Special report: nordic region - PERE

Special report:
nordic region
Big real estate returns
in Northern Europe
winter’s day
Corestate Capital finds
opportunity in Germany
School’s in session
UK property investors study
student accommodation
PrivateEquityRealEstate.com
October 2007 Volume 3, Issue 8
going abroad
US fund managers take
their strategies overseas
Rent control
Finding value in NYC’s
affordable housing sector

4 D E co n S T R U c T E D
8 T h E f o U R f o o D g R o U P S
1 0 I n T E L L E c T U A L P R o P E R T Y
Everybody’s got one
1 2 n o R T h A m E R I c A n E w S
Carlyle’s fifth
LA story
Senior management
Plus: Beacon raises $4bn. New investment banking
head at Deutsche. Carmel buys multifamily portfolio.
And more.
1 8 E U R oZo n E
Fee speech
1 9 E U R o P E n E w S
Pramerica shops in France
Leaving the shop
A law with few friends
German expansion
Plus: BlackRock launches farmland fund. Meyer
Bergman hires Euro heavy-hitter. Doughty Hanson
buys in Blythe. And more.
24 A S I AV I E w
Unending demand
2 5 A S I A / R o w n E w S
Twice the fund
Plus: Starwood, Walton in $1.25bn India deal.
Oaktree acquires Pangaea. Goldman, Ethos buy
South African casino group. And more.
26 B LU E P R I n T
Corestate Capital founder Ralph Winter talks
about his years at Cerberus Capital Management,
investing in German residential and commercial real
estate and the importance of picking the right name.
32 SPEcIAL REPoRT: noRDIc REgIon
Comprising of some of the most successful conomies
in Europe, the Nordic region is attracting private
equity real estate funds interested in its stable
economy, liquid markets and good transparency.
4 6 B A c k T o S c h o o L
As students head back to school this fall, more
and more of their dorms may be owned by private
investment firms looking for big returns and low risk.
5 0 U S f I R m S , g L o B A L S T R AT E g I E S
Successful US firms are looking to export their
fund strategies overseas. What are the challenges and
opportunities of going international?
5 2 B E Lo w - m A R k E T U P S I D E
With large-scale affordable housing deals in all five
boroughs of New York City grabbing headlines,
some private equity real estate firms are looking at
investing in the Big Apple’s subsidized housing sector.
5 6 c A P I TA L w AT c h
6 0 I f T h E S E w A L L S co U L D TA L k
Banking on it in Brooklyn
Aircraft
carriers
Is it possible to grow bored with a crisis even as it continues
to unfold? If so, count me among the bored.
Let me clarify—the effects of the subprime meltdown
and resulting credit crunch on private equity real estate
may ultimately be a gripping spectacle, but the endless jawboning
about what the longer-term effects will be is becoming
tedious because the conclusion is always the same,
namely, that it remains to be seen what the longer-term effects
will be.
We know that the deal pace will slow, at least temporarily,
and that leverage for deals will become more expensive
and available in smaller doses.
What the mainstream press fails to understand about the
alternative investment industry in general, and the private
equity real estate industry in particular, is that the most important
measure of the growth of the asset class is not any
kind of leverage ratio, but the flow of capital from limited
partners. General partners will find ways of closing deals if
they have the equity capital. And all indications are that the
supply of LP capital will, if not balloon next year, at least
keep pace with the robust fundraising of recent years.
A common observation of the LP community is that
many of these investors—especially the biggest pension
plans—are like aircraft carriers in that they are mighty forces
but can take a long time to change directions. It won’t be
until later this year that the boards of some of these investors
will even evaluate whether they want to make changes
to their real estate strategies in light of market conditions.
The most sophisticated among them are unlikely to make
any drastic changes, as current allocation targets were presumably
based on very long-term, multi-cycle views of real
estate’s place in the portfolio.
A drop in the stock market would have the most profound
effect on LP real estate activity, as a pension with a
10 percent target allocation to the asset class may find itself
suddenly overallocated if its overall portfolio contracts in
value. But, crucially, when one door to the institutional investor
firmament closes, another one opens.
For every limited partner that takes a breather committing
new capital to private equity real estate, two new
pockets of capital open up somewhere in the world. Witness
the awakening of China’s foreign currency reserve as
a source of alternative investment capital, as well as the
increased interest in alternatives from Mubadala, the Abu
Dhabi Government strategic investment and development
company. These are elephantine examples of a broader
trend that will keep capital flowing into private equity real
estate, and into innovative property investment around the
world.
Enjoy the issue,
David Snow
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 1
Editor’s Letter

Index
comPAnIES
3i 48
Aberdeen 20, 25, 32, 36, 37, 58
Actis Advisors 24
AMLI Residential 14
Apollo 14, 52, 54, 58
AXA Real Estate 22
Barclays Private Equity 48
Beacon Capital 12, 56, 58, 59
Behringer Harvard 14, 50
Berggruen Holdings 24
BlackRock 14, 54
Blackstone 12, 14, 16, 36, 46,
49, 56, 59
Boultbee Construction 44
Brandeaux 48
British Land 20
Canyon Capital 60
CapitaLand 25
CapMan Real Estate 42, 58
Carlyle Group 12, 57, 58
Carmel Partners 16
CBRE Investors 28
Clifford Chance 22
Cobalt Capital 12
Coller Capital 36
Cordea Savills 48, 49, 57
Corestate Capital 26, 27, 57, 59
Curzon Global Partners 10, 20
Dawnay Day 54
Decatur Hotels 16
Dechert 22
Deutsche Bank 14, 16, 28, 49
Doughty Hanson 20, 36, 44
East Army Properties 8
Eastern Consolidated 6
Emeritus Corporation 16
Equity Office 14
Ethos Private Equity 25
First Equity 16
Fortress 19
GAGFAH 19
GE Real Estate 34
Goldman Sachs 25, 27, 38, 57, 58
Harrah’s Entertainment 14
Harrison Street 16, 58
HCI Capital 50
HDFC 24, 57, 58
HDS Group 16
Heitman 16, 50, 51, 57, 58
Heuking Kühn Lüer Wojtek 22
HSBC 60
IL&FS 24
ING 28, 34, 44, 53, 54, 58
JER 44, 56, 58
JE Robert 19
JP Morgan 8
Kaplan Development Group 16
King & Spalding 22
Knight Frank 29
Liberty Property Trust 20
Lloyds TSB 28
Loeb Partners 16
M3 Capital Partners 48
Macquarie 19, 56, 58, 59
Meyer Bergman 22
Milestone Capital 24
Morgan Stanley 14, 22, 29, 58
Multi Corporation 22
Niam 32, 34, 37, 40, 43
Oaktree Capital 25
Oslo Properties 20
Pangaea Capital 25
Pirelli 28
Pramerica 19
ProLogis 8
Quinlan Private 20
Ramius Capital 52, 56
Ramsey-Shilling 14
Reichmann Healthcare 16
Rockpoint 12, 56, 59
Royal Bank of Scotland 44
RREEF 10, 16, 22, 28, 49
Schroders 28
Senior Quarters 16
Starwood Capital 24, 25
Swiss Hawk 19
Taconic 52, 54
The Bleecker Group 19
The Prescott Group 50, 51
Tishman Speyer 20, 54, 57, 58, 59
TPG Capital 14
Walton Street 24, 25, 50, 56,
57, 59
West LB 50
Westport Capital 16, 56
PEoPLE
Alan Billingsley 10
Al Palamara 14
Andrew Allen 49
Arnold de Haan 22
Asieh Mansour 10
Bill Hughes 22
Bo Ljunglöf 25
Casper Hesp 19
Chris Papachristophorou 22
Christian Delaire 22
Christian Fogelholm 44
Christian Schulte Eistrup 29
Christopher Merrill 16
Daniel Rigny 22
David Brush 22
Dean Pentikis 14
Deborah Van Amerongen 54
Dee Dee Sklar 50
Deidre Hardister 14
Devin Murphy 14
Earvin “Magic” Johnson 60
Frank Buckley 14
Next Month
2 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Property fund of funds come of age
Constructing an opportunity fund benchmark
An in-depth look at property in Mexico
Cover Image
Greg Brooke 14
Greg Hillman 14
James Simmons 52
Jason Mattox 50
Jeff Barclay 53, 54
Jeffrey Schwartz 8
Johan Bergman 32, 40, 43
Jon Lekander 32, 37
Julian Gabriel 36
Kang Puay Ju 25
Keith Handley 22
Lennart Sten 34
Manfred Hillenbrand 29
Marcell Clark 22
Mario Leissner 22
Markku Hietala 42
Markus Koenigstein 18
Markus Meijer 22
Martin McGuire 22
Maury Tognarelli 51
Michael Prinz zu Löwenstein 22
Monte Koch 14
Nicolas Berggruen 24
Nils Styf 38
Oliver Georg 50
Patrick Henniquau 19
Peter Helfrich 34
Peter Struck 21
Pierre Cherki 22
Ralph Schlosstein 14
Ralph Winter 26, 27
Ric Lewis 10, 20
Robert Fowlds 8
Robert Hays 22
Robert Kapito 14
Rob Stuckey 12
Ron Zeff 16
Ross Odland 14
Scott Arnold 22
Sebastian Kaufmann 22
Simon Martin 10, 20
Steven Choo as 22
Steven Nagy 22
Stuart Grant 46
Stuart Saft 53
Susan Stupin 50
Thomas Landschreiber 27
Thomas Lindstrom 38
Trishul Thakore 48
Wilfried Witthuhn 22
William Fryer 22
Buildings in the old town of Stockholm, Gamla Stan, which
dates back to the 13th century.
PERE
PRIVATE E QUITY REAL ESTATE
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david.s@peimedia.com
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Deconstructed
Bluewater on the block
Bluewater shopping center in Kent, built in 1999, used to be the
biggest shopping mall in Britain until it was overtaken in 2004
by the MetroCentre near Newcastle. But the retail property has
stayed in the headlines for all sorts of other reasons.
In 2005, mall management famously decided it needed to ban
young people wearing hooded sweatshirts (called “hoodies” by
the kids) and baseball caps, as well as swear words—and ushered
in a zero-tolerance approach to intimidation from scruffy
teenage hooligans. With Kent police officers on hand and some
400 closed circuit television cameras in operation, shoppers at
Bluewater must be among the best protected in the world. (To
be fair to the teenage hoodlums, the security measures might
also have something to do with the mall being the target of an
al-Qaeda bombing plot.)
With the roustabouts out of the way, there have been plenty
Downtown Chicago: not a bad day for a walk
4 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
commercial developments at the mall as well. Russia’s largest
lingerie retailer, Wild Orchid, opened its first British store at
the center this past August. The complex also opened a railway
ticket office recently for passengers wishing to use the Eurostar
terminal at Ebbsfleet.
But of greater interest to property investors is that a stake
in the center is suddenly up for grabs. Pension fund Hermes is
trimming its exposure to UK commercial property as it looks to
diversify overseas and, as part of the move, is reportedly selling
interests worth £243 million (€348 million; $485 million) held
in 10 separate unit trusts. One of them is in Bluewater and is
said to be worth £30 million.
Secondary investors are circling to own a piece of the shopping
mecca. Just make sure there aren’t any suspicious-looking
kids milling around.
Take a hike
Bluewater: no baseball caps, hooded sweatshirts or cursing
Your mother was right—walking is good for you. And what better way
to exercise the theory than to live in an area with a high “walk score.”
Walkscore.com claims to “help homebuyers, renters, and real estate
agents find houses and apartments in great neighborhoods…Walk
Score shows you a map of what’s nearby and calculates a Walk Score
for any property.”
According to the site, “walkable” neighborhoods tend to have characteristics
including a distinguishable center; enough density to support
local businesses and public transportation; residents with varying
incomes; plenty of mixed-use properties; parks and public spaces; wellconnected
streets; a pedestrian-centric design; and close schools and
workplaces.
Basically, the user enters an address and the site—with an assist from
Google maps—determines a score based on its proximity to the muchneeded
amenities of modern life: grocery stores, restaurants, coffee
shops, bars, movie theaters, schools, parks, libraries and drug stores.
On a scale of 0 to 100, a score of 90 to 100 is equivalent to a “walkers’
paradise,” meaning that most errands can be accomplished on foot
and many people can get by without owning a car. Think most neighborhoods
in New York City or London. Scores from 70 to 90 represent
“very walkable” neighborhoods, which don’t require a car to get
around. Think inner suburbs. The lowest range, 0 to 25, is reserved for
“driving only,” those areas that have virtually no neighborhood destinations
within walking range. Think large swathes of the American West.
Plugging in comparable addresses in different cities yielded some notso-surprising
results: Chicago’s financial district had a walk score of 83
out of 100; San Francisco’s financial center a score of 91; Boston’s financial
district yielded a score of 97 and PERE’s own New York bureau
had a walk score of 100 out of 100.

