The following article was written by Michelle Perry and published in Europroperty on 17th May 2019. The source article can be found here.
Changing consumer trends, a shortage of urban warehouses and the growing attraction of logistics as an asset class have positioned Valor Real Estate Partners for strong growth in the coming years.
With a focus on small and medium-sized logistics and industrial properties for so-called last-mile delivery, Valor managing partner Christian Jamison, his two investment partners and his team of 20 professionals have been busy scouting for off-market deals across Europe, particularly London and Paris, which the company believes have the biggest potential for rental growth.
The pipeline is pretty active. Jamison tells EuroProperty that the firm has just closed three deals in London and three in Paris. He is due to exchange on another deal in London with completion planned for later this year, and has a property under offer in Lyon. Jamison has also got his eye on a few sheds in Germany, where the big five cities – Berlin, Hamburg, Munich, Cologne and Frankfurt – are also the firm’s focus.
But more than 80% of Valor’s purchases have been in London and Paris and that will continue, Jamison says. The firm’s primary markets are the UK, Germany, France, Benelux, Italy and Spain. Across Europe, Valor is also looking at submarkets as well as capital cities.
Valor invests on behalf of AIG Global Real Estate, managing two funds – one UK-focused and the other focused on the Continent. It also manages a fund for a US investor, not publicly disclosed.
Its strategy of investing in urban infill markets is one familiar to Jamison’s investment partners Jeffrey Kelter and Robert Savage, who applied a similar approach in their previous firm, KTR Capital Partners, a US private equity real estate investment company.
The attractiveness of the strategy, Jamison says, is that it provides downside protection when economic conditions change because the land is valuable but also offers the potential to earn ‘outsized returns’ in favourable conditions. At KTR, Kelter and Savage delivered a positive return on the fund despite it launching just before the global financial crisis, Jamison says: ‘Their last two funds generated very strong returns, well in excess of target.’
Deals are financed through a combination of equity from investors as well as some bank debt. Given the small size of the deals Valor often groups several assets together before refinancing them. Looking to future growth, however, Jamison says the firm may consider other ways to minimise the equity drag by using subscription lines or working capital facilities.
In recent years industrial land has come under increased focus with the value of urban sites now at a premium due to their growing scarcity. In the UK, local authorities have faced pressure to use industrial land for residential to tackle the chronic housing shortage, while global sporting events such as the London Olympics in 2012 and the Paris Olympics due in 2024 will take yet more industrial land out of the equation.
This tricky balancing act for local authorities, however, is pushing up the value of city warehouses.
‘There’s a lack of urban warehouses for the last-mile delivery. You’ve got demand increasing whilst supply is falling. That’s the dynamic that creates rental growth,’ says Jamison. ‘This is what we’re targeting. But it’s not easy. You’ve got to be out finding those opportunities with a dedicated team.’