the case well into the foreseeable future until the relationship with the EU and the rest of the world becomes more obvious.
- By Friday 9th September the Conservative Party will have chosen its new leader, giving the new Prime Minister some 3 weeks to reshape his/her administration ahead of the Conservative Party conference and the return of Parliament. Surprisingly, Boris Johnson (the favourite) has ruled himself out, so now it is Theresa May who becomes the one to beat. Other contenders include; Michael Gove, Liam Fox, Stephen Crabb, and Andrea Leadsom. It is worth noting that Theresa May was a Remain supporter, albeit a quiet one.
- The Labour Party leader, Jeremy Corbyn, has placed the Party in an extraordinary position as he continues to refuse to stand down despite an almost complete collapse in support from his fellow MPs (and 20 members of his Shadow Cabinet), being generally seen as ineffectual and never a PM in waiting. The UK actually needs a strong opposition party over the coming years so we can only hope that Corbyn and his close partner in his defence, John McDonnell (Shadow Chancellor), accept the damage they are doing and go quietly and quickly. Rumour has it that Corbyn wants to resign but McDonnell will not let him – citing the overwhelming support he received from Labour Party members only a few months ago. The latest twist is that Angela Eagle (a former Shadow minister) seemingly found the support to launch a challenge for the Labour leadership but then decided not to proceed.
- I believe that the Chancellor will wait for the new PM to be selected and will then look to step down from his current position. Whether he will be given a different Cabinet position is as yet unclear. However, I believe the Autumn Statement will be given by a new Chancellor (who that may be is also unclear) and it will be more bespoke to the current political and likely economic environment than the existing, needing to be more stimulus biased. A new economic strategy will emerge.
- In my opinion it is most likely that Article 50 will be invoked sometime between the Conservative Party conference and the year end. Pressure from Brussels to act sooner will fall on deaf ears! I would also not be at all surprised if behind the scenes there is an ongoing attempt to tackle to the more emotive issues raised by the UK voters and inherently felt throughout Europe – Immigration (free movement of people) and laws (the challenge to our sovereign rights). This is where the independence momentum is most likely to go viral.
- Currently EU officials are saying that the UK has to have left the EU after invoking Article 50 before it can negotiate the trade terms with the EU – this would mean that any trade between the UK and EU would be based on current World Trade Organisation rules until a new deal is completed. So the UK has ahead the exit negotiation and then a new trading relationship to negotiate. But rules are there to be broken!
- There is a perfectly reasoned argument that says a new PM and Chancellor might call for a General Election once they understand better the relationship most likely to be negotiated with the EU. Especially if the Labour Party is still weakened by intra-party disputes and unrest. This could even be seen as a second referendum if it was pitched as such!
- But before those UK/EU relationship conversations become any more transparent, Europe will need to see who leads France and Germany. France has its presidential election in April/May 2017 (with the current Socialist Party and Hollande unlikely to be re-elected) followed by the German federal elections in September 2017 (with Merkel – CDU – likely to remain in place, but the coalition she leads is not so certain).
- So, a new administration in Paris and then Berlin prior to any likely resolution of relationship parameters or terms. Well into the 2 year period and hence my suspicion that an extension may be considered necessary at some point.
- I am not sure that we can look to Norway, Switzerland or Canada for exactly what will emerge. My belief is that it will be a mixture of all those and also some new. I am also inclined to think that with the benefit of hindsight the UK may even reach the conclusion that leaving was the in the Nation’s best interests – especially if the rest of Europe is dealing with other calls for Independence alongside the inevitable flaws in the Eurozone continuing to be so apparent.
- What of Scotland? If I was in Nicola Sturgeon’s position I would do what she is doing and say what she is saying: (i) She has a duty and mandate to look again at independence from the UK (ii) Scotland may not ever need to leave the EU even if the rest of the UK does (iii) Scotland has the economic strength to go it alone and can decide what currency to employ at a later date. However, my view is that the only really smart tactical way forward is to simply say (amongst a lot of peripheral noise) that she will await the outcome of the renegotiations between the UK and EU and then let the people of Scotland decide what they want, if it is appropriate at that time. Otherwise her risks are principally that: (i) the EU does not let Scotland stay or join (ii) the UK does not allow Scotland to use Sterling or have the Bank of England as lender of last resort and all financial support stops without an EU back-up plan (iii) Scottish people recognise that Scotland is not capable of financial independence and has to do an embarrassing climb down – by which time the rest of the UK will be very tired of the threats and Scotland runs the risk of a reversal of the referendum vote ie do the UK still want Scotland (unlikely but fun to speculate!).
Moorfield Real estate Investment Strategy:
- We have looked at every exiting investment and every new opportunity and amended the business plan for each. Our already conservative approach to gearing will continue.
- We will be progressing with some of the new opportunities but with different prices and structures.
- Our economic outlook has become less positive and hence we are materially more cautious.
- We intend to be patient with our un-invested capital and look for stressed vendors.
- Our focus remains on Alternative real estate sectors but we will be looking to Traditional real estate sectors again if the discount to pre-Brexit pricing is sufficient to reflect both Brexit and the maturity of the economic and real estate cycle.
