Jones, former CEO at Grosvenor Europe in Paris, and Hussey, previously Managing Director of London for Land Securities, earlier this year landed €150m in equity finance from Italy’s Exor, the owner of carmaker Fiat and of 72% of realtor Cushman & Wakefield. Together with capital from a second investor, a pension fund, the equity provides investment capacity of over €300m to start. …
“…Basically last summer, Mike and I sat down and asked ourselves two questions, one, what should be the business model and, two, what should be the in- vestment strategy given this new world. It was crucially important to get both right in a tough capital market environment,” Jones told PIE in an interview recently. At the time he had been with Grosvenor for 12 years, and Hussey with Land Securities for seven. “My background is private capital markets, investment and Europe whereas Mike has focused on be- coming a London specialist, with a notable reputation in development,” he says.
“Actually we had both been quite happy at our respective institutions but things change; we felt there was an opportunity and that our skills were complimentary. He and I started thinking along the same lines around the same time. There was no great flap.” The two decided on a strategy built around assets in London and Paris that could be improved via capital investment, enhancing values. “The way I describe it is back to real estate basics,” says Jones. “We apply our real estate skills to create and improve income. That fundamentally is it. We’re not a cycle play and we are not a capital markets play. We’re very occupier-focused. That is where you generate your income.”
The two men decided on an internally-managed company for their business model. “The crisis shone a light on important issues of alignment, transparency and governance,” he says. In the fund raising, they decided not to use placement agents, reasoning that their business model required a specific approach and they were the best people to sell it. “Given our structure, we were very clear about our capital raising strategy. A small group of sophisticated principals was what we wanted and that is what we have now… We have been very specific about our product in to directly address any concerns on alignment, transparency and governance.”
The two Almacantar founders aim to exploit the different cycles in London and Paris, and London is first up, says Jones. “From a sustainable value perspective London is ahead of the curve, whereas Paris, also a big market but with a more diversified economic dependency, tends to come into its own later on in the cycle. So Paris should give the vehicle more legs. We’re not a capital allocator; we’ll go where we think we can create most value for the incremental risk we’re taking.”…
Almacantar’s preferred size of asset in London is £75m-plus. “The ideal profile would be Central London, larger scale – probably 10,000 sq.m.-plus – and with an income profile which for whatever reason is weak and that we feel we can improve… It’s not rocket science but some people are good at it and some people aren’t.”
As for finding supply, Jones says, “There are two dynamics I’m persuaded of: one is that increasingly there are unwilling owners of assets and at some point that supply will drip into the market. People have generally been holding on and hoping. The other is that there’s going to be less capital over the next two years in the marketplace since the cycle of institutional investment was interrupted by the global economic crisis.
Take the funds segment in Europe. A lot of capital was raised in 2006 to 2007 that tends to have three-to-four-year investment periods – and remember, capital raising fell off a cliff in 2008 and 2009. So the investment period for the 2006/7 money is coming to an end and some of the pricing over the last six to nine months illustrate that some managers are looking to put money in be- fore they lose it. The upshot of so little capital raisings in 2008 and 2009 is that there will be less to invest in 2011, 2012, possibly 2013… We think the next five to 10 years is going to be about back to basics: money will be made by people who can create space, can improve space, know the occupier market. The occupier to a large extent has been forgotten by the capital markets. But at the end of the day everything is built off that so you for- get the occupier at your peril.”