31 Jan Convenience Real Estate in 2024 – an exceptional vintage year
In this Q&A, our Managing Partners, Axel Despriet and Sylvie Geuten-Carpentier outline the investment opportunities they see in the coming year and why Mitiska REIM’s third flagship fund, MEREP 3, could be an exceptional vintage…
At the end of last year, Mitiska REIM sold portfolios of retail park assets in Belgium, Portugal and Romania – what’s the current appetite of investors?
Axel: We think the success of these sales, totalling around €500 million in transaction value, clearly demonstrates that there is a strong appetite for high-quality retail park assets in Europe. Investors have now realised that not all retail is the same and we saw significant interest from a number of potential buyers during the sale process.
As part of our value-add investment process, we look for convenience real estate assets that we can buy, fix, manage and then sell, leveraging our teams on the ground and our local partner relationships to assess sites prior to acquisition, develop sound value creation plans and to fast track permitting and lease-up. For new developments, we mitigate risk by limiting exposure to zoning risk and making sure we have a potential anchor tenant in place at the outset and other tenants lined up, drawing on our extensive network of European retail brands. The sales of the Belgian, Portuguese and Romanian portfolios represented the completion of our value-add and development programs for these assets and we will continue to invest in these markets.
We’re delighted with the returns delivered to our investors as a result of the sales. The Romanian sale more than doubled the original investment over an average holding period of 5 years, and the sale of the Belgian and Portuguese assets marked the successful realization of our first fund, FRI, delivering returns to investors at the high end of expectations. Since 2012, we’ve invested more than €1.4 billion into 94 properties across 11 countries, delivering a realized gross IRR of 18% and a multiple of 2.2x from 54 property disposals.
Looking ahead, what’s your view of the market?
Sylvie: We think that the direction of the market is creating a unique opportunity for specialist value-add managers like Mitiska REIM.
Tenant demand is migrating away from shopping malls and high streets to urban infill sites with good accessibility and where the total occupancy costs are much more affordable than traditional locations – this plays to our convenience real estate investment approach. In tandem, there’s pressure on owners from rising finance costs, capex and operating expense inflation, environmental regulation, and a reduction in equity and debt available. A growing number of owners are feeling increasing pressure to sell to pay off debt or are facing debt maturities – this distress and dislocation creates a fertile hunting ground and an outstanding buying opportunity for investors like Mitiska REIM with dry powder.
We’re continuing to see more attractive pricing as owners come under pressure to sell assets, and we think market volatility will continue to create exceptional opportunities, particularly for investments that require capex and hands-on asset management, which our value-add investment approach can capitalise on.
We expect market illiquidity to favour off-market transactions over open-marketing sales processes. This also plays to our strengths – leveraging our local partner networks, 80% of our deals have historically been sourced off-market. This in turn leads to less competition and more time for us to conduct in-depth analysis of investment opportunities and value creation plans.
You’re currently fundraising for your third flagship fund, MEREP 3 – what’s your view of the timing of this fund?
Sylvie: We are very excited about the opportunity for MEREP 3 in current market conditions and are delighted with the support from investors, with fundraising thus far standing at €168 million, and 75% coming from existing LP relationships, illustrating the continued support by our loyal and recurring investor base. We are experiencing excellent traction with investors and our aim is to grow the fund’s equity to €300 million or more.
Vintage is key here and we think with MEREP 3 we have the right fund at the right time. If you look at the data on global real estate returns, vintage matters – the highest performing vintages are those that follow periods of disruption and recalibration in markets such as we are experiencing currently.
The same was true for the first fund, FRI, which we launched in the wake of the great financial crisis, which delivered returns of around 14% net IRR and a net multiple of 1.9x to investors, and we are proud of our track record in realising exits, generating ongoing cash flow and liquidity for investors and increasing substantially the distribution-to-paid-in ratio.
Axel: MEREP 3 continues our investment strategy focusing on convenience real estate in urban infill locations to meet the growing and diversifying demand for food-anchored retail parks, multi-let light industrial, self storage and urban logistics, targeting mid-teen net returns over 4-5 year business plans. We’ve concluded 4 deals so far on behalf of MEREP 3 and have around 10 currently under due diligence, representing an advanced pipeline of more than €100 million.
We believe our strong local market knowledge, specialized investment approach and proven track record in our targeted markets make Mitiska REIM well placed to harness the unique opportunity we are now seeing in convenience real estate.
Because of this, we believe MEREP 3 could be an exceptional vintage driven by the dry powder available to take advantage of the current market environment.
Past performance is no guarantee of future results. Investment in MEREP 3 is open to professional investors only. MEREP 3 is a private AIF under the Belgian 2014 AICB Law. Mitiska REIM is a licensed alternative investment fund manager under the Belgian 2014 AICB Law. Mitiska REIM acts in its capacity as fund manager (AIFM) of MEREP 3 and fund advisor of FRI and FRI 2.
Links to further reading:
- MEREP 3 Q&A
- Investment opportunities in convenience real estate
- Mitiska REIM sells 25 Romanian retail parks to LCP
- Mitiska REIM sells 10 Belgian and Portuguese retail parks to a new fund backed by Partners Group