Clarion acquires majority stake in Gramercy Europe – Exclusive

Clarion Partners has expanded into the European real estate market with the purchase of a majority interest in Gramercy Europe, PERE has learned.

The New York-based real estate investment manager will add Gramercy Europe’s 13-strong team to its platform, which now encompasses 300 professionals and more than $50 billion of assets under management.

Clarion has an office in London for capital-raising purposes but previously had not invested in Europe, having focused primarily on the US, and, to a lesser extent, Mexico and Brazil. Gramercy Europe, which is focused on pan-European investments in the logistics sector, will be rebranded Clarion Gramercy and maintain its offices in London, Berlin and Barcelona.

“We had been discussing internally a variety of avenues of growth for Clarion,” David Gilbert, Clarion’s chief executive and chief investment officer, told PERE. “One way for us was to expand the success of our logistics platform in the US. One method of doing that was to find a management group so that we could leverage their expertise in Europe.”’

Clarion began its search for a platform to acquire in October and met with a relatively short list of managers in Europe. “Gramercy distinguished themselves early on,” Gilbert said. “We chose Gramercy because of the success of their management team, track record and aspirations for growth.”

The firm approached Gramercy just a few weeks after the latter completed its management buyout from Blackstone, which took its parent company, real estate investment trust Gramercy Property Trust, private last year.

“The transaction with Clarion was totally independent” of the Blackstone deal, said Alistair Calvert, CEO of Gramercy Europe, who founded ThreadGreen Partners in 2006 and subsequently sold 100 percent of the business to Gramercy Property Trust in 2014. “As it happens, over the last six months, we’ve been contacted by a number of interested parties.”

Having just completed a management buyout, Calvert said he originally had no interest in relinquishing control of the business again. However, “a number of things stuck out with the Clarion transaction,” he said. “I continue to have a substantial management stake, so we still have that very entrepreneurial part of the culture, but we get the benefit of Clarion’s track record, scale and infrastructure… Clarion, from a capital raising standpoint, has a platform we could never replicate.”

Gramercy Europe launched its latest fund, Gramercy Property Europe IV, in October and held a first close in December. The platform is expected to hold a final close of at least €400 million for the vehicle in May.

Gramercy Europe will remain focused on the fourth fund until it is fully invested. But while the business has raised and invested capital through closed-ended structures to date, ”I suspect we will shift our focus more onto perpetual life vehicles and also products that will be differentiated to that,” Calvert said.

That focus will mirror that of Clarion’s US industrial platform, which currently manages a $16 billion, 700-property portfolio and has invested the bulk of its capital through open-ended funds. The growth of the firm’s US industrial business – whose AUM has tripled over the past seven years – has been fueled by both the rise of e-commerce and the fact most institutional investors are underweight in their allocations to industrial real estate.

“A lot of investors have asked if we could expand outside of the US, so it was a highly logical expansion for us,” Gilbert said.

“Over time, I expect Gramercy’s growth will emulate some of Clarion’s in that we have diverse products for clients, including open-ended and closed-ended funds and separate accounts.”

The firm’s dedicated industrial vehicle, Clarion Lion Industrial Trust, generated a one-year return of 13.22 percent, three-year return of 14.45 percent and five-year return of 14.72 percent, as of December 31, 2017, according to a May 2018 real assets portfolio review from Chicago Teachers’ Pension Fund. By comparison, the NFI-ODCE index produced returns of 6.66 percent, 9.42 percent and 10.52 percent, respectively, over the same time periods.