Stephen Tross on Bouwinvest’s strategy

Bouwinvest recently entered a €300m logistics partnership with Clarion Partners and a €1bn student housing JV alongside Ivanhoé Cambridge and Greystar. In an interview with React News, CIO Stephen Tross discusses affordable housing, the attractiveness of real estate for pension funds and Bouwinvest’s ambitions in North America.

Bouwinvest Real Estate Investors manages €12.9bn of assets on behalf of pension funds across five Dutch property sector funds and three international real estate investment mandates in Europe, North America and Asia-Pacific.

The firm’s recent activity includes a €300m partnership with Clarion Partners Europe to invest in core-plus, value-add and build-to-core logistics across Europe; the opening of an office in New York in a bid to reach $2bn in AuM in North America by the end of 2022 (from $1.65bn currently) and the launch of a €1bn student housing venture in Paris, alongside Ivanhoé Cambridge and Greystar.

The company also recently appointed Mark Siezen from CBRE in the newly created role of chief client officer, with responsibility for investor services and the growth of institutional client capital, saying it was transitioning from a product-focused organisation to a client-centric organisation.

How has Covid-19 changed the residential market, one of your big focus areas? Has it opened up opportunities?

A while back, we anticipated that the market for luxury housing would become oversaturated and affordability would become an issue in various cities around the world. The Covid-19 crisis has accelerated this trend. Bouwinvest has prioritised affordable and workforce housing in our home market, the Netherlands, and in our international investment markets in Europe, North America and Asia-Pacific, which has proven to be a successful strategy. During the pandemic, the investment performance of affordable homes in our portfolio has been shown to be lower on the risk curve, with almost no vacancies.

You have been very active in the logistics sector as well, both in Europe and Asia. Why is logistics a good investment right now?

In fact, we have been active in the logistics sector in all our regions, in Europe, North America and Asia-Pacific, from big-box, modern logistics facilities near gateway cities and transport hubs, to smaller last-mile logistics closer to city centres. The long-term fundamentals for the logistics sector are compelling. The market is underpinned by strong urbanisation trends and robust growth in e-commerce. Covid-19 has accelerated the development of these trends and the logistics sector has benefited.

How has pension funds’ perception of real estate — and allocation to the asset class — changed? How do you see it evolve in the future?

We believe real estate will continue to be a relatively stable factor in a multi-asset portfolio, certainly in the case of quality properties with a low-risk profile, which institutional investors usually target as core holdings. We’ve seen that cash flows have remained stable for most sectors and anticipate the greatest impact on investment returns from the Covid-19 crisis will come from a decline in the capital value of real estate. This makes real estate an attractive asset class for pension funds.

Does real estate still offer attractive returns relative to other asset classes? What specific type of real estate investments should pension funds favour?

More and more institutional investors are coming to appreciate the positive attributes of core real estate, including its relatively low risk, long-term stable returns and function as an inflation hedge, as well as the vital social impact role investment in bricks-and-mortar plays in our urban landscapes.

Exposure to the development of this core product in good locations can enhance the return a bit more. In creating sustainable, lively and vibrant places, where people want to live, work and play, financial returns are combined with societal returns. Something Bouwinvest is particularly focused on.

Are you working on new funds? Have you made any changes to your fund strategy?

We manage €12.9 bn in assets within five Dutch property sector funds and three international real estate investment mandates in Europe, North America and Asia-Pacific, which cover the vast majority of investment options and therefore Bouwinvest is not working on creating new funds. We invest through crises and have based our fund strategies on projected economic and long-term market megatrends and also on creating social impact. So we have not significantly altered our funds’ strategies.

What are you planning on behalf of your European property mandate? Will you reach your €1.7bn target by 2022?

Our focus in the last few years has already been on sectors that are well-positioned in today’s market: residential and logistics predominantly. That hasn’t changed. We do take a cautious and defensive approach and are picky on the types of assets, or projects, we invest in, proactively taking into account the changing needs of tenants within these sectors. The aim is to grow to around €1.7 bn in coming years and we are well on track for that goal. The geographical focus is mainly western and northern Europe and we have less of an appetite currently for investments in the UK.

You announced the opening of a NYC office last month. How are things progressing?

Everything is progressing very well. We opened our New York satellite office in September to boost our real estate investments in North American markets to a target $2 billion. Bert van den Hoek, senior portfolio manager at Bouwinvest, is heading up the office to focus on expanding our market network and deal sourcing. We expect New York will function in a similar way to our Sydney representative office for Asia-Pacific markets, which has been in operation for the last one and a half years. Having a local presence has had a noticeably beneficial impact on deal sourcing and monitoring of our investments with reduced travel options due to Covid-19.

The Q&A was first published on ReactNews: https://reactnews.com/article/qa-bouwinvest-on-affordable-resi-its-lack-of-appetite-for-uk-and-its-us-ambitions/