Deconstructed
Sex, communism and real estate
Few would be surprised to hear that China’s Communist Party
has some corruption in the ranks. But party’s most frequent
ethics violations might raise a few eyebrows. According to a
recent report by the Xinhua news agency, China’s Supreme
Court figures for last year show that out of 90,000 Communist
party members, more than 60 percent were punished for
their involvement in illegal real estate deals and almost 90 percent
kept mistresses.
In the past five years, 16 officials at the ministerial level or
above were removed on corruption charges, and ten of them
were involved either in accepting bribes to sell land for cheap
or stealing public funds to invest in construction projects, according
to the report. At the same time, 14 senior officials
were identified as reckless philanderers who use public funds
to shower gifts on their mistresses. Some officials even managed
to combine both of China’s top violations. Former statistical
chief Qiu Xiaohua was removed after accepting a home
in Shanghai for his mistress as a gift. And former Beijing vicemayor
Liu Zhihua, who was in charge of venue construction
for the Beijing Olympics Games, was fired after it was discovered
he’d been using his position to seek lucrative Olympics
projects to benefit his mistress, according to the report.
Of course, Chinese officials aren’t the only world leaders to
be lured in by these two vices. But the high number of dismissals
reflects the main areas the party is combating in its drive
Quotable
“what we have seen is a lull in the market,
what you might call the calm before the
storm. we are seeing prices change. we are
seeing deals blow up. People are calling
us back a second time to see if we want to
consider another offer.”
Fritz McPhail, the owner of Atlanta-based distressed retail investor Blue
Ridge Capital, quoted in The New York Times
“The industry cannot grow at this rate now.
Every industry has a cycle and now, since the
industry has reached its peak, a slowdown
will set in.”
Irfan Razack, vice president of Confederation of Real Estate
Developers’ Association of India, asked about the 20 percent growth
rate found in the Indian real estate sector, quoted in The Deccan Herald
“The structural factors underpinning strong
demand for UAE real estate would not be
affected by the turbulence in financial
markets, which had resulted in a re-pricing
of credit risk in both advanced and emerging
markets.”
Richard Gibbs, chief economist at Abu Dhabi Commercial Bank, in a
statement on the current global property markets
6 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
against corruption, or at least, its drive against the perception
of corruption. With the 17th Party Congress coming up
in a matter of weeks, the release of the figures was likely an
effort to show progress in an anti-corruption drive that has
stressed political ethics and Confucian values. Party members
have been warned not just against corruption but also against
improper behavior like gambling, visiting nightclubs or massage
parlors and attending religious ceremonies.
Chinese Communist Party: the dual vices of real estate and sex
“I knew he couldn’t unload the house. A lot
of people can’t sell their houses, but they
don’t open brothels.”
David Saperstein, of New Rochelle, New York, talking about his
neighbors who allegedly opened a brothel in their home after taking a
hit in the real estate market, quoted in The Journal News
“It would be fair to say that in the past
property investment managers have perhaps
not been as transparent in this area as some
other asset classes.”
Neil Turner, head of property investment at Schroder Property
Investment Management and chairman of INREV’s fee metrics working
group, discussing the disclosure of fee structures
“It’s the monopoly board. Some of that
mentality prevails.”
R. Stuart Gross, executive managing director at real estate investment
service company Eastern Consolidated, speaking about the ongoing
popularity of New York City real estate with foreign investors, quoted
in The New York Times
“Lenders need to ask themselves, ‘If it goes
wrong, can I get it back?’”
Alistair Darling, British Chancellor of the Exchequer, speaking after
mortgage company Northern Rock suffered a run on its accounts

Four Food Groups
InDUSTRIAL
warehouse full of yen
Logistics property trust ProLogis has a yen to stretch its boundaries.
The Denver-based industrial property developer is looking to invest
¥450 billion (€2.8 billon; $3.9 billion) in Japan over the next two
years, according to Reuters, bringing its total investment in the country
to ¥900 billion by the end of 2009. The move builds upon the
firm’s ongoing strategy in Japan.
The company currently operates 69 warehouses totaling 3.4
million square meters of floor space throughout the country from
Hokkaido to Kyushu. Metropolitan Tokyo is the world’s largest distribution
market, according to the firm. Limited supply in Japan—
attributed to a scarcity of modern, efficient facilities and few specialized
competitors—also lends itself to good investment opportunities.
Meanwhile, demand, including inbound and outbound port growth
and growing domestic consumption, are also relevant factors.
ProLogis has two funds targeting Japan worth more than ¥320
billion, the first of which it launched in 2002. Both funds are partnerships
with GIC Real Estate, the government of Singapore’s real
estate investment arm.
In August, the developer launched four new global property funds
targeting Europe, Mexico, South Korea and the US with a combined
purchasing power of more than $14 billion. “Together with the capacity
in Prologis’ existing funds, we now have fund agreements in
place to support $33 billion of assets under management in funds—
more than double the $14.2 billion of assets under management at
the end of the second quarter,” Jeffrey Schwartz, ProLogis chairman
and chief executive officer, said at the time.
RESIDEnTIAL
Defending the homeland
In a newly formed public-private partnership,
the US Army and East Army
Properties have come together to finance,
construct, renovate and operate
approximately 1,590 military family
homes at Fort Lee in Prince George
County, Virginia. Using approximately
$260 million (€188 million) in private
debt and equity over the next four years,
the partnership will construct 748 new
energy-efficient homes and renovate 112
existing homes on the military base. The
new three- and four-bedroom homes
feature amenities like two-car garages,
modern kitchens and ceramic-tiled entry
foyers, according to the partnership,
while a 3,770-square-foot community
and three customer service satellite offices
will be built within the neighborhoods.
The East Army Properties team
is a development consortium comprised
of Hunt Development Group in El Paso,
Texas; real estate management company
Pinnacle in Seattle; and Falcon Properties
in Plymouth Meeting, Pennsylvania.
Construction is slated to begin immediately
and the first new homes will be
presented to military members and their
families in the fall of 2008.
8 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
offIcE
freeze-up in London?
Japan: ripe for warehouses
The robust office sector in central London
might be hitting the brakes according to
one senior real estate investment banker.
Robert Fowlds of JP Morgan Cazenove
said that if major financial groups scale
back operations because of global market
tremors, the slowdown could also be
felt in the City’s office market, Reuters
has reported. “We can’t duck these issues,”
Fowlds told the gathering of the
European Public Real Estate Association
in Athens in September. “Banks will
think twice about taking on a 200,000-
or 300,000-square-foot letting.” Fowlds
predicted that banks were not bringing
on new employees in light of market
turbulence over the summer. “Getting
someone from the financial services industry
to sign on the dotted line is going
to be very hard,” he said. The predication
came after a strong six months for
the London office market as a whole. In
August, Cushman and Wakefield reported
that West End office rents jumped by
50 percent for the first half of the year
because of increased demand. Rents in
the area were nearly double those of the
City, which commands around £65 per
square foot a year.
RETAIL
malls wanted
India may have to wait for its fashionista
makeover. International apparel retailer
Giordano International has delayed the
launch of its new stores in the country
by several months because of a dearth in
available retail space, according to local
press reports. “We had booked 25 properties
in various malls across the country,
which were supposed to open by the
year-end,” Giordano International chairman
Peter Lau said. “But these malls are
yet to come up.” With the push into India,
Giordano is planning to launch new
“Giordano Concept” stores with 2,000
to 5,000 square feet of floor space, up
from the 1,500 square feet found in its
stores currently. The label is also looking
to introduce more European fashion
into its clothing line. The fashion retailer
has two stores in Chennai and one in
Hyderabad. The chain, which hopes to
open 20 to 25 stores in the country in the
next three years, currently has plans for
outlets in the cities of Mumbai, Hyderabad,
Pune, Bangalore, Chennai and New
Delhi. “We have 800 stores in China,”
said Lau. “I am sure India will also have
some very good growth opportunities
for Giordano.”