Moorfield’s response to Brexit
Three points to set the scene:
Firstly, and most importantly when unexpected events occur, there should be no rush into making decisions that do not need to be urgently made. Further, let’s be aware of those responding to sentiment swings as an immediate reaction to a surprise such as this Brexit vote, as their decisions are unlikely to be based on well informed and considered judgement and we all need time to listen, watch, consult and contemplate. Having said that, some of us had prepared, at least to some extent, for this potential outcome so hopefully that reduces or eliminates any need for any immediacy on their/our part.
Secondly, the UK has just taken a step into the unknown so there is no one (at all) who is able to guide us as to what ‘will’ happen now. Instead it is about listening to those who have an informed opinion and impartial perspective on what is ‘likely’ to happen – and then formulating a view of your own on which your decisions will need to be made.
Thirdly, from a Moorfield platform perspective, we are in strong financial health (best ever at present) and we are UK specialists without pan-European exposure – see below for further comment as to why I believe this is relevant and positive. We have: (i) realised the entirety of MREF and MREFII so all asset and financial risks have been eliminated; (ii) ensured MAREF has secure equity and debt finance in place and a pool of un-invested capital, and; (iii) we have only invested c.50% of MREFIII so this has material cash resources and will be able to take advantage (when appropriate) of real estate market opportunities. Additionally, our current focus in MREFIII (and of course MAREF) is on the Alternative real estate asset classes and, in my opinion, these are likely to be the most stable from both an economic and demographic perspective over the next few years.
The UK public has voted to leave the EU by a c. 52:48 ratio on a c.72% turn-out.
The UK Prime Minister, David Cameron, has resigned effective from the Conservative Party Conference in October 2016. We don’t yet know what will happen with the Chancellor George Osborne.
It is predicted that on resignation and newly elected PM, Article 50 of the Lisbon Treaty (2009) will be invoked and this will begin the process of a two year period of negotiated exit (this period can be extended by unanimous consent). It has also been suggested that there may be 12-18 months of preliminary discussion prior to Article 50 being invoked to pave the way for a more orderly departure. So 2019/20 for UK exit.
It is unlikely that an ‘EU-lite’ relationship results (i.e. Norway) due to the strong resistance to free movement of people and EU budget participation. Instead it is likely to a more complex one based on a ‘free trade treaty’ such as that between the EU and Canada. But at least Canada has set some parameters to help guide us!
Scotland voted 62% remain and 38% leave and so will now be considering/preparing another independence referendum (predicted within 2 years). Currently the general opinion is that the independence camp will win. One of the many issues to be addressed by the First Minister of Scotland (Nicola Sturgeon) will be the economic viability of independence as since the last referendum vote the oil price volatility has reminded everyone of Scotland’s financial fragility and hence reliance on Westminster (i.e. UK parliament). There is also the likelihood and/or appeal of membership to the EU – and of course all those other ‘pros and cons’ from last time that have not gone away.
Northern Ireland through Sinn Fein have already started talking of reunification with the Republic of Ireland.
Whether positive of negative for the UK in the medium/long term there will be short term uncertainty and volatility in most areas of the economy and this is not good for any of the markets. Sterling is likely to be very weak and there will no doubt be talk of a recession. Sterling weakness leading to a potential pick-up in export led inflation will be unlikely to lead to interest rate rises whilst the BoE is considering how to tackle concerns over economic growth, employment and consumer confidence. Perhaps an interest rate cut is more likely? Of course, lower growth projections are already flooding in.
Moorfield views and its intentions:
David Cameron will hand over to a new Prime Minister at the Conservative Party conference in October 2016. This will likely be his final act as UK PM with his interim role principally being to stabilise markets and manage political manoeuvring and division within the Conservative party. In the Labour party there will also be significant unrest and likely leadership challenges. Both David Cameron and Mark Carney (alongside the leave campaign leaders) will have to find credible and comforting words about the strength of the UK economy, together with ongoing banking liquidity and stability, as there is little more that they can do in the short term. Those who predicted disorder and economic unrest resulting from a Brexit (i.e. Bremain camp) will now have the job of ensuring that this does not happen – in part working to disprove their own thesis.
Unquestionably difficult and unpredictable times ahead and I intend to write again when the dust has settled. For now I would say that limited action is the best way forward for Moorfield as we have a well-funded GP and cash resource in both our active funds (MAREF & MREFIII). We have not invested any material capital in 2016 but do have a number of investment opportunities sitting with Brexit clauses – which we will now revisit. I don’t believe a lot of buying opportunities will result in the short term but I do think that some interesting opportunities will arise in 2017 onwards. Moorfield also remains predominantly focused on Alternative real estate investment opportunities where the demographics are more value and income protective through the economic cycle.
In the past I have expressed my concerns over the future political, economic/fiscal and cultural structure of Europe and hence the risk of investing there (and especially in the Eurozone) and although we regularly revisit our strategy we have always decided to stay UK focused. I believe there is now more reason than ever for this to be the case and here are a few of the reasons:
The Eurozone is a failed experiment and everyone knows it – so how is it going to be corrected?
Europe currently has more political and economic division than at any time since WWII, in my opinion – and it is not close to being resolved.
Polls suggest (if you chose to take any notice of them) that other EU countries would also vote for independence given the chance – so what does the future hold in this regard? Could independence from the EU go viral?
What does all this mean for the euro? It would not be the first time that smart people make good asset investment decisions but make the wrong currency call.
Despite the current events, in the medium term the UK is economically sound, politically stable and has its own central bank and currency. The language, time zones and law assists the highly regulated and professional sectors to make the UK a safe haven for global capital. This, in my opinion is unlikely to change. In fact, independence in a fractious and unstable Europe could prove very positive.
