Let’s call it glocal
PATRIZIA has undergone continual change over the last 30 years and has continued to develop its strategy. “We entered the market to become the global provider of real estate investments in Europe,” explains PATRIZIA COO Klaus Schmitt. In an interview with estatements magazine, Schmitt talks about what the future will bring, next steps and why the term ‘glocal’ is such a good description for PATRIZIA.
estatements: Mr Schmitt, ‘Big, bigger, PATRIZIA’ – is that the new rally cry?
Klaus Schmitt: Certainly not! It’s just that the property industry has under-gone sweeping change over the past decade. For a long time, business was fragmented and if anything, quite regional – or at least it was anything but national. The market now belongs to those who get bigger, establish a broader base and expand. The recent acquisitions of Sparinvest, TRIUVA and Rockspring have allowed us to strengthen our presence to the extent that we’ve now reached critical mass in all core European markets, and this allows us to work in the long term on behalf of our customers.
estatements: How are things in the real estate investment markets right now?
Schmitt: The situation in investment markets at the moment is probably about as challenging as it’s ever been. Given the low interest rates and the dearth of investment options, property markets continue to be fuelled by heightened demand. In turn, this is pushing up prices while returns continue to decline sharply. On all counts, pressure on property prices will continue to remain high as investors keep pushing their investments into real estate. A recent study found that the average European institutional investor intends to raise its portfolio allocation in property from 9.7 per cent to 12.1 per cent. Combined with the general growth in investor portfolio sizes, this rise is fuelling a significant inflow of capital into property markets.
estatements: So what does that entail specifically?
Schmitt: Allow me to point to an example. In 2000, one of our ‘oldest’ clients had an overall portfolio worth more than 14 billion euros, four per cent of which (around 500 million euros) were invested in property. The customer’s total asset portfolio has now risen to 25 billion euros and the share of property in its portfolio has doubled to eight per cent. So real estate investments have quadrupled to two billion euros. And they’re by no means an exception. Eighty billion euros of equity entered the European property market in 2016 alone – almost doubling the figure in the previous year.
estatements: What impact does this have on the investment market?
Schmitt: The thing about larger investors is that they’re more demanding. They have heightened expectations and are increasingly international in nature and outlook, and they operate according to international principles. Accordingly, they have a tendency to turn to investment managers who are in a position to expand with them and thus able to invest and manage larger and larger volumes of assets. It’s precisely this customer need our strategy revolves around.
estatements: How will this change with the acquisitions of Sparinvest, TRIUVA and Rockspring?
Schmitt: Taking over Sparinvest, which has been acting as a PATRIZIA multi-manager since January 2018, allows us to offer our customers a new range and also allows us to access new markets. With TRIUVA, we’re simply continuing their approach and offer-ing customers an opportunity to invest in commercial property throughout Europe, only with the added benefit that we can now offer an even broader pan-European network and we have a robust ownership structure for the future. Rockspring gives us access to new international clients; we’re significantly expanding our hub in London and in future we’ll be able to offer discretionary investment management.
estatements: How do customers benefit from these acquisitions?
Schmitt: The benefit of this to our customers is that they have access to a broader product portfolio and an even broader range of services. By going through us, they can invest even more strongly in new markets, asset classes and risk categories – throughout Europe. This underscores our position as one of the leading independent real estate investment managers in Europe. We’re not tied to any particular companies or banks, so we can always focus on properties and developments that we believe will offer our clients the best value.
estatements: How will PATRIZIA be set up in the future?
Schmitt: Sparinvest, TRIUVA and Rockspring will be integrated into the PATRIZIA Group, so in the medium term we’ll only have one face to the customer. Overall, we will manage real estate assets worth 40 million euros in the future, all across Europe. One thing that will remain important is that PATRIZIA has a local presence – with local know-how and experts on the ground – and that it also offers real estate investments throughout Europe in line with the global picture.
estatements: So act local, based on a global setup. Isn’t that always a bit of a balancing act?
Schmitt: Let’s just call it glocal! Our leaning within the individual markets is regional – we work with ‘localists’, and our investors really value that in us. But also, we now do this in almost all markets and segments. It’s the perfect blend.
estatements: Are further M&As in the pipeline?
Schmitt: Not as things stand at the moment, but of course we will always continue to look out for any options offered by the market. Liquidity is at around 450 million euros after the most recent acquisitions, so that’s enough to click into action if we need to.
estatements: How does one integrate new firms?
Schmitt: Integration is a major challenge – and one of our focus topics for 2018. M&As are not successful just because you signed the dotted line. They only become a success after proper integration. If I could exaggerate to make a point, anyone can pull off an acquisition. The art is to succeed with integration — and we’ve completed these kinds of successful integrations frequently in recent years.
estatements: Does integration spill over into everyday business?
Schmitt: We have teams of specialists whose only job is to steer the integration process and everything it involves and make things happen. This allows everyone else at PATRIZIA to continue focussing wholeheartedly on everyday business and the task at hand — so we can keep doing what’s best for our customers.
The interview was conducted by Simone Wipplinger.