Intellectual Property
Everybody’s got one
In the age of “thought leadership,” everyone is weighing in on the US subprime crisis—
and what it might mean for business. Some of it, of course, is bloviation, while some is
genuinely insightful. By Aaron Lovell
Out on the road in advance of his longawaited
memoirs, The Age of Turbulence:
Adventures in a New World,
Alan Greenspan seemed to make waves
in every press appearance he did. Much
like his time as the head of the US Federal
Reserve, his pronouncements were
covered, devoured and endlessly dissected.
The “Maestro” was one of those few
figures in Washington where anything
he said, from his opinion on the stock
market to his take on new fall fashions, was parsed and parsed
again for some clue as to what the Fed was going to do next.
So it’s little surprise when, now back in private life hawking
a memoir, his comments tossed off on the cable television
news shows are equally examined. Discussing the US housing
market, Greenspan recently said he was concerned about the
bubble bursting—but stopped short of saying this would cause
wider reverberations around the world.
“We, unlike the rest of the world, are showing some modest
price declines,” Greenspan told CNBC Television in September,
adding that the Fed unsuccessfully tried to raise mortgage rates
in 2004 in an effort to cool down the overzealous market.
For a rather innocuous statement, it got plenty of press coverage.
But when you’ve had a summer like this, everyone is going
to have an opinion. From newsrooms to Wall Street, the “credit
crunch” as been the topic on the tip of everyone’s tongue—and
firms around the globe have been eager to weigh in and strut
their intellectual stuff. In an industry where everyone hopes to
be perceived as a “thought leader,” economists from the big
investment banks to the heads of the world’s central banks to
CNBC’s Jim Cramer screaming about the discount window on
live television, everyone had something to say about the credit
crisis.
Some of the comments come off as so much bloviating, but
some, especially from the real estate investment community,
are worthy of further inspection.
There was certainly some measured and studious analysis
that might be useful to private equity real estate investors.
In a new research note released by RREEF and available on
their website, two San Francisco-based directors at the firm,
Alan Billingsley and Asieh Mansour, handicap the prospects
for the US economy and real estate market going forward. The
report looked at the impact the subprime fallout would have
10 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
on property returns and real estate fundamentals, all packaged
under the cheekily upbeat title “Prospects for the US Economy
and Real Estate Markets: The Return of Risk Aversion . . . At
Last!”
“The dust will settle, markets will establish pricing, and riskier
debt will become marketable again,” the report concluded.
“However, the unrealistically tight spreads between low and
high risk investments will not narrow to their pre-July levels.
Even low risk debt is likely to be more expensive than in the
past, while higher risk debt will remain significantly more expensive.”
Overseas, professionals didn’t have a much better assessment
of the situation and—for good reason—focused on how it was
going to affect the property markets of Europe. The property
investment team at London-based Curzon Global Partners, for
example, chipped in their two cents with a press release discussing
how the troubles in the US would likely come to affect
the market in Europe.
“The US commercial real estate market is shutting down and
it is unlikely that Europe will be immune from the impact of
the crisis as one very rarely gets this level of volatility without
distress and dislocation,” Ric Lewis, the chief executive officer
at Curzon, said in a statement in early September.
The firm’s head of research and strategy, Simon Martin, used
a bit more violent imagery. “It could be like watching a slow
car crash,” he said of the possible shockwaves heading towards
the continent.
Most market participants had similar takes on the situation:
Cheap debt and shaky deals would no doubt fall victim, the
heady days of the bubble are most certainly over and there may
be some opportunities for savvy players.
Of course, it wasn’t all doom and gloom. Private equity real
estate investors are supposed to be an opportunistic bunch and
nothing spells ‘opportunity’ like ‘crisis.’ The directors at RREEF,
for one, noted that they saw some opportunities in various
property sectors. Multifamily investors in cities without a glut
of for-sale housing could see increasing interest as the rental
pool grows. Since hotel occupancy can fall off overnight in an
economic downturn, the report authors predicted that lodging
development would fall out—but added that with new supply
constrained, hotels could be a profitable long-term play.
If the worst is yet to come, as the chief economist at Standard
and Poor’s suggested in early September, there will no doubt
be more opinions, proclamations and prognostications coming
as well.

North America News - Funds & Investors
Carlyle’s fifth
12 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Stuckey: discontinuity creates opportunity
The carlyle group has closed its fifth US-focused private equity
real estate fund on $3 billion—an amount more than triple its
previous fund raised two years ago.
The private equity real estate arm of private equity giant The Carlyle
Group has closed its fifth US-focused property fund, Carlyle Realty
Partners V, on $3 billion (€2.1 billion). The firm’s previous fund closed
in 2005 on $950 million.
“We’ve attracted some new investors, and, since our returns have
been attractive, we have retained nearly all of our existing investors,”
said Rob Stuckey, a managing director and head of Carlyle’s US real
estate team. Like the fourth fund, Carlyle Realty Partners V will focus
on major markets in the US across the office, hotel, industrial, retail,
residential and senior living sectors.
Recent mayhem in the credit markets has not hindered the firm’s
investment pursuits. “In general, discontinuity creates opportunities,”
Stuckey said. “We look for situations where fundamental values are
undervalued by the capital markets—those situations are more likely to
occur when the capital markets are experiencing turmoil.”
Carlyle has pursued a multi-pronged investment strategy and looks
for any way it can add value, Stuckey said. “We have 70 employees
who are located in five offices,” he said. “Also, we align with local operating
partners. Our team has been successful at identifying and driving
the key factors that affect the success of an investment.”
Stuckey, who is based in Carlyle’s Washington, DC office, is optimistic
about continued investor interest in real estate.
“At this point, it is too early to say how the level of investment from
various sources will be affected,” Stuckey said. “There’s a lag effect:
Pension funds have already made their allocations which will sustain
investors for another year or so and many investors have increased
their allocated share to real estate—that should positively affect the
next generation of activity as well.”
The effects of increased pension money to the sector will carry forward
through time and buoy the real estate market, Stuckey said. “While
the current credit crunch has an effect in the short intermediate term, in
terms of delaying investments, the basic level of equity investment capital
will remain intact in the near term and the intermediate term.”
The Carlyle Group has more than $75 billion in assets under management.
Earlier this year it was ranked the largest private equity firm
in the world by direct-investment capital raised over the past five years,
according to sister publication Private Equity International.
calPERS diversifies into infrastructure
The California Public Employees’ Retirement System
(CalPERS) has established an inflation-linked
asset class that would include an allocation of up
to $2.5 billion (€1.8 billion) in a pilot infrastructure
program. CalPERS’ board of administration
also moved to reclassify $573 million of existing investments
into the new inflation-linked asset class,
which will comprise commodities, inflation-linked
bonds and timber in addition to infrastructure. The
pension currently has approximately $450 million
in commodities investments as well as $123 million
in timberland, inflation-linked bonds and infrastructure
investments. The new infrastructure program
will target investments in the construction of
roads, bridges, airports, utilities, water systems and
other projects.
cobalt raises $410m industrial vehicle
Cobalt Capital Partners has reportedly closed a
second industrial property vehicle on $410 million
(€295 million) from institutional investors. With
leverage, the vehicle would have an investment capacity
of approximately $1 billion. Cobalt Industrial
REIT II will target light industrial properties,
between 50,000 and 250,000 square feet, in target
markets throughout the US. The fund will have a
lifespan of 5 to 10 years. The firm’s initial industrial
property fund, Cobalt Industrial REIT, has more
than $227 million in commitments from institutional
investors. The fund targeted light industrial
properties in target markets throughout the US including
Atlanta, Dallas, Houston, Chicago, Phoenix
and Philadelphia.
Beacon closes $4bn fund
Boston-based Beacon Capital Partners has closed its
fifth fund, Beacon Capital Strategic Partners V, on
$4 billion (€2.8 billion). The closed-ended, valueadded
fund will target office properties in the US including
New York, Boston, Washington, Los Angeles,
San Francisco, Seattle and Chicago as well as the
European markets of London and Paris. These cities
represent urban markets with constraints on new
office supply, according to the firm. The portfolio
currently has seven investments totaling 43 buildings
and 14.5 million square feet of space, including
the AXA Tower in Paris; CityPoint and Mid City
Place in London; the Aon Center in Los Angeles;
Financial Square in New York; and a portfolio of
properties in Seattle and the DC metro area. The
investments comprise approximately 74 percent of
the total equity in the fund.
oregon pension increase property allocation
The Oregon Public Employees pension has increased
its target real estate allocation to 11 percent, a 3 percent
jump from its previous target of 8 percent. At an
August meeting of the Oregon Investment Council,
the board mulled over possible investments in Rockpoint
Real Estate Fund III and Blackstone Real Estate
Partners VI, according to state documents. The
pension had close to 5 percent invested in real estate
at the end of 2006 and had approximately $62.5 billion
in total assets at the end of the second quarter.