I think real estate capital values will fall in the short term, rents will also stop growing and asset management initiatives will prove more difficult. Income and banking terms (LTV and ICR and cure rights etc) will be very important in every real estate investment.
I am disappointed with the outcome of the referendum but I am very pleased Moorfield determined to stop investing and hold cash in case Brexit occurred, and also that our focus is UK and Alternative sectors. It does not mean we are immune to the pain on some of our Traditional investments but they are all manageable issues until markets get some clarification and direction, afterwhich I believe they will perform well.
I hope the above is of value – more from me over the next few weeks.
The EU Referendum from the Moorfield perspective
We are less than a week away from what could prove to be the most important vote in a generation – and one that will impact the lives of multiple generations. In my opinion, the consequences of this EU Referendum will directly and indirectly impact in three inextricably interwoven waves: (1) on the UK (2) on the EU (3) on the rest of the world. Perhaps I am seeing dangers lurking in the shadows where actually there prove to be none but it is currently my view that an exit of the UK from the EU will have much greater collateral impact than we can currently forecast or understand. If the UK exit encourages other nations to follow a similar path and independence goes viral we will have many years of global unrest and uncertainty ahead of us and we all know that markets hate that above all else. However, change is clearly needed in some form as Europe is certainly not stable at present, with extreme groups and parties rising in popularity due to a general dissatisfaction and refusal to accept the status quo.
Nonetheless, I have to admit that my head and my heart have been in opposition from the outset. … my heart says leave as at least then we will be the victims or victors of our own home-grown decisions, however, my head currently says stay. I believe the EU (and more especially the Eurozone) is in for a rough ride over at least the next decade, in any event. The EU has simmering economic and political instability and the Eurozone is a flawed experiment waiting to fall apart at every level. The next few years could prove a painful economic and political period for Europe and, as such, I would rather be sat at the negotiating table, as an important and influential host, than as an unwanted or uninvited guest.
Life as a member of the EU is far from perfect, just like many Scots feel about life within the UK. But the Scots made the right decision in seeing a unified UK as stronger than a proud standalone Scotland. What the Scots insisted on was a devolution of certain powers and they made it clear that another referendum on independence would come if the promises made by Westminster were not honoured. In fact, it was made clear by Scotland that if anything materially changed for the worse for the Scottish people and/or they clearly wanted another opportunity to vote about their future in the UK then that would be offered. This is the message we must take to the EU – we will vote to stay but we will need the promises honoured, and if anything unacceptable occurs to make matters for the UK worse or even if we change our minds about the value of our relationship with the EU then don’t be surprised if another vote follows. Perhaps therefore a close vote with the outcome being a Bremain will be the best result. Close enough to make the support for EU membership seem fragile and hence give the UK sufficient voice to threaten.
I am not going to talk about the individual and most emotive issues as you will have heard the arguments ad nauseam from both the camps of Brexit and Bremain. What I will do is end for now, at least until the outcome is known, by pointing out some of the issues that I believe are related but much more significant, and do keep me awake: (i) our social welfare system in the UK is no longer fit for purpose and neither is our NHS. They can’t be fixed by tinkering with short term solutions or blaming it on immigration; (ii) the pension industry is in deep trouble as fewer jobs, technological change and a growing and ageing population create a mathematical problem that is unsolvable without radical change in many areas of our society; (iii) terrorism is reflecting the growing levels of dissatisfaction across the world and is proving a career choice for the disaffected; (iv) The population of the planet is depleting and abusing more of the world’s resources than it can hope to replace and replenish. We all know this to be true! So just how many of these issues, that will have adverse material adverse global impact, will we chose to knock down the road for the future generations to solve. Perhaps the question should be – are problems such as these made easier or harder to solve by being united or independent? If the answer is united, which I believe it is, we should all work harder at staying that way rather than running home with our ball when the going gets tough.
Please find below previous comments made on this topic.
The EU Referendum:
Currently, many of our investors are rightly focused on the EU Referendum, and particularly the impact of a Brexit. It is possible to argue that this is the single most important vote that any of us have had since long before Moorfield had its first birthday! In order to share our thoughts, and establish a base from which to do so, I would like to refer back to a few comments I have previously made in my Quarterly Reports to our fund investors.
The European Union (EU) and The Eurozone: As you will be aware, the EU is made up of 28 member states that together form a ‘single market’ to oversee co-operation among its members in diverse areas, including trade, the environment, transport and employment. The Eurozone is a monetary union of 19 of the 28 EU member states which have adopted the euro (€) as their common currency and sole legal tender. I have written many times on what I believe to be the original purpose and good sense in creating the EU (intended to saves us from WWIII amongst other more social and economic based matters!) but I have also described the Eurozone as a political experiment gone wrong. This is still what I believe to be the case and Greece is a text book example of why!
