The assets under management of PATRIZIA Immobilien AG have risen from € 2.7 billion to € 21 billion in only six years. The German real estate investment company deals on behalf of more than 200 institutional clients across Europe. PERE magazine spoke with PATRIZIA CEO Wolfgang Egger about the company's impressive success, global ambitions and the importance of good people. Download the full article here.
Wolfgang Egger: “The real estate industry is all about people”
PATRIZIA has become a fixture in the headlines over the last 12 months thanks to a host of deals, separate account wins and well-capitalised fundraises. There have been high-profile hires too, such as Anne Kavanagh, one of the European market’s most respected operators, who joined as its Chief Investment Officer in January.
Its founder, chief executive and majority shareholder, Wolfgang Egger, attributes the growth to the firm’s increased 630-person headcount while remaining an independent bricks-and-mortar company. “For the first five years after I started the business, I only invested in real estate. But since then, I’ve only invested in people,” says Egger. He started building PATRIZIA’s deep bench as a teenager 33 years ago. “I was young. But even then I knew I needed to get the right people on board, who knew what they were doing. This industry is all about people; if you have the best people they will bring the right opportunities. You can make money with the right people in a rocky market and you can lose money with the wrong people in a very good market – it all comes down to who you bring in. Our focus is to create a campus for talented people.”
The best asset management skills on site
For Egger, the other key ingredient is independence. “We’re not integrated into a corporation, so we do not have to sell products in the interests of the corporation. Instead, we can advise our clients independently. What this means in practice is that we place investments with them that open the door to strong revenues.”
With such a hefty headcount, PATRIZIA does not require external advisors, Egger explains. “We never do anything where we need an advisor. What is key for us is that we have the best asset management capabilities on the ground, whether it is in logistics, in the office or in retail, so we can create a ‘competence centre’ in each country.”
The ‘do-it-yourself’ formula has evidently worked for the firm, if its assets under management growth is anything to go by. Between 2011 and 2016, PATRIZIA’s books grew from €2.7 billion to €18.6 billion. Its investors have also been impressed by the returns the firm has managed. The flagship PATRIZIA Equity Partners fund series has yielded an internal rate of return of more than 20 per cent, exceeding its target. Its greatest triumph saw PATRIZIA exit its €1.1 billion ‘Project Harald’ German residential portfolio at a massive 372 per cent IRR, a return on equity of 170 per cent and 2.8x equity multiple.
Facts and figures: The real estate investment company PATRIZIA has €21bn assets under management.
PATRIZIA aims to be the investment manager of choice
Thanks to deals like that, the firm has attracted commitments of more than €9 billion for its investment vehicles from institutional investors, including savings banks, insurance companies and pension funds, mainly from Germany, but increasingly overseas. From this support, it has created an enviable fee stream: pulling in €77.8 million from its vehicles in the first half of last year, 23.7 per cent more than the same period the year before.
Despite this growth, Egger declines to set targets beyond the short-term. “That does not make sense to us. It is all about making the business stronger and seeing where the opportunities are.”
Indeed, he is more concerned about the firm’s progress in a thematic way; the primary focus is on becoming an investment manager of choice for a global institutional investor base. “We want to continue to develop PATRIZIA from its foundation as one of Europe’s leading real estate investment houses into a global provider of European real estate investments.”
Offering investors different asset classes across Europe
PATRIZIA’s early residential focus has also expanded. Today, it is a diversified property company offering investors access to a range of asset classes across Europe and via a range of risk and return profiles. A slight majority of its assets carry a core or core-plus risk and return profile with the rest value-added and opportunistic. Investors can engage the firm via funds, but also co-investment vehicles or separate accounts.
In terms of property types, only 37 per cent of PATRIZIA’s assets under management are residential, but Egger stresses that this asset class remains the most influential. “It is the most asset management-intensive sector in the industry,” he says. “The key aspect of residential is that, if you are doing it on scale, it is related to every other real estate sector. Once you buy a block of 1,000 apartments, you can bring in retail and then offices and self-storage – each time you are learning about other sectors.
“Once you do resi, you learn the subtle differences that you can’t put in an excel sheet. We can adapt a lot of our knowledge to Europe’s different countries. You can learn something new in each country.”
Timeline of PATRIZIA´s corporate history
Wolfgang Egger founds PATRIZIA in Augsburg as investor in residential property
PATRIZIA purchases the former media quarters of the Olympic Games site in Munich, reselling all 769 residential units
Strengthens international presence with opening of foreign subsidiary in Luxembourg
PATRIZIA broadens capital base through IPO
The firm starts offering funds for institutional clients
The company’s European presence is widened through acquisition of a large asset manager of commercial real estate
Acquisition of property companies LB IMMO & GBW almost doubles AUM each time
PATRIZIA realises transactions, including London’s Madame Tussauds, Astro Tower in Brussels and CommerzBank Tower in Frankfurt
PATRIZIA manages assets worth €21 billion across Europe on behalf of more than 200 institutional clients
As the timeline shows, PATRIZIA has developed into one of Europe’s leading real estate investment companies and is eager to gain more global mandates.
A strong institutional investor base in Germany and Europe
Egger’s judgement has been strongly backed by Germany’s institutional investor base. Last year, PATRIZIA landed two of the biggest mandates to be awarded in the country. The first was a €300 million account from an undisclosed German insurer for residential investments across Europ. The second was even bigger, and committed by one of the world’s most active investors – Germany’s biggest pension fund manager, Bayerische Versorgungskammer (BVK) – which awarded a €400 million account to back developments in the Netherlands and the Nordics. In doing so, it joined an illustrious set of managers to have benefited from more than €7.5 billion of commitments last year, including Houston-based Hines and fellow German outfit Union Investment.
On the funds front, PATRIZIA launched its first pan-European logistics vehicle last August, through which it will target institutional commitments of €500 million. So far, it has already acquired properties in France, Belgium, the Netherlands and Germany, totalling around 2.5 million square feet, on behalf of the fund.
Notable single asset transactions like the Commerzbank Tower
The firm’s most notable single asset transaction was the September 2016 acquisition of the Commerzbank Tower in Frankfurt for around €650 million on behalf of Samsung SRA Asset Management, the investment management business of the Korean conglomerate. That deal was part of PATRIZIA’s strategy of securing trophy assets for Asian investors. It followed the €171 million purchase of Brussels’ Astro Tower, one of Belgium’s tallest buildings, for a Korean consortium, and the €466 million acquisition of London’s Madame Tussauds waxworks for a Taiwanese investor group.
The real estate investment company PATRIZIA was founded in 1984 in the Bavarian city of Augsburg and started off focusing on residential property.
High-profile hires for global expansion
As with its investing activities, the firm’s capital partners originally had a strong German bias, and even today, it is heavily dependent on German investors, with 91 per cent of its capital raised coming from the country versus just 5 per cent from wider Europe and 4 per cent from elsewhere. Egger is keen for that to change, and has been hiring accordingly. At the end of last year, Robert Bilse filled the newly created role as head of North America, with a remit to diversify and expand the firm’s investor base in the US. And PERE understands that the firm has also conducted interviews with capital-facing executives in Asia.
“What this company has achieved over the last 30 years is invaluable – we have secured the trust of the institutional investor. But you can ruin that in one day and our people are aware of this. We know what type of trust we have and what kind of expectations our investors put on us.”
The full article by Jamie Henderson was originally published in the MAY 2017 issue of PERE magazine. Extracts from the article have been published with kind permission from the magazine.
Picture credits: from top: 1. picture: PATRIZIA, 2. picture: Reiner Baumann