North America News - People
LA story
Apollo Real Estate Advisors has hired hollywood property
pro frank Buckley to join its west coast operation.
Apollo Real Estate Advisors has added Frank Buckley as a
partner in its Los Angeles office. Buckley will be responsible
for sourcing new investment and business opportunities for
the private equity real estate firm.
“Frank has a long West Coast pedigree and has been very
active, particularly in Los Angeles, for the better part of 20
years,” Dean Pentikis, the partner in charge of Apollo’s West
Coast operations, told PERE. “He ran his own boutique firm.
He had his own hotel company. He’s worked on acquisitions.
He’s an entrepreneur.”
Buckley joins Apollo from Hollywood-based Ramsey-
Shilling Commercial Real Estate Services, where he was a
managing director and oversaw the firms’ investment sales
and leasing departments. While at Ramsey-Shilling, Buckley
spearheaded the sale and leaseback of the Capitol Records
building and the build-to-suite animation headquarters for
Nickelodeon in Burbank, according to the firm.
Pentikis said he was on the other side of the table from
Apollo on some recent transactions. “He was involved in a
couple of deals we’ve done in the last year,” he said. In his new
position at Apollo, Pentikis said Buckley will be responsible
for sourcing and managing new transactions.
Prior to Ramsey-Shilling, Buckley was the president of
a limited-service hotel group. His responsibilities at the
unnamed firm included acquisitions, management, structured
finance and franchising in Florida, New York, California and
Hawaii, according to the press release.
Buckley began his career with broker Lee & Associates in
Orange County and joined the Los Angeles office of Grubb &
Ellis in 1987. Buckley is a graduate of UCLA and a member of
Behringer bulks up team
Dallas-based real estate investment
group Behringer Harvard is building
up its asset management team with five
high-level hires. Ross Odland, who is
joining the firm as a vice president and
portfolio manager for its multifamily
group, will develop strategies and manage
joint ventures relating to the firm’s
apartment, student housing and other
multifamily residential investments.
Odland joins Behringer Harvard from
multifamily developer AMLI Residential,
where he oversaw that firm’s joint
venture relationships and its investments
in the Southwestern US. Al Palamara is
also joining Behringer Harvard as a vice
president and portfolio manager for the
firm’s opportunistic investment assets,
while Greg Brooke has been appointed
vice president of development and will
be responsible for office development
projects. Greg Hillman is joining the
firm as a project manger for asset management,
while Deidre Hardister is joining
as an assets manager.
14 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
BlackRock head goes solo
BlackRock co-founder Ralph Schlosstein
is stepping down as president of the firm.
Schlosstein is reportedly planning to raise
as much as $1 billion for private equity,
hedge fund and real estate investments,
as well as acquiring stakes in other asset
managers. Schlosstein, a member of
BlackRock’s executive and management
committees, was also chairman and
president of BlackRock Liquidity Funds
and director and officer of BlackRock
Realty Advisors. Before co-founding
BlackRock, Schlosstein was a managing
director at Lehman Brothers and later
became co-head of its mortgage and savings
group. Robert Kapito, currently a director
and vice chairman for the firm and
head of portfolio management, was appointed
president and will be responsible
for overseeing the firm’s key operating
units, including the account management
group, the portfolio management group,
the real estate group and BlackRock Solutions.
Schlosstein will remain with the
firm as an advisor until early next year.
Buckley: a new mission with Apollo
the Urban Land Institute.
Pentikis said Apollo has long been established in Los Angeles,
though its profile is rising as Apollo offers more products to its
investors, including its mezzanine debt vehicle.
“We had a presence in Los Angeles since almost the beginning
of Apollo,” he said.” We may have a slightly higher profile now.
We’re not just known for our opportunity fund business.”
Apollo closed its most recent US-focused opportunity fund
in March of last year on $700 million (€506 million). The
firm’s most recent value-added vehicle closed on $276 million
last November.
In May, the firm acquired $83 million (€60 million) in
multifamily properties throughout the Los Angeles area. The
portfolio of 24 properties includes apartments in Silverlake,
Westlake, Koreatown, Hollywood, West Hollywood and Los
Feliz.
Deutsche Bank appoints new head of
investment banking
Deutsche Bank has appointed Monte
Koch—formerly head for mergers and
acquisitions at the firm—to head up its
real estate investment banking arm as
Devin Murphy steps down. Koch is a
20-year veteran of Deutsche Bank who
was most recently with the US mergers
and acquisitions department, though
he has reportedly been specializing in
property deals as of late. Murphy, who
joined Deutsche in 2004 from Morgan
Stanley where he was the co-head for
North American real estate investment
banking, will stay on as an advisor to
the firm before moving on to pursue
other interests, according to the bank.
The real estate investment banking division
has been involved with a number
of high-profile private equity real estate
transactions including The Blackstone
Group’s buyout of Equity Office and
the acquisition of gaming giant Harrah’s
Entertainment by TPG Capital and
Apollo Management.

North America News - Deals
Senior management
chicago-based harrison Street and new York-based
kaplan Development group have joined forces to develop
and acquire senior housing properties on the East coast.
Private equity real estate firm Harrison Street is working with
Kaplan Development to acquire and develop $350 million
(€248 million) worth of senior housing properties.
The firm’s interest in the sector is fueled by the demographic
trends in the US, where baby boomers are retiring, according
to Christopher Merrill, co-founder and managing director of
Harrison Street. “You can’t get away from that momentum,” he
said, adding that new construction has slowed and less supply
is being added.
The new joint venture was launched with the recapitalization
of six senior housing properties located in New Jersey,
Pennsylvania, Delaware and Georgia. The properties are
comprised of 540 units and include independent living, assisted
living and memory care units in Philadelphia and Harrisburg,
Pennsylvania; Savannah and Atlanta, Georgia; and Princeton,
New Jersey.
“Glen [Kaplan, the founder of Kaplan Development] has
already built a portfolio and taken it public,” Merrill said.
Kaplan began investing in senior living properties in 1970,
eventually establishing assisted living company Senior Quarters.
Merrill added that the firm seeks to continue aligning itself with
the leading operators and developers in the senior living space.
While the joint venture with Kaplan will focus on opportunities
on the East Coast, Harrison Street has invested in senior living
facilities across the US, including a portfolio of properties in
Minnesota and a property in Florida.
The firm has committed $100 million in equity to the
venture, Merrill said, which comes out of the firm’s debut
fund, Harrison Street Real Estate Partners I, which closed this
spring on $210 million. The fund is focusing on niche plays
like student living, self-storage and marinas, in addition to
investments in senior living.
first Equity makes Beverly hills buy
Dublin-based First Equity Group and
US real estate development company
HDS Group have acquired two sites
in Beverly Hills for the development of
premium residential and mixed-use developments
worth $300 million (€215
million). Located at 9200 Wilshire
Boulevard, the first site will be a mixedused
development with 54 luxury condominiums.
The property, which will
also include 14,000 square feet of retail
space, is in close proximity to the city’s
famous Golden Triangle shopping district.
The second site, at 450-460 North
Palm Drive, will comprise of 35 luxury
condominiums in two buildings. First
Equity is currently raising mezzanine
capital to underwrite the development.
The investment will offer investors a
return of 30 percent annually with an
approximate investment period of two
to three years.
16 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
RREEf acquires new orleans hotel
RREEF, a division of Deutsche Bank, is
working with private real estate investor
Loeb Partners Realty to acquire the Astor
Crowne Plaza Hotel in New Orleans’
French Quarter. Terms of the deal were
not disclosed, but the firms reportedly
paid New Orleans-based Decatur Hotels
$93 million (€67 million) for the property.
The 707-room hotel was opened
in 2002 and is situated on the corner of
Bourbon and Canal Streets. According to
the firms, the hotel has 27,500 square feet
of meeting space and 22,500 square feet
of ground floor retail space. RREEF and
Loeb said they plan to renovate the hotel,
though details were not provided. The
firms say the hotel suffered little damage
and did not flood during the Hurricane
Katrina disaster in September 2005. The
hotel will remain under the Crowne Plaza
banner and Prism Hospitality will take
over the management of the hotel.
Merrill: looking at demographics
“It’s significantly invested,” Merrill said of the fund, adding
that it has acquired more than 50 assets.
Harrison Street was founded in 2005 by Merrill, formerly
a partner at Chicago-based private equity real estate firm
Heitman, and the Galvin family of Chicago, the founding
family of Motorola. Kaplan Development Group operates 14
senior communities in the US and currently has seven new
senior housing projects under development.
Senior living centers in the US have become increasingly
popular with private equity real estate firms. Earlier this
summer, Westport Capital and Reichmann Healthcare acquired
a controlling interest in Wellington Healthcare Services, a
healthcare provider based in Roswell, Georgia that owns 11
long-term care and senior living centers in the Southeast US.
Last year, The Blackstone Group formed a joint venture
with Seattle-based Emeritus Corporation, which owns and
operates senior living facilities, to acquire 25 assisted living
facilities and one skilled nursing facility throughout the US
for $190 million.
carmel acquires multifamily portfolio
San Francisco-based Carmel Partners has
acquired six multifamily properties in
California, Seattle and Denver for $191
million (€137.5 million). The properties
were purchased through the firm’s latest
vehicle, Carmel Partners Investment Fund
II. Carmel has planned capital improvements
on all the properties including
renovating common-area amenities, upgrading
unit interiors, putting in washers
and dryers and adding new shared space.
Carmel’s second real estate investment
fund closed in 2005 on $400 million in
equity. Like the firm’s debut fund, Carmel
Partners Investment Fund II focuses on
the acquisition, development and renovation
of multifamily properties. Carmel,
founded in 1992 by Ron Zeff, focuses on
multifamily transactions in the US and is
currently pursuing value-add apartment
properties, condo reversions, ground-up
developments and joint venture deals.

EuroZone
Fee speech
InREV is tackling yet another difficult area in its fight for transparency by publishing
fee guidelines. market participants agree it is a positive development for the
industry, but they say there is still cause for concern. By Robin marriott
Last month, the European Association
for Non-Listed Real Estate Vehicles
(INREV) took another step forward in
its ongoing campaign to improve transparency
in the €400 billion private real
estate funds industry in Europe.
On September 18, amid the modern
opulence of the Ritz-Carlton on Berlin’s
Potsdamer Platz, the trade body
launched a new methodology for the
calculation of net asset values for the
industry, as well as guidelines on the
disclosure of fee structures for private institutional property
funds.
Both are to be welcomed as initiatives aimed at improving
transparency in the sector.
The more controversial of the two measures (and the one
that got tongues wagging most in Berlin) are the guidelines on
fee structures. The guidelines ask fund managers to produce
At the heart of all this is a laudable concept: Unlisted real estate in Europe,
into which billions of Euros and dollars have been poured in recent years,
should be as transparent as possible. for too long, investors have been asked
to make investments in a fund on limited information provided. Sometimes
this consists of simply the annual asset management fee. Investors have
rightly wanted to know more, such as potential future costs.
ratios and metrics that allow investors the chance to compare
fees and other costs associated with running real estate funds.
Called the Total Expense Ratio, or “TER,” it expresses annual
operating costs borne by a fund over one year as a proportion
of average fund assets. The TER is designed to capture fundlevel
expenses as well as other property-specific costs.
“The great achievement of the INREV fee metrics guidelines
is they establish a basis for everyone to use the same
methodology for the first time,” Markus Koenigstein, head of
real estate at Germany’s R+V Insurance Group and member of
the INREV management board, said in the press release published
at the event. “This is a big step forward in the evolution
of the non-listed real estate funds industry.”
Indeed, it is. The association, which has been going for fourand-a-half
years, has already made big inroads into standardizing
the industry with a series of initiatives such as general
partner reporting guidelines, a corporate governance frame-
18 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
work, a due diligence protocol and moves to create a standard
private placement memorandum.
In trying to get fund sponsors to provide ratios and metrics
enabling institutional investors to compare fees and other
costs for non-listed real estate funds it is borrowing from the
US mutual funds industry, and to a lesser extent from private
equity where management fees have been used almost as a top
up to carry reflecting the ever increasing size of funds.
At the heart of all this is a laudable concept: Unlisted real
estate in Europe, into which billions of Euros and dollars have
been poured in recent years, should be as transparent as possible.
For too long, some feel, investors have been asked to
make investments in a fund on limited information provided.
Sometimes this consists of simply the annual asset management
fee. Investors have rightly wanted to know more, such as
potential future costs.
However, this is a difficult area for INREV to get into and
one in which some fund managers will have legitimate reservations
about. Just one area of difficulty, for example, is that
costs can be incurred in the TER
that are to do with having more
tax efficient structures such as
a Luxembourg-based vehicle.
One fund advisor said to Private
Equity Real Estate: “Some
costs are incurred in order to
have a more tax efficient structure
and therefore they actually
save money overall, yet, in the
eyes of the investor, the fund manager could be seen more
negatively than another fund manager.”
The apprehension (or, some might say, queasiness) is being
felt around the industry. “The TER is a very positive thing, but
the danger is in applying it blindly. It may be used as a stick to
beat down costs,” another market participant added.
Clearly, using the guideline to simply beat down costs is not
the point of the guideline, nor should it be. What matters in a
contract entered into between two consenting adults is the return
the GP can generate rather than cost. As long as investors
are investing with their eyes wide open and are happy with the
return, they shouldn’t get too bogged down with what it costs
to manage the fund.
Overall, INREV is doing the industry a great service by taking
transparency to new levels. Eventually, the questions being
asked of managers can only lead to greater transparency. That
should not be a bad thing.