David Cameron formally launched his renegotiation of the UK’s terms of membership of the EU at the EU Council meeting in Brussels recently. This had been preceded by a tour of European capitals in which he set out his thinking to other heads of Government on a one-to-one basis. His pitch at the Council was then deliberately low key. The wording of the Conservative Party manifesto states that there will be a period of renegotiation and that a referendum will take place before the end of 2017. Beyond that, this document is silent on what level of concessions Mr Cameron would need to extract for him to call the renegotiation a success. The Bill which has been submitted to the House of Commons on the matter indicates neither a date nor a set of ‘red lines’ for the renegotiation exercise. The Prime Minister’s challenge is three-fold: He needs to secure enough from the renegotiation to be able to claim that the referendum is one being conducted about a new deal with the EU; he needs to win a referendum on his recommendation that Britain remains in the EU having secured a better understanding with it and by a margin that settles the question unambiguously ( as a Scottish-style ‘neverendum’ would be a political nightmare); and thirdly, he wants the referendum to occur in a manner that does not divide the Conservative Party so deeply that it becomes impossible to manage in Parliament and electorally endangered in 2020.
The Prime Minister now seems to have narrowed his renegotiation to five areas of interest, which may yet be reduced further if he feels that any one of them are impossible to obtain concessions in. These five domains are: a dilution of the official ambition of the EU to obtain ‘ever closer union’ (or at least a British opt-out in terms of this language); an enhancement of the capacity of an ordained number of national parliaments (probably ten) to ‘red card’ the edicts of the European Parliament and send them back for reconsideration; a strengthening of the rights of non-Eurozone members of the European Union over economic policy and financial regulation by extending the so-called double majority principle that decisions in this sphere require appropriate majorities of both the Eurozone members and non-Eurozone states before they become applicable in the latter category of member; a substantial change in the length of time that migrants within the EU have to wait before they are eligible to claim benefits in another member country (that period is presently three months, the PM has publicly signaled support for a four year rule, but would almost certainly settle for half of that); and, more tentatively (because it might not be obtainable), a restoration of the opt-outs which the UK obtained from the Maastricht Treaty more than two decades ago, some of which Tony Blair waived.
Although progress in this sort of territory would fall well short of what many within the Conservative Party want from renegotiation, Mr Cameron’s calculation is that it would be enough to keep the vast majority of his colleagues in government sufficiently content. He could then afford to allow them a ‘free vote’ in the referendum contest confident that almost all of them would endorse his position rather than take the more divisive step of insisting that they resign if they wanted to oppose him. Much will turn on the attitude of Angela Merkel, but if Berlin determines that it wants/needs the UK to remain in the EU then it would not be that hard for the EU to issue a commitment to deal with the first four of the five areas outlined above and with enough force that Mr Cameron could assert that he has triumphed. His critics will retort that such a victory would be almost without consequence. Changing the mission statement of the EU does not make it a changed institution. National parliaments will not have the authority to overrule the European Parliament so the ‘red card’ is more like a quick trip to a sin bin as far as MEPs are concerned. Beefing up the double majority will be of no value if the UK finds itself in the minority among even non-Eurozone countries in a sector of vital importance. A two year wait to claim benefits will not stop EU migrants coming if they are convinced they will find employment. One suspects, however, that the final public determination about how to vote in the referendum will be less about the details of the terms than a broader sense of whether departing the EU is too risky. For the Conservative Party’s post-referendum debate, by contrast, those details really will matter.
Dare I say again that I think the Eurozone has yet to even come close to convincing many of us of its long term future following its exposure through the financial crisis? For too long we have discussed the potential for a Grexit as the potential catalyst of a break-up of the Eurozone – but I wonder could a Brexit trigger the break-up of the Eurozone, due to simply showing that the people of the UK believe that you don’t have to be part of a club to successfully survive and prosper?
Are UK and European business leaders and politicians’ over-confident of the UK staying in the EU? Could migration and terrorism (such as that in Paris) be the catalyst to the general population deciding that EU rules are unacceptable (epitomised by the immigration laws) and the UK is better standing alone? If so, as set out above, could this even become the trigger for a break-up of the Eurozone and possibly a rethink of the EU membership rules?
Will the UK Prime Minister attempt smoke and mirrors to avert an EU exit for the UK and if he does so will the voters fall for it? It is now widely accepted, even without the migration and potential terrorism issues outlined above, that reform is essential if the UK is to stay a part of the EU and so David Cameron will need to tread very carefully!
The Short term: The occupier market is fickle at the best of times, being economically, politically and financially fragile, with occupiers prone to switch off demand and sit on their hands with little more encouragement than some near term uncertainty. As such, the immediate outlook for the UK, with the Brexit referendum (and related issues hard on its heels), is unlikely to be a conducive environment for occupational decision taking. Therefore, it is possible to foresee an inactive occupier market in the UK in many areas over the next few months, including those most likely to have otherwise offered the prospective of rental growth. My opinion is that, unless something unexpectedly positive emerges from the current debates and negotiations, this halt in rental momentum might then prove hard to re-ignite in many areas, even with the UK staying in the EU.
Of course, the sentiment reflected in the occupier market is not the only threat to our broader economic performance, as the same potential for behavioural volatility is also true of investment capital generally. Although it could be argued that there is a fundamental difference between the inactivity of the occupier and that of the investor (due to the constant demands for risk weighted capital returns), investment capital is global and in the face of the current uncertainty perhaps the UKs perceived future economic growth and alluring safe haven status (normally seen as our first line of defence) will not prove enough to encourage or even retain investment capital. We only have to look at the lead up to the Scottish referendum on independence to know this to be true.
Considering the Brexit based uncertainty we face, my current opinion is that in the short term there will be some economic damage no matter what the ultimate decision, and GDP growth will slow alongside that of employment, consumer confidence and general investment. Sterling will be punished in the currency markets and the positive impact of this on exports will not result in a net benefit overall. Perhaps a positive is that I can see no reason why interest rates will rise in the near term, even if inflation gets some inappropriate momentum, and it would appear the Bank of England feels the same way.
