On the surface it might seem an unusual time to enter private equity real estate. Fundraising for the asset class has steadily declined from a peak of $149 billion in 2015 to just $93 billion last year, according to Private Equity International’s sister title PERE.
But the headline figures tell only half the story. In real estate, as in private equity, capital is consolidating in the hands of established managers with the ability to invest it at scale. The PERE 50, a ranking of the largest private equity real estate fund managers by capital raised over a five-year period, showed the top 50 firms amassed a record $333 billion between 2013 and April 2018. Demand is particularly robust for products targeting the higher-risk, higher-return end of the spectrum, insiders say.
Enter BC Partners, the 26th-largest private equity firm according to the PEI 300, which this week made its first real estate hire and will look to capitalise on that demand.
Unlike Bain Capital, which moved into real estate in December by hiring Harvard Management Company’s entire 22-person team, BC has chosen the organic route. Stéphane Theuriau – previously chief executive at Paris-based real estate developer and fund manager Altarea Cogedim – will build its team.
Theuriau is clearly a respected dealmaker in France (potentially telling as Brexit approaches) and launched Morgan Stanley’s real estate investing business there in 1998, but his most recent experience of managing co-mingled private equity real estate funds is limited to the €600 million 2011-vintage AltaFund.
So where will BC Partners look for guidance as it breaks into a new asset class?
It might start with its own experiences in the credit market. The nascent team – which it started by hiring Ted Goldthorpe, former president of Apollo Investment Corporation, in February 2017 – was “close to amassing” $700 million in its initial round of debt fundraising through $500 million of separately managed accounts and a $200 million co-mingled fund as of August.
But the shift from private equity to private credit is arguably simpler than the one into real estate. Of the 30 largest private equity firms in the world, 19 have established distinct credit arms while only 12 have RE teams.
A more useful blueprint might be European private equity powerhouse EQT, whose real estate unit started life in 2015 with the hire of three people from Wainbridge and Greenhill. Last year, the firm closed its debut co-mingled fund on €420 million with “strong backing” from EQT’s well-resourced parent – Investor AB – as well as its own partners.
BC Partners does not have a giant Swedish family office to act as a cornerstone but would certainly have willing co-investors among its LPs ready to back interesting transactions on a deal-by-deal basis: something which would play to Theuriau’s recent experience.
It will be a few years before BC’s real estate offering is up and running but with investors increasingly happy to entrust their capital to multi-strategy brands, don’t bet against it.
Write to the author: alex.l@peimedia.com
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