gAgfAh weak performer for calSTRS
GAGFAH, the public German residential investment
company operated by US firm Fortress Investment
Group, has emerged as the worst performing international
“tactical” investment for the California
State Teachers’ Retirement System (CalSTRS). According
to its First Quarter 2007 Real Estate Report,
published in early September, total weighted returns
net of fees were minus 14.2 percent as at March 31.
Calstrs invested $100 million in GAGFAH in October
2006. Shares in the company, which operates
almost 170,000 residential units in Germany, have
fallen from highs of €24.55 last year to €13 a share
on September 18. London-based fund Moorfield
Real Estate in which CalSTRS invested $30 million
in August 2005 produced the best quarterly result
for the investor at 36.9 percent.
InREV: opportunistic funds performing well
Value-added and opportunistic vehicles have outperformed
the direct property market, according to
the latest INREV figures. In the last five years, the
INREV Institutional Vehicles Index has produced
an average five-year annual return of 13.9 percent,
compared to 9 percent for the Investment Property
Databank’s (IPD) pan-European Index, which tracks
the market’s performance at the direct property level.
“The increasing number of higher-risk strategy
value-added and opportunity funds that have joined
the INREV Index in the last few years reflects the
underlying trend in the European non-listed real
estate funds market and means their influence on
industry-wide performance is growing,” INREV
analyst Casper Hesp said.
BlackRock investing in Uk farmland
BlackRock, the US fund manager, is to launch a
£100 million, London-based hedge fund that will invest
in UK farmland, as well as futures in wheat and
other commodities, in the face of rising food prices.
The launch comes at a time of increasing appetite
for the “soft commodities” market, according to a
report in The Sunday Times newspaper. Investors
are beginning to be offered opportunities in the sector.
One European real estate fund of funds manager
told PERE that an Eastern Europe-focused operating
partner is buying cheap farm land in order to benefit
from the spike in commodities prices, while another
group is investing in a cattle fund in Argentina.
Swiss hawk launches two real estate funds
Swiss Hawk, the investment bank based in Zug,
Switzerland, is partnering with Deutsche European
Real Estate in two real estate investment funds to
be listed on the Frankfurt Stock Exchange before
the end of the year. The Hanseatic and Baltic Fund
will target commercial and residential real estate in
the Hanseatic and Baltic regions, while the Deutsche
Residential Fund will invest in residential real estate
throughout Germany. Swiss Hawk has agreed
to provide capital and arrange for the new funds to
be listed on the Frankfurt Market. It will also help
raise additional capital for the two funds from institutional
and private equity investors.
Barrett: French market gaining momentum
Pramerica shops in France
The European wing of Pramerica has followed up on an earlier
office and industrial development joint venture with a retail
property partnership.
Pramerica Real Estate Investors is expanding operations in France
with a €200 million ($260 million) joint venture with Belgian development
company Banimmo to develop and refurbish retail properties
in the country.
Pramerica will initially contribute up to €40 million towards the
€60 million of capital that is committed to the partnership. The joint
venture expects that with leverage it will be able to acquire a total
investment volume of €200 million of real estate.
The move for Pramerica, which is the real estate investment management
business of US firm Prudential Financial, represents an expansion
of activities in France where it already has an office sourcing
transactions for the company’s co-mingled funds. Earlier this year, it
announced a joint venture with Paris investment company The Bleecker
Group to invest in French office and industrial opportunities.
Under the terms of the latest joint venture, Banimmo subsidiary
Banimmo Real Estate France will manage the retail venture. It reunites
Pramerica with Banimmo, which the US firm acquired from Axa’s Belgium
bank in 2000. At the time it owned a €280 million portfolio of
53 properties in Belgium and Luxembourg. Pramerica acquired Banimmo
for €82 million, which marked the first corporate acquisition in
continental Europe, besting JE Robert and Fortress in the deal.
A few months later Pramerica refinanced 50 percent of its stake
in the company for a reported €43 million before selling its interest
entirely to Macquarie Global Capital Parters in 2002. The company
was then listed on the Euronext stock exchange. Under Macquarie’s
ownership Banimmo expanded into France in 2003 led by managing
director Patrick Henniquau.
“The French retail market has been gaining momentum,” Philip
Barrett, Pramerica’s chief investment officer in Europe, said in a statement.
“The relationship gives our investors the opportunity to benefit
from Patrick’s extensive retail experience.”
Pramerica revealed its latest joint venture on the same day it was
linked with an attempt to buy a one third stake in the Shard of Glass
mixed development at London Bridge station in London, which would
be Europe’s tallest commercial tower. The Financial Times reported
Pramerica was behind the State of Qatar in trying to buy the stake
from property investor Simon Halabi.
As of June 30, the UK accounted for 10.7 percent of Pramerica’s
$5.6 billion European assets under management, France accounts for
19.4 percent and Germany represents 20.4 percent.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 19
Europe News - Funds & Investors

Europe News - Deals
Leaving the shop
The sale of the majority of german assets out of its European
Property Investors fund comes as the firm warns real estate
investment in Europe could be in for some tough times.
London-based Curzon Global Partners sold 51 German retail assets in
prime city center and out-of-town locations to UK investor aAIM for
more than €900 million ($1.2 billion)—giving the firm a 3x return for
its largest fund, European Property Investors (EPI).
EPI bought the bulk of the German properties in two separate
transactions in 2005 when it acquired 35 stores leased to home
improvement chain Praktiker and 16 fashion stores leased to
SinnLeffers.
In a statement, the firm said that the properties, called the Gemini
Portfolio, totals 400,000 square meters of retail space and is 55
percent let to PraKtiker, 42 percent to SinLeffers with the remaining
three percent let to Droguerie Muller.
EPI raised €769 million when it closed in 2004. Unlike many of the
funds managed by Curzon and its affiliate AEW Europe, which tend to
be core-plus, EPI is further up the risk spectrum with a target return of
16 percent, as opposed to less than 13 percent for its other funds. The
vehicle’s strategy has been to invest in value-added and opportunistic
transactions in the retail, office and logistics sector in Europe.
“We’ve been heavily invested in Germany and we remain committed
to investing in that country,” Ric Lewis, chief executive of Curzon, said
in a statement announcing the sale. “The transaction was to return to
market weighting for the EPI Fund and our European portfolio in
general.”
In June, Lewis told PERE that Curzon was generally selling assets
ahead of its business plan.
The sale comes at a time of flux as liquidity problems wreak havoc
in the market. Two days after the firm released details of the German
transaction, Lewis said in a second release that property investment in
Europe is set for a “rougher ride.”
“Even with all the money around in the system, equity won’t be able
to replace debt in the market as it’s just not as fast moving,” he said.
“Our sense is that after a decade of strong absolute returns, property
is in for a somewhat rougher ride that will need to be navigated very
carefully.”
The firm said “shock waves” from the sub-prime mortgage crisis in
the US could stifle investment activity in Europe for the remainder of
the year and lead to casualties among the highly-leveraged players as
banks tighten credit lines.
Curzon managing director and head of research and strategy, Simon
Martin, said he thought the market could return to conditions in the
late 1980s and early 1990s where “everybody is waiting for the end of
year valuations to come in.”
“Activity simply dries up in the final quarter,” he said.
20 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Lewis: US subprime woes could be felt in Europe
Doughty makes Blythe purchase
Doughty Hanson and US-based REIT Liberty Property
Trust have acquired Blythe Valley Park from UK
REIT British Land for £161 million ($322 million;
€232 million). The site, comprised of 257 acres with
dedicated access to the M42 highway in the West
Midlands, contains 14 office buildings with approximately
500,000 square feet of space. According to
Doughty Hanson, a second phase of development
is planned for an 800,000-square-foot addition.
The acquisition is the second joint venture between
Doughty Hanson and Liberty: The two worked together
to acquire the 535,000-square-foot Kings
Hill business park in Kent. Doughty Hanson European
Real Estate Fund II has committed £58 million
of equity to the acquisition, including funding for
further development of the project.
Aberdeen outbid in norway hotel battle
Aberdeen Property Investors was trumped last
month in its bid to buy Norwegian hospitality group
Norgani Hotels for 3.5 billion Norwegian crowns
($612 million; €442 million). Rival Oslo Properties,
a single-purpose company set up to buy the hotel
chain, values Norgani at about 3.6 billion Norwegian
crowns. Norgani Hotels is Europe’s fifth largest
hotel property investor and is listed on the Oslo
Stock Exchange. Aberdeen Property Investors has
both a dedicated Norwegian fund and a pan-Nordic
fund from which to make the investment. The firm
is the Stockholm-based property investment arm of
the UK firm Aberdeen Asset Management and has
more then €12 billion invested on behalf of its institutional
clients. Its parent is quoted on the London
Stock Exchange.
Quinlan sells Prague office for €90m
Quinlan Private, the Irish private equity real estate
investor, has sold Charles Square Center, located on
Charles Square in Prague, for €90 million ($125
million) to Commerz Grundbesitz Gruppe for the
German’s group’s open-end public property fund,
hausInvest global. The nine-story building, which
was completed in 2002, is almost fully let. It covers
a gross lettable area of approximately 20,000
square meters, about 15,000 square meters of which
is office space. The sale comes a month after Quinlan
acquired The Atrium office properties in Amsterdam
for approximately €200 million from New
York-based real estate firm Tishman Speyer.
carlyle beat on London deal
Carlye has reportedly been bested to a prominent
London development site by Spanish property group,
Metrovacesa. The US private equity firm teamed up
with London-based Helical Bar to bid on a 1 millionsquare-foot
development, Walbrook Square. Insurer
Legal & Genera is looking for a partner to carry out
the redevelopment. According to Metrovacesa, it will
pay £240 million ($480 million; €346 million) for
the 3.7-acre site on Queen Victoria Street and spend
a total of €1 billion redeveloping the site into four
buildings. Carlyle was successful in acquiring European
factory outlet mall developer Freeport when
shareholders representing 96.94 percent of the company’s
stock accepted a takeover.