The Medium Term: However, the reason we have materially stopped investing at the present time, is not because I am concerned with the medium term outlook whilst within the EU or the longevity of performance of our current investment themes (in or out), but simply because the opportunities may get cheaper to buy and build due to the impending Brexit vote (June 2016). I could spend many hours in the writing and produce many pages for the reading if I were to spend the time exploring each of the issues that the politicians will furiously debate in the coming weeks, such as; free movement/immigration, cross-border/trade agreements, regulation/directives, legal/enforcement….etc. but I am not going to – you will be pleased to know! What I will do instead is give you a summary of my personal view with my best guess of the outcome. This view comes from reading, listening and meeting with various organisations where I have an active participation, including; The British Property Federation, The Bank of England Forum, The British Venture Capital Association and even meeting with senior members of the Conservative Party and, most recently, Nicola Sturgeon (First Minister) of the Scottish National Party
By way of ‘book-ending’, let’s start and finish my EU commentary with the Scottish independence referendum, where some important lessons have clearly been learnt whereas others are seemingly being ignored. In the lead up to the vote on Scottish independence, the UK government and other parties from Westminster in London were far too complacent about their need for a strong message as they believed it a foregone conclusion that the Scottish electorate would vote, in the majority, to stay in the union (UK). They felt it to be a personal crusade undertaken by the then First Minister, Alex Salmond, and his argument had little substance if looked at intellectually rather than emotionally. But Alex Salmond is a great orator and was underestimated. He did not win the intellectual debate, but he played directly and effectively to the electorate with the power of the emotional perspective. Late in the campaign, when voting margins became too close to call, Westminster had to mobilise in a way it had not prepared for and to say near panic ensued would not be an exaggeration. Scotland finally voted to stay in the UK because fear of life outside of the status quo marginally moved ahead of the cleverly manipulated emotional pull – but only just! It is also worth noting that all through this debate, many companies and businesses throughout Scotland had made it clear they wanted to stay in the UK, so this did not prove to be an accurate indicator of the views of the general public. Those running companies and dictating what’s in their corporate best interests are, in fact, only few in number.
The EU in/out referendum for the UK does not have the same Scottish dynamic with regards a peoples champion (or a film like Braveheart), despite David Cameron wanting to stay in and Boris Johnson wanting to leave, but it absolutely does have the same emotional perspective when it comes to ‘us versus them’. The lesson learnt from Scotland and now being employed by both sides is not to be complacent and to ensure the message is loud and clear as early in the process as possible (Scotland had 2 years whereas EU has just 4 months). The lesson seemingly ignored by the ‘in’ campaign to date (although not by the ‘out’ campaign) is the power of simplicity and emotion – the majority of the voting public will not think in terms of the more rational and frankly complicated points of debate, but instead will vote ‘in’ principally because of their fear of the unknown, or ‘out’ principally because they are tired of being dictated to by unelected bureaucrats in Brussels and Strasburg on issues that are perceived to be substantially (and sometimes entirely) to do with UK living. So if you were to read that last sentence again you would conclude that, at least in my opinion, the majority of the UK electorate would emotionally rather be outside the EU and would vote that way if given the confidence to do so. The outcome is therefore most likely to come down (again) to the fear of the unknown outside of the EU versus the power of the basic argument for safer with the status quo. Let’s not forget that we have seen that it is not an accurate indicator that the majority of companies and businesses (or so we are told) in the UK say they want to stay in the EU.
Therefore, on the basis no one can sensibly argue for something they know nothing about (albeit politicians are very adept at this), let’s put aside the speculation of what life would be like outside the EU and just focus on actually what the majority of the voting public want to hear – the simplistic arguments focused on the benefits and disadvantages of retaining or improving what we currently have in our EU relationship. Of course, this is what Cameron has tried (and so far failed) to do and he should be working hard behind the scenes to try for more opt-outs or Sovereign controls for the UK, to appeal to those emotional issues, considering the gathering strength of the ‘out’ campaign.
So the point I am making, ahead of my in/out prediction, is that there will no doubt be a lot of time misspent with political noise, posturing and focus on all the EU policies and directives and how much better it will be without them (ie exit) or alternatively how frightening it will be without a say in them (ie an stay in), but I think the swing will be an emotional one based on perceptions and sound bites relating to our Sovereign control over issues most emotive to the general public, such as; immigration controls, UK laws, welfare only for those that have contributed and the security of our borders due to the global terrorism that is increasingly present. As with Scotland, my guess is that it will be hard fought and close but it will have little to do with the detail of the policies. Ultimately, I believe that people will vote for the status quo despite their strong emotion and preference to be independent. The fear of the unknown is just too strong.
I will not spend long in setting out some of my additional thoughts and fears for you to consider. Bluntly, I believe that if the UK exits the EU it could possibly be the beginning of the end for the EU and the (already broken) Eurozone. This is very material globally, both economically and socially, and is, in my opinion, one of the principal reasons why our European neighbours are so concerned about the UK vote and why the world outside of Europe is watching so closely. Yes the UK is a large economy and a very important trading partner in the EU, but this is not just about the UK being part of the EU but also about the ongoing purpose and cohesion of the EU in its entirety. The momentum of the exit vote must therefore be very alarming for more than just David Cameron and his UK allies – and so perhaps there may be more concessions yet to be offered to the UK from across the Channel despite the cries of denial!