A law with few friends
forget REIT legislation. germany’s coalition government is working on a law for private equity that could affect
property funds. A number of drafts have been published, but no one seems satisfied.
After years of uncertainty over how private equity and real
estate funds based in Germany should be taxed, the government
is determined to deal with the issue once and for all. During
the last year, the Ministry of Finance has published a number
of drafts of a law on the subject, the so-called Private Equity
Gesetz. Still pending, the law has already achieved notoriety,
and throughout the process the government’s efforts have met
with fierce criticism from a range of parties.
Frustrations about the government’s proposal to limit
tax breaks for German private equity funds to early-stage
investment funds with less than €20 million ($28 million)
under management have been expressed. And not just by those
who would suffer the most obvious set-back—general partners
of funds in excess of €20 million of equity. Germany’s private
equity trade association, the BVK, has described the Ministry’s
stance as a “missed opportunity” in that it failed to create a
framework in which the whole industry could flourish, rather
than just a small section of it.
Equally critical noise has been coming from the German
buy side. The Bundesverband Alternative Investments (BAI),
which lobbies on behalf of institutional investors participating
in private equity, real estate and other non-mainstream asset
classes, has urged the government to throw out the draft and
start from scratch.
The BAI reminded Steinbrück that according to the European
Venture Capital Association, Germany already has one of the
least conducive legal and fiscal frameworks for private equity
investment in Europe. If the Ministry’s current plans were
to become law, the BAI expects institutional investment in
German funds to decline, despite German businesses having
“a significant need for private equity funding.”
It seems unlikely that the BAI’s intervention can succeed.
According to private equity professionals, the Finance
Ministry’s refusal to promote later-stage private equity funds
in Germany is underpinned by inter-coalition quarrelling.
Steinbrück’s left-of-centre Social Democratic Party (SPD) is
more skeptical of the benefits of financial investors operating
in Germany than Chancellor Angela Merkel’s Christian
Democrats (CDU).
Peter Struck, the leader of the SPD faction in Germany’s
lower chamber, recently said the country needed laws to help
its corporations in strategically important sectors protect
themselves against the growing influence of financial investors
—including private equity and hedge funds. He suggested
limiting private equity ownership of German businesses to 25
percent might be appropriate.
He also said his party was ready for a confrontation with
Merkel and her party over the issue later this year.
Europe News - Deals

Europe News - People
German expansion
king & Spalding, the 800-strong international law firm, is
following its clients by opening an office in frankfurt.
Opening an office in Europe in the current real estate investment environment
would give anyone pause for thought. Against this backdrop,
international law firm King & Spalding is opening an office in Frankfurt,
it’s foray into Germany. Scott Arnold, the New York-based cohead
of real estate capital markets, admits he thought twice about the
commitment over the summer. But in the end, he says, he thought that
the current climate would present more opportunities to private equity
real estate clients than hindrances.
“We have been considering opening in Germany for a long time,”
Arnold said. “In the US, we have had significant real estate work, particularly
in real estate private equity. A lot of funds are very interested
in expansion into Europe and Asia. Of course, we want to follow our
clients.”
King & Spalding, which operates five offices in the US, one in Dubai
and one in the UK, has hired two partners to join the Frankfurt operation.
Mario Leissner, until now the general counsel and head of legal
and tax at IVG-owned Oppenheim Immobilien-Kapitalanlagegesellschaft
(OIK), is a specialist in fund structuring, regulatory law, real
estate, corporate transactions and financing work. He has represented
real estate investment firm OIK in the US as it expands in the country.
Michael Prinz zu Löwenstein, the second hire, was until now a partner
with Heuking Kühn Lüer Wojtek in Frankfurt and has been active in
general corporate law, mergers and acquisitions, structured finance and
real estate for more than 20 years.
Arnold, together with William Fryer, the other head of real estate
capital markets, will divide his time between New York and Frankfurt.
Wilfried Witthuhn and senior associate Sebastian Kaufmann round out
the team in the new office. The firm will advise clients on European real
estate investments made by or on behalf of funds or funds of funds,
which span multiple jurisdictions, involving joint ventures, portfolio
transfers and the formation of European fund investment vehicles.
“Our lawyers have been handling real estate matters for Germanbased
clients for 30 years,” Robert Hays, chairman of King & Spalding,
said in a release. “With the tremendous surge of activity in the high-end
commercial property market in Europe brought on by extensive migration
of property stock into international investment vehicles, we believe
the timing is right to have a significant presence in Germany.”
Clients waiting for an invite to a Frankfurt reception will have to
wait a little longer, however. The firm was still in the throes of signing
a new lease on a Frankfurt property at the time of going to press and
preferred not to reveal the location.
22 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Arnold and Fryer: two heads are better than one
meyer Bergman adds principal
Meyer Bergman, the London-based, pan-European
developer that has re-launched as a private equity
real estate manager, has hired Arnold de Haan as a
principal and vice chairman. De Haan stepped down
as chief executive officer of Morgan Stanley-owned
Multi Corporation in May. He joins Meyer Bergman,
which has changed its name from MAB, as the firm is
on the fundraising trail for its maiden pan-European
property vehicle. Markus Meijer, chief executive officer
and son of MAB founder Ton Meijer, is leading
the effort, though Ton Meijer remains the chairman
of the firm. Prior to Multi, de Haan was managing
director of Germany’s Commerz Grundbesitz Group.
It is believed that Meyer Bergman’s new fund is looking
to raise €750 million ($1 billion) of equity.
RREEf Uk head leaves
Bill Hughes has parted company with RREEF as
head of UK business as the restructuring of RREEF’s
European operation continues. According to market
participants, Hughes left the firm on August 30 after
it became clear his role was no longer required under
a new regime designed to create a “one-stop shop”
in Europe led by duo Pierre Cherki and Chris Papachristophorou.
RREEF decline to comment on the
latest personnel change at RREEF, which follows the
departure of Daniel Rigny, co-head of opportunity
funds in Europe, who quit in June. Rigny’s departure
was preceded by the announcement that David
Brush, the former European head of RREEF Real
Estate and the global head of the firm’s opportunity
fund business, is set to retire next year.
choo joins Dechert’s London office
International law firm Dechert has hired Steven Choo
as partner in its finance and real estate practice based
in London. The former Clifford Chance lawyer specializes
in complex and high-value real estate finance
transactions. He joins at a time of major expansion
at Dechert, with five associates having been recruited
to join the group within the last two months. Many
major law firms appear to be gearing up in the midst
of the credit crunch: Salans has recently appointed
Keith Handley as senior member of the global real estate
group serving private equity clients among others,
while construction lending and co-lending expert
Marcell Clark has joined the same team. Steven Nagy
has also joined the mergers and acquisitions team.
AXA hires Standard investment director
AXA Real Estate Investment Managers has hired
Martin McGuire as fund manager for its European
property team. McGuire is managing the European
Added Value Fund, which was launched in April last
year and held a close on €422 million ($589 million).
Prior to joining AXA REIM, McGuire was
investment director at Standard Life Investments
where he was responsible for property portfolios in
Europe and the UK. “AXA REIM views Europe as
a significant area of future growth and Martin’s appointment
maintains our strong position to continue
to deliver performance and underline our commitment
to the region and to our investors,” Christian
Delaire, global head of fund management at AXA
REIM, said in a statement.

AsiaView
Unending demand
Indian property funds have popped up everywhere recently, but some are speculating
that the flow of investment into India could slow down. with all the capital that’s yet
to be invested, one wonders whether that may be a good thing. By Dave keating
Anyone who thought fundraising for
Indian real estate might cool in the second
half of the year has had to think
again. The month of September saw a
virtual monsoon of new private equity
vehicles dedicated to Indian property
blow into the market. Many of these
are backed by foreign capital.
Last month, Mumbai-based housing
lender HDFC closed its first real estate
fund for international investors. The
firm raised $800 million (€587 million)
from 28 foreign investors, making HDFC the largest private equity
real estate player for the moment in India. The same week,
Mumbai-based real estate fund Indiareit said it would unveil a
$750 million overseas fund by the end of the year. A short time
later, reports in India indicated that the private equity arm of finance
company IL&FS is close to launching a $1 billion Indian
real estate fund; that firm had already partnered with Milestone
Capital Advisors earlier in September, launching a fund to raise
$248 million for leased or rented properties. Similarly, Actis Advisors
is reportedly planning to launch its first India-dedicated
fund with between $250 million and $300 million in dry powder,
which will run alongside a $3 billion to $4 billion global
fund that will have a $1 billion allocation for India.
For sure, September was a busy month.
Since India loosened its rules limiting foreign investment into
the country’s real estate in 2005, India-focused private equity
real estate funds have just gotten bigger and bigger. According
to Indiareit, real estate funds focused on India have attracted
about $3 billion so far, and the firm estimates that as much as
$10 billion in overseas funds will be allocated to India in the
coming two and a half years. Moody’s Investors Service said in
June that the Indian real estate industry as a whole may grow to
$90 billion by 2015, from just $12 billion in 2005.
But compared to the mammoth amount of money being
raised, actual investment activity in India has been rather restrained.
There have been some notable recent investments, such
24 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
as the Starwood Capital and Walton Street Capital partnership
to develop a $1.25 billion, 20-million-square-foot township in
Kolkata. But much of the capital earmarked for India has yet
to be deployed. While capital formation for Indian real estate
investment has surged, deal activity is up only modestly. According
to Dealogic, $771 million worth of targeted real estate
M&A deals were completed in the first three quarters of this
year, just a slight rise from the $468 million spent in the first
three quarters of 2006. Unless the investment pace accelerates,
the India fund managers are going to have a hard time justifying
the increasing amounts of capital under management.
Some market observers are starting to question whether this
level of inflow is sustainable in the face of the global credit
crunch. Although the increasing trouble in the Western property
markets could make opportunistic investors flee to the
rosy outlook of India,
the credit tightening
could also make
investors more risk
averse.
Nicolas Berggruen,
the founder of US investment
firm Berggruen
Holdings, told Reuters last month that international
funds may change their tune toward India if the global situation
gets much worse. “These funds, if they are hit at home, they will
be more cautious abroad and they will have less resources, less
time, less money if they are hit by the global liquidity crisis,”
he told the news agency. “The fact that you had such a rush to
invest here and maybe too easy money here in terms of equity,
debt, etcetera, you may have a slowdown of that.”
Not everyone expects a global hiccup in the real estate finance
market to have much of an effect on India. Aniruddha
Joshi, executive vice president of Indian real estate investment
company Hirco, says scramble for assets in India will likely continue
unabated regardless of the activities of international players.
An old hand in the world of Indian real estate, particularly
in the development of townships, Joshi says real estate demand
in India is so intense, it limits the perceived risk of investing. He
also said the fact that you can always borrow money locally
makes India relatively immune to the wider squeeze. “The credit
markets in India have the advantage of being under-developed,”
he said. “You don’t have securitization of debt, so people have
been much more diligent about evaluating credit risk.”
These are good times indeed for owners of Indian property,
but nervous times for people buying into this booming market.
Some market observers are starting to question whether this level of inflow is
sustainable in the face of the global credit crunch. Although the increasing trouble
in the western property markets could make opportunistic investors flee to the rosy
outlook of India, the credit tightening could also make investors more risk averse.