I promised to end as I started, with Scotland, so a quick comment on their potential for another independence referendum. When I recently met with the First Minister of the SNP, Nicola Sturgeon, I asked her a number of questions, such as: (i) why she wanted to be independent from the UK, even with devolved powers, but still be part of Europe; (ii) if she would definitely put the independence vote back to the Scottish people if the UK left the EU; (iii) if she felt the EU would break apart if the UK voted to leave; (iv) if she felt confident that the EU would have Scotland as a member on acceptable terms and how long that negotiation with 27 other countries would take; (v) how she would finance an independent Scotland with oil at $30 per barrel when the maths had not worked at $100 per barrel; (vi) did she expect to use Sterling or the euro as a currency; (vii) did she feel she had won any sort of victory for the people of Scotland or just imperilled them as many in England and Wales now felt they would like a vote to decide if Scotland should remain part of the UK. Her response to me was – she wanted the UK to remain part of the EU….! I apologised for appearing confrontational but said I felt that investment capital in or looking at Scotland needed to know answers to these questions. I didn’t get my answers. However, I was later informed that an independent Scotland was not something the SNP felt appropriate to revisit in the near term unless the UK left the EU and then they would reconsider their position.
It is interesting for me to read again what I have written in the recent past and to realise how little there is to add despite an inordinate amount of time spent listening to the opinions of the ‘in’ and ‘out’ campaigners. As predicted, the exit arguments of both sides have been based on supposition, fear-mongering and a lack of forecasting credibility. Voters want the facts to be stated as simply as possible and without the feeling that this is as much political posturing as it is about the future economic and social environment of the people who live in the UK. I am often staggered by how widely politicians miss the mood of population because they are so focused on fighting each other!
Moorfield will continue to comment on this issue as and when we feel we have something of value to say. My prediction remains that we will ‘Bremain’, but it is interesting to canvass the opinions of my business colleagues and I suggest that the majority feel they would personally like to leave the EU although professionally/corporately they will most likely vote to remain in the EU because of the years of uncertainty and disruption that will follow. However, overwhelmingly they would vote to stay in under a renegotiated treaty and they hope this is what the final outcome will prove to be.
Buccmoor sell development site at Aberdeen Energy Park
New facility set to deliver major business expansion for Hydro Group plc
Buccleuch Property and Moorfield Group (Buccmoor LP) has announced the sale of 0.63 acres of development land at Aberdeen Energy Park to existing occupier, Hydro Group plc.
The site sale has enabled Hydro Group, which designs and manufacturers underwater cables and connectors for subsea, underwater, topside and onshore applications, to expand operations and develop a brand new 13,700 sq ft bespoke workshop, with mezzanine deck.
This will be used to install the company’s new armouring line and also provide a pressure testing area, together with additional storage. This new space is in addition to the 45,500 sq ft already occupied at the park.
This development follows on from the company’s £300,000 investment last year in the advanced armour line, which extended Hydro Group’s product capabilities, enabling the company to offer cable products to improve and support subsea operations.
Doug Whyte, Hydro Group Managing Director, said:
“The new facility and additional space was required in order to diversify and develop our business. The new facility has been a significant investment in the future of our company here at Aberdeen Energy Park and has opened up new business opportunities.
“We are now able to manufacture mechanically protected cables which can withstand higher stresses in subsea and defence operations and the extra space means that we can also offer greater capacity in size and overall lengths.
Hydro Group, an Energy Park occupier since 2008, is currently one of a very small number of companies in the UK to offer this technology.
Speaking on behalf of the parks’ owner, Moorfield Real Estate Fund III, Mark Holmes from Moorfield Group said:
“It is very encouraging to see Hydro Group diversify and expand operations here at Aberdeen Energy Park. We were pleased to be able to facilitate the sale of development land which was available adjacent to the company’s existing facility. We look forward to the business continuing to develop and prosper at the park.
“This trend of diversification into new or complimentary business activities seems to be gathering pace around Aberdeen and the North East of Scotland at the present time.”
Doug Garden, partner of Knight Frank in Aberdeen, who advised Hydro Group added:
“Having project managed the original building for Hydro Group; it was pleasing to be involved once again in assisting Hydro Group with their further growth at Aberdeen Energy Park, with the new facility set to open officially this Spring.”
As well as having sites for sale at Aberdeen Energy Park, Buccmoor is an experienced developer and can tailor bespoke packages to match occupiers’ business needs.
Moorfield raises £170m to grow Audley, the leading retirement village developer and operator
Moorfield has successfully raised a new fund (Moorfield Audley Real Estate Fund – “MAREF”) with £170m of equity to acquire Audley Court Limited – “Audley”, one of the UK’s leading retirement village developers and operators. MAREF has attracted institutional investors from the US and continental Europe and, alongside Moorfield and Audley management, will provide Audley with equity to be used to fund both the existing development programme and support the acquisition and development of new Audley retirement village sites. The investment is expected to enable Audley to double the size of its platform over the next five years.
Audley currently owns 10 villages, which when completed will provide c.1,000 units. Recent sales performance has been strong and off plan pre-sales have already delivered c.60% of the current development program meaning that Audley has now sold or exchanged on c.500 units. Audley is targeting c.2,000 units in its platform by 2020 by developing the land bank on existing villages, which already have planning consents, and from new site acquisitions.
Audley has seen a significant acceleration in its growth trajectory in recent years and based on its pipeline and forward sales is expecting this momentum to continue. Audley sells properties in magnificent settings and then provides country club style leisure facilities, including swimming pools, restaurants, beauty treatment rooms and fitness rooms and discreet on site domiciliary care on demand. Audley’s customers either choose to use the facilities on their doorstep or just enjoy their homes and independence.
Nick Sanderson, CEO, Audley said, “Moorfield and a number of its global institutional investors are recognising retirement living in the UK as a growth market, principally as a result of the significant shortage of retirement housing and because demand is now vastly outstripping supply. Market penetration is less than 1% in the UK, compared with 17% in the USA, and 13% in Australia and New Zealand(i).
Against this backdrop, Audley’s scalable, strong brand and expertise in the sector is well placed to provide the products and services that our customers demand, and this new capital injection enables us to accelerate and deliver our plans. We can now significantly increase the number retirement properties we develop and manage, supported by unrivalled facilities and care services.”
Marc Gilbard, Chief Executive Officer of Moorfield added, “Over the seven years we have worked with Audley we have witnessed first-hand the strength of the Audley offering. We are delighted with the on-going backing of our investors and together we look forward to continuing to support Audley, one of the pre-eminent developers and operators of retirement villages in the UK and therefore ideally positioned to capitalise on the compelling demographics and significant demand for quality independent living options for the older generation.”
The senior housing market in the UK benefits from attractive demographics with a projected increase in people over the age of 65 from 10 million in 2012 to 17 million by 2037(ii). This is combined with around £1.3 trillion in housing equity owned by people aged over the age of 60, of which 96% is un-mortgaged and additionally 58% of property owners over the age of 60 are interested in moving but feel restricted by stock availability(iii).
(i) Housing Learning and Improvement Council: Viewpoint on Downsizing for older people into Specialist Accommodation. Feb 2011.
(ii) ONS data
(iii) Demos: September 2013 Top of the Ladder Report
MREFIII acquires Shipping Building at The Old Vinyl Factory
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) announces the purchase of the Shipping Building at The Old Vinyl Factory estate, Hayes from U+I, the new name for Development Securities PLC and Cathedral Group
The landmark building is a seven-story multi-let office building let to seven tenants totalling 96,700 sq ft. Whilst the original structure dates back to the 1920s, the building was comprehensively refurbished in 2002 and was the former headquarters of EMI. Present tenants include SITA, SONOS and CHAMP Cargosystems (UK) Ltd. The Shipping Building forms part of The Old Vinyl Factory site and is now being extensively regenerated by U+I.
Planning permission for this mixed-use £250m scheme was granted in 2013 and is set to transform the site with 630 new homes, 750,000 sq ft of commercial and leisure space – including offices, restaurants, and retail, bringing 4,000 much needed jobs back to Hayes. The introduction of Crossrail will also benefit Hayes, allowing the town to close the gap with the West London market.
Marc Gilbard, Chief Executive Officer of Moorfield said:
“This is a really interesting opportunity as The Shipping Building is a key component of the wider 17 acre Old Vinyl Factory masterplan and only 200m from Hayes Crossrail station due for completion in 2018. Crossrail is a game changer for Hayes and to be part of West London’s most exciting regeneration project will allow us to deliver Grade A space in an increasingly under supplied market.”
Richard Upton Deputy Chief Executive of U+I said:
“Since first acquiring the site in 2011, we have taken great care to rediscover its past as well as make great plans for its future. We have paid attention to the heritage and former significance of the site, so that it can once again become a place full of life.”
Located on Blyth Road in Hayes, the site is 14 miles west of central London, 4 miles from Heathrow Airport, 1.5 miles to junction 3 of the M4 and 10 miles from junction 16 of the M25.
Hayes and Harlington Railway Station is a 5 minute walk; providing services to Reading, London Paddington and into the Heathrow Terminals. Hayes and Harlington station will be a Crossrail station (operational from 2018) providing services to Bond Street, Heathrow Terminals 1,2 & 3, Liverpool Street and Canary Wharf.
Moorfield acquires Atlantic Quay Buildings in Glasgow for £60.7m
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) and Glasgow based joint venture partner Resonance Capital, announce the purchase of Buildings 1, 2 and 3 Atlantic Quay, in Glasgow City Centre from M&G Real Estate.
The purchase is MREF III’s third major acquisition in Scotland in the last two years, following on from the purchases of Aberdeen Energy and Innovation Parks and Quartermile in Edinburgh.
Buildings 1, 2 and 3 Atlantic Quay comprise 280,000 sq ft of high quality modern office space built to a ‘Grade A’ specification. Currently producing a rent roll of £5.5m from a range of occupiers, MREF III paid £60.7m, reflecting an initial yield of 8.54%. Atlantic Quay is a unique office complex that fronts the River Clyde. It is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
Marc Gilbard, Chief Executive Officer, Moorfield, said:
“Atlantic Quay provides us with a significant City Centre office complex at the heart of Glasgow’s International Financial Services District. The modern buildings offer a range of refurbishment, improvement and re-letting opportunities that we will work on together with our joint venture partner, Resonance Capital.”