Starwood, walton in $1.25bn Indian development
US private equity firms Starwood Capital and Walton
Street Capital are partnering with Indian property
developer Shriram Properties to develop a $1.25
billion (€900 million) township in Kolkata, India.
The three firms will each own a 33 percent stake
in Bengal Shriram Hi-Tech City Private, the special
purpose vehicle to develop the integrated IT township
and auto park on the former site of Hindustan
Motor’s Uttarpara plant in West Bengal. The township
will include residential, retail and commercial
real estate properties. Hindustan Motors will retain
about one percent stake in the project. Construction
of the project should begin within nine months and
will be completed in six years.
oaktree buys Pangaea
Los Angeles-based investment firm Oaktree Capital
Management plans to buy Singapore-based Pangaea
Capital Management to lead its real estate efforts
in Asia, the firm has announced. Terms of the deal,
which would give Oaktree access to a healthy pipeline
of property deals in Asia, were not disclosed.
Pangaea, a two-year-old special situations firm, has
25 employees across Singapore, Shanghai, Seoul
and Tokyo. Two-thirds of Pangaea’s investments are
focused on the real estate sector, specializing in distressed
debt, unbundling property from corporate
structures, securitizations and direct property holdings
and developments. The company invested $1.2
billion in 2006 and an additional $800 million so far
this year. The company’s chairman and founder, Robert
Zulkoski, will become Oaktree’s managing director
and head of real estate in Asia.
capitaLand sets up second china fund
Singapore property developer CapitaLand has set up
its second Chinese property development fund, having
raised S$900 million ($600 million; €439 million).
CapitaRetail China Development Fund II will
invest in retail mall development projects in China.
CapitaLand will hold a 45 percent stake in the fund,
with the remainder being held by institutional investors.
The firm’s first fund investing in Chinese malls,
CapitaRetail China, also raised $600 million for development
and is now more than 90 percent committed.
CapitaLand has also sponsored the S$638
million ($425 million) CapitaRetail China Incubator
Fund to invest in warehouse retail properties.
goldman and Ethos make South African casino bid
Ethos Private Equity, one of South Africa’s largest domestic
buyout firms, and Goldman Sachs are heading
a consortium to buy South African casino company
Gold Reef Resorts. The consortium has launched a
fully funded bid of R11.4 billion ($1.5 billion; €1.1
billion) for the casino group. Ethos, which last year
raised one of South Africa’s largest dedicated private
equity funds with $750 million in commitments, is
leading the bid alongside investment and real estate
funds managed by Goldman Sachs, as well as the
Black Economic Empowerment group, the program
launched in post-apartheid South Africa to allow
previously disadvantaged groups to participate in
economic opportunities. The investment is Goldman
Sachs’ first private equity investment in South Africa.
Twice the fund
Ljungöf: another vehicle in the market
Less than a year after its maiden foray into the region,
Stockholm-based Aberdeen has closed its first Asia fund of funds
vehicle at $600m, and launched a second.
Aberdeen Property Investors has held a final close for AIPP Asia, its
first Asian fund of property funds vehicle, at $600 million (€440 million).
The fund, launched in October 2006 with $91 million of equity
commitments, is believed to be the only Asian fund of property funds
on the market.
Bo Ljunglöf, fund manager of AIPP Asia, said the fund received
commitments from 15 institutional investors in the Netherlands, Switzerland,
Ireland, Denmark, Finland, Norway and Sweden. Its lead investors
included the Swedish groups Folksam and Handelsbanken Liv
and the Finnish group Ilmarinen.
Ljungöf said the first vehicle has so far invested $285 million in six
Asian funds. Two are dedicated to Japan, one is a pan-Asian shopping
centers opportunity fund, one is a pan-Asian retail fund and one is a
development fund in Malaysia. The firm has also made a co-investment
in Malaysia.
As a follow-up, Stockholm-based Aberdeen has launched AIPP Asia
Select, a new fund of funds which will have the same remit as the
first. Both the original fund and its follow-up are being managed by
Ljunglöf and Kang Puay Ju. Kang was previously at Dutch pension
fund ABP, where she helped establish its Asian real estate platform.
Prior to that, she was a vice president at GIC Real Estate, the property
arm of the government of Singapore’s investment division. She is
based in Singapore.
The pan-Asia Pacific funds aim to give investors a net annual internal
rate of return of between 13 and 17 percent leading to an annual
distribution of 4 percent. In addition to investing in funds, the vehicles
may also undertake co-investments and joint ventures that fit with its
overall strategy.
“Although the [second] fund has not been widely marketed yet, a
number of investors have expressed an interest in it,” said Ljunglöf.
“The Fund received initial seed capital from an institutional lead investor
at an early stage and a next closing is planned in October.”
Ljunglöf added that the new fund has specified that leverage for this
vehicle will not exceed 75 percent. It also has a lifespan of 10 years
rather than the twelve for the first fund.
Last year, Aberdeen launched the first and largest pooled fund of
funds focused on Europe. That vehicle raised €624 million.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 25
Asia/RoW News

26 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Winter’s day
During his years at Cerberus as head of real estate in Germany,
Ralph Winter oversaw billions of euros worth of acquisitions.
Having launched his own firm, Corestate Capital, Winter talks
with PERE about his firm’s strategy, the current investment
climate and how to choose the right name. By Robin Marriott

Berlin, may 25, 2004: a city and a date stamped in the memory of
Ralph winter, founder and chairman of corestate capital, as a
milestone in his career.
At the time, Winter was head of real estate in Germany for US
investment firm Cerberus Capital Management and, on that
late spring day, he had just presided over the closure of a controversial
€2 billion ($2.7 billion) acquisition of GSW, a residential
company owned by the State of Berlin with 65,700 flats
under management.
The sale to Cerberus and partner Goldman Sachs was controversial
for several reasons, not least because there were fears
that the new owners would kick out tenants. Local elections
at the time added to the tension. Berliners were deeply suspicious
of private equity—and secretive Cerberus was a relative
unknown.
Nevertheless, the firm prevailed. It took seven months,
countless meetings with 45 senators at Berlin’s Parliament, the
Abgeordnetenhaus, and even an event for 600 politicians, city
honoraries and pressure group representatives to meet the team.
Winter was spending four or five days a week in Berlin explaining
Cerberus’s strategy.
“We showed people our targets and that there were humans
in the background running the business,” he says. “We were
able to convince the government that we were a partner who
could pay a big price but, more importantly, that we would respect
all contracts and do something for the tenant, not against
the tenant.”
Taking a similar approach to buying a public sector asset
nowadays would be difficult, he implies: “What we saw in later
auctions was too much resistance from government.”
Today, with a CV boasting billions of euros worth of acquisitions
for Cerberus, Winter is in a very different position. He no
longer spends his time trying to win over Berlin politicians or
answering to his masters at Cerberus in New York. Winter now
has his own firm, Corestate Capital. He runs it from Zurich,
Switzerland, a location he calls “the best compromise between
work and life.”
Living near Lake Zurich with his girlfriend, a doctor, he says:
“The balance is fantastic, life is safe and people are much more
relaxed than anywhere else in Europe.”
Winter left Cerberus in May 2006 to set up Corestate at a
time when the opportunities for private equity real estate funds
seemed to be drying up. “We had a very good time there but we
saw that the opportunistic time frame was more or less over,”
he recalls. Interest rates were rising, prices were coming up and
competition from suitors with cheaper equity was getting more
intense. Winter decided it was time to
move on, but the way he did it sent
shockwaves all the way to New York.
A number of colleagues followed him
out of the door, including Thomas
Landschreiber, who became the chief operating officer at Winter’s
start-up.
Lessons learned
In building his new business, Winter applied the experience
gathered during his four years at Cerberus, starting with the
name. “Corestate,” which corporately is spelled out in capital
letters, doesn’t mean anything in particular, but that was precisely
the point. “Cerberus” is named after the three-headed
hound of hell in Greek mythology, with connotations that Winter
felt were not helpful when dealing with third parties.
“I think you have to avoid an aggressive name,” he says. “I
never thought it was an advantage to have the Cerberus name.
That was not funny for us.”
Another, more positive lesson he learned was the importance
of meeting the right people to secure support for a transaction.
At Cerberus, Winter and his team worked hard to meet politicians—so
much so in fact that they were beating local competitors
to the deals. For example, in the GSW sale, Cerberus
and Goldman went head-to-head with Apellas Property Management.
Though Apellas was backed by American speculator
George Soros, Apellas viewed itself as a local firm that would
beat their foreign rivals. They were wrong.
Even though the relationship didn’t last, Cerberus’ decision
to work with Winter was a smart one. In Germany, it helps to
speak German to do deals, and Winter acted as a bridge between
Germany and the US firm. The son of a driving instructor
and born just outside Frankfurt, he studied in his home city
and gained his first professional experience in New York, and
even came with the added advantage of having already run a
German real estate company, SAB. This was all crucial when
meeting politicians in Berlin.
“A senator doesn’t want to speak to someone in New York,”
Winter says. “He wants to be able to pick up the phone and say,
‘Ralph, this is my concern.’”
An early payback
Winter’s prediction in 2006 that the days of buying large portfolios
of German residential property and waiting for capital appreciation
would end appears to have come true. Indeed, there
have been more sales than acquisitions recently, and Cerberus
Blueprint
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 27