Angela Higgins of Resonance Capital said:
“We are delighted to announce that we will be moving on site in a matter of weeks. The evolution of Atlantic Quay is now underway and we aim to realise the complexes full potential as a destination waterfront location.”
Ryden and Resonance Capital advised MREF III and Savills advised M&G Real Estate.
Image shows external view of Buildings 1, 2 and 3 Atlantic Quay, Glasgow.
Moorfield completes acquisition of Derby Riverlights
Moorfield Group, the real estate private equity fund manager, has completed the acquisition of the mixed-use Riverlights scheme in Derby for £16.5 million, representing a yield of 10%. The asset has been bought out of administration.
Extending to 199,008 sq ft including four upper floors, Derby Riverlights comprises a combination of retail and leisure units ranging from 3,600 to 8,000 sq ft, alongside two hotels occupied by Holiday Inn and Hampton by Hilton, and a Genting Casino.
Built in 2010, Derby Riverlights is located on the eastern edge of Derby city centre, adjacent to the intu Derby shopping centre and Riverside Gardens, and acts as a key gateway to the city.
The property incorporates Derby’s main bus station at the rear, which transports some 12 million people to and from the city centre each year.
Robin Matthews, Moorfield Group, said: “We recognised significant potential in Derby Riverlights to deliver a first-class retail and leisure asset. Derby City Council has been extremely supportive of the acquisition and we are working closely with them to provide a complementary offering that enhances the city’s overall leisure and retail portfolio.”
Derby Riverlights is adjacent to the city’s Castleward area, which is currently undergoing a £100 million redevelopment, including delivery of 800 new homes and 34,500 sq ft of commercial space.
The area will be further enhanced through the development of a currently vacant plot to the north, which is part of the city’s masterplan.
Robin Matthews continued: “The proximity of the bus station, Riverside Gardens and the Council House already provides significant footfall and the programme of redevelopment works due to be delivered around the site will further enhance the locations appeal to top-tier leisure and retail operators.”
Home to the global headquarters of Rolls Royce, Derby is an attractive Cathedral City which benefits from its location on the edge of the Peak District National Park and proximity to urban centres such as Sheffield, Nottingham, Birmingham and Leicester.
John Forkin, Marketing Derby, said: “The retail and leisure sector is a key element in the ongoing regeneration of Derby, with over 25 million visitors and £570 million of retail spend recorded every year. Assets such as Riverlights are fundamental in ensuring that we are able to provide the very best experiences to visitors and its enhancement really could help Derby rediscover the river.
“Moorfield is exactly the type of investor we should welcome into Derby, with an exceptional track record in the delivery of mixed-use leisure and retail destinations and I am entirely confident that the future of the Riverlights development is in safe hands.”
Martin Rawson, Derby City Council Cabinet Member for Regeneration said: “We welcome this investment as a real vote of confidence from a noted investor. In the near-term, this helps protect local employment but we believe we will soon see jobs created as new lettings are made. Derby City Council will be working with Moorfield to ensure the environment around Riverlights is improved so as to better welcome people into the riverside area.”
Derby benefits from excellent transport links, with the city centre just seven miles from Junction 25 of the M1 motorway. Frequent direct train services run to London St Pancras from Derby station and East Midlands airport is 10 miles from the city.
Colliers represented the administrators during the acquisition process, with DWF and Rapleys providing legal services and investment advice to Moorfield.
Moorfield sells c. £1billion diversified investment portfolio to Lone Star
Moorfield Real Estate Fund (MREF) and Moorfield Real Estate Fund II (MREFII) have completed the sale of a diversified real estate investment portfolio to Lone Star Real Estate Fund III (LSREFIII) for c£1 billion. LSREFIII secured senior debt financing from RBC Capital Markets and Wells Fargo.
The portfolio comprises both traditional real estate investments (retail and offices) as well as alternative real estate investments (hotels, residential and student accommodation). Moorfield Group (Moorfield) will continue to have a role as asset manager, alongside Hudson Advisors, to ensure there is continuity of asset management initiatives, asset knowledge and stakeholder relationships.
MREF was raised in 2005 and MREFII was raised in 2007 with both private equity real estate funds managed by Moorfield Group.
The portfolio comprised of companies owning the following assets:
- The Salisbury – office and retail, London
- Pinnacle – office and retail, Leeds
- Towers – business park, Manchester
- Skypark – offices (& mixed use), Glasgow
- Brindleyplace (40% interest) – offices (& mixed use), Birmingham
- Velocity Village – residential (& mixed use), Sheffield
- Sovereign Reversions (50% interest) – residential equity release portfolio
- Mercure & MGalleries – hotel portfolio
- Shearings – hotel portfolio
- Domain (Queens Road) – student accommodation, Winchester
Marc Gilbard, Chief Executive Officer of Moorfield Group said:
“This is the largest transaction that Moorfield has undertaken in its corporate history and is a very effective way for MREF and MREFII to dispose of the majority of their investments.
“We are very pleased with the investment performance this will give to our investors and it allows us to focus on optimising the value of the remaining assets in these funds together with investing our recently raised MREFIII. We are also glad to be able to continue to work with Lone Star and Hudson Advisors to ensure further value is realised from the assets that they have acquired.”
The transaction has been undertaken ‘off-market’ with Doherty Baines acting on behalf of Lone Star. Herbert Smith Freehills and PWC acted for Moorfield and Allen & Overy, Pinsent Masons, Shoosmiths and PWC acted for Lone Star.