Blueprint
is cashing in its chips. In August, the firm sold its BauBeCon
portfolio for €1.6 billion to Italy’s Pirelli and Deutsche Bank’s
RREEF, in one of the latest transactions.
Corestate’s strategy is very different from the mega-deal approach.
The firm is buying small- and medium-sized assets below
the radar of the larger funds. “It is a very German play,”
Winter says. Corestate relies on relationships and connections
to families and insolvency receivers, as well as small and regional
real estate brokers. It is dealing with sellers who do not
want to negotiate their deals in English or have any lawyers at
the table. What they do want is to get the deal done quickly,
At the time of Ing’s investment, corestate had a pipeline of approximately €100
million and was moving fast: So fast, in fact, that in february 2007—just a few
months after drawing down capital for the first time, generating income and
completing a first exit—corestate was able to pay investors a dividend.
“sometimes in one or two weeks,” says Winter.
The strategy is all about targeting mismanaged assets and
managing them better. Value creation can be achieved by using
local networks to buy property at reduced rates, then working
hard at lowering vacancy rates within the portfolio. “You have
to look in much more detail at the asset,” says Winter. “What
we had done at Cerberus was to not focus in detail on the assets.
Day-by-day, prices went up. [In addition to the GSW deal,]
we built up an additional €800 million portfolio by buying €70
million [and] €80 million portfolios which were considered
small at the time. Today, small means €10 million.”
In pursuing bite-size investments, Corestate is taking advantage
of the fact that Germany has developed less of an asset
management approach to property than Anglo-Saxon countries.
Until recently, most of the residential stock has been in the
28 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
hands of municipal owners, and few people have given much
brain power to what can be done with certain assets. What Corestate
and others are now doing is thinking about hands-on
engagement, from condo conversions to refurbishments.
Corestate originally planned to list its first fund,CORESTATE
German Residential, but the idea was dropped in the face of
waning investor appetite for IPOs. Winter then began to turn
his attention to sourcing private capital and has raised almost
€500 million for the fund which, including leverage, aims to
invest €2.5 billion at a rate of up to €100 million a month.
The team’s track record from the Cerberus days was instrumental
in persuading inves-
tors to back the fund. Marketing
the product brought
the kind of challenge usually
facing first-time funds,
but a breakthrough came
when ING Real Estate Select
in London began to show interest. ING liked German residential
property—and then came to like Winter and his team
as well. The result was that ING decided to back Corestate by
seeding the fund with €45 million.
At the time of ING’s investment, Corestate had a pipeline of
approximately €100 million and was moving fast: So fast, in
fact, that in February 2007—just a few months after drawing
down capital for the first time, generating income and completing
a first exit—Corestate was able to pay investors a dividend.
Other blue chip investors have come into the fund, such as
CBRE Investors, Schroders, Lloyds TSB and the Shipbuilding
Industries Pension Scheme (SIPS), based in Sheffield, UK.
According to Winter, the firm’s network allows it to source
assets outside of auctions and at lower prices. As a result, Cor-

estate can afford to acquire properties at an 8 percent cap rate
against the 6.4 to 7 percent currently being paid in the sector.
And it seems there is no shortage of opportunity. Properties
often have vacancy levels running at 20 percent: If a buyer is
capable of reducing vacancies to 5 percent, they would have
plenty to work with. Another potential value driver is increasing
the rent, although given Germany’s stringent tenancy laws,
private equity buyers of large residential portfolios have often
struggled to do this effectively.
growth
Corestate’s residential fund has bought thousands of flats already.
During a three-week spree in February and March, it
acquired 6,020 flats for around €280 million from 11 different
owners in Berlin, Leipzig, Frankfurt, Bremen and Hamburg.
The next challenge will be to convince investors to commit
capital to its second vehicle, the German Commercial Properties
Fund. Similar to the residential vehicle, the commercial vehicle
has a target of €500 million and will aim to invest approximately
€2.5 billion. Winter predicts 70 percent of the total will
be invested in the recovering German office sector, particularly
in second-tier cities.
Stepping into commercial real estate might not seem like an
obvious step for Corestate, but then again, Winter has a track
record in this sector, as well. While he was at Cerberus, the firm
acquired more than €1.5 billion of commercial assets.
To achieve its deployment targets, Corestate is working with
regional brokers who bring the firm approximately 100 deals a
week, which the team then analyzes. Approximately 50 percent
of these deals are commercial property.
As the firm looks to expand into the commercial sector, it
has learned that its team is just as important as its deal flow.
Earlier this year, Manfred Hillenbrand, a market veteran of 20
years and founder of broker Knight Frank in Germany, joined
Corestate to manage the commercial property team alongside
Winter and Landschreiber. The firm has also hired Christian
Schulte Eistrup, the former head of European real estate strategy
and research at Morgan Stanley, as head of capital raising
and investor relations.
Already the group employs 60 real estate professionals working
out of offices in Frankfurt, Zurich and Bochum, a mediumsized
industrial city in Germany’s Ruhr District. Bochum is the
headquarters of the Dr. Ochel Gruppe, a specialist condominium
privatization company with 30 employees. Corestate acquired a
majority 51 percent stake in the company in March.
With such a large team in place, expect Corestate to look
at other opportunities in specialized sectors and maybe even
outside of Germany. Switzerland, where the firm is based, is a
potential target—despite the small size of the market and restricted
access to foreigners.
The coming months will see Winter and his colleagues flit
between Zurich, Frankfurt and beyond. The team will be in
Munich this month for the Expo Real trade show to increase
awareness of the firm and hopefully drum up more deals. The
event comes at an interesting time for real estate investors, with
the effects of the global credit crunch beginning to trickle down
to all levels of the real estate universe.
Many say a tougher environment will help sort the men from
the boys. Corestate might still be a young outfit, but what the
firm has done so far suggests it has what it takes to cope with a
downturn. Investors are taking notice. “Winter is a dealmaker,”
says one. “He understands how to make money.”
As long as this understanding doesn’t desert him, Winter
may be on his way to building a prosperous real estate investment
firm.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 29

30 PRIVATE EQUITY REAL ESTATE OCTOBER 2007

SPEcIAL REPoRT:
Nordic region
Comprised of some of the most competitive—if often
overlooked—economies in Europe, the Nordic region continues
to attract private equity real estate investors with its low-risk
profile, liquid markets, good transparency and a growing demand
for institutional real estate.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 31

Special report: Nordic region
Northern exposure
comprised of some of the most successful economies in Europe, the nordic region
continues to attract investors with its stable, low-risk profile. PERE travels north to
speak with fund managers making waves in the market.
As a term, ‘Nordic region’ can confuse some native English
speakers. Comprised of Denmark, Norway, Sweden, Iceland
and Finland, the term was popularized in the 19th century as
a way to encompass Finland in the group of nations, which
shares much common history with its western neighbors but
is not ethnically or linguistically Scandinavian.
Despite Finland’s difference in this regard, the bloc remains
one of the most culturally homogenous in Europe, and as a
region it ranks equally with Europe’s biggest economies. The
Nordic institutional real estate investment market is larger
than both the French and Dutch markets and—in Europe—
only the UK and Germany have larger property markets than
the Nordic region. Given the cultural similarities and ease of
cross-border operations, many investors and analysts find it
more helpful to look at the region as a whole, rather than
individual countries. For property investors, the high liquidity,
transparency, similar laws and business practices and stable
political and financial situation across the area make it an attractive
destination for capital.
The Nordic real estate market achieved new levels of turnover
in 2006, totaling approximately €40 billion ($56 million).
At the same time, recent and upcoming changes in governments
are relaxing some of the rules in the traditional Nordic
welfare state model. In Sweden, last year saw the defeat of the
left-wing government, which had been in power for 12 years,
by Frederick Reinfeldt’s center-right alliance. Already this has
resulted in tax cuts and the biggest privatizations in Sweden’s
history. In Denmark, a center-right coalition that has been in
power since 2001 is rapidly cutting taxes as it is threatened
by rising poll numbers from the left-wing opposition party. In
August the Danish government announced a new €1.3 billion
($1.8 billion) tax cut, prompting speculation it will call an
election in the fall.
The macroeconomic factors have prompted a rise in consumer
spending, generating increased investor interest in the
32 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
retail space. At the same time, increased activity in the labor
market is resulting in a higher demand for office space, particularly
in Stockholm and Helsinki. Meanwhile, the increased
foreign investment that these factors have spurred has resulted
in significant yield compression, especially in Sweden and Finland
where most of the international attention has been concentrated.
Finland, in particular, has seen a rapid decrease in
yields over the past several years.
In the pages that follow, we take a closer look at this exciting
and evolving market. We start by talking to investors in the region
and find out where firms are finding opportunity: Many
are revising their Nordic strategy to take into account falling
yields. At the same time, all investors need to understand the
differences between the countries in the region, where a rift
exists between traditionally more open countries, like Sweden
and Finland, and Denmark
and Norway, which
tend to be more closed.
But that doesn’t mean
that deals aren’t getting
done.
Next we catch up with
Johan Bergman, a managing
director with Stockholm-based
Niam, the
largest private equity real
estate firm in the region. Fresh from raising Niam Fund III,
Bergman talks with PERE about how the firm is broadening
its mandate and why it has shifted its focus from core
residential properties to opportunistic plays in the office and
retail sectors.
Finally, we’ll take a look at development opportunities for
retail properties in Finland, where rising consumer spending,
combined with a lack of existing retail stock, is spelling big
opportunity. Though the barriers to development for foreign
investors can be high, demographic trends indicate it could be
well worth the effort.
We also examine the facts and figures that make the Nordic
countries such an interesting investment destination. Jon
Lekander at Aberdeen Property Investors notes that although
the Nordic countries are often seen as a periphery market, the
numbers in fact show they are a central part of the European
economy and can stand toe-to-toe with their larger neighbors
to the south. With inflation under control, falling unemployment
and rising GDP, the Nordic countries will likely have
some good times ahead.
macroeconomic factors have prompted a rise in consumer spending, generating
increased investor interest in the retail space. At the same time, increased activity
in the labor market is resulting in a higher demand for office space, particularly
in Stockholm and helsinki.

urce : IP D
Total Property
Returns
noRwAY
O�ce rents in the major Nordic CBDs
DEnmARk
SwEDEn
Nordic prosperity
A round-up of statistics from Sweden, Finland, Denmark and Norway
€/m 2 /year
600
500
400
300
200
100
0
Oslo
Copenhagen
Gothenburg
COUNTRY POPULATION GDP
Sweden 9.1m 3.4
Finland 5.3m 3.3
Denmark 5.4m 2.7
Norway 4.6m 3.3
2000 2001 2002 2003 2004 2005 2006 2007E
Stockholm Helsinki Copenhagen Oslo
Country Population GDP
Sweden fInLAnD 9.1m 3.4
Finland Tampere5.3m
3.3
Denmark Turku
Stockholm
5.4m
Helsinki
2.7
Norway 4.6m 3.3
Malmö
Source: Newsec
Source: Newsec
Average property returns in the region
20%
15%
10%
5%
0%
-5%
-10%
€, bn
2000 2001 2002 2003 2004 2005
Sweden Finland Denmark Norway
Real estate transaction volume by country
18
16
14
12
10
8
6
4
2
0
1999 2000 2001 2002 2003 2004 2005 2006
Sweden Finland Denmark Norway
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 33
Source: Newsec Source: IPD

Special report: Nordic region
Rising interest, falling yields
with a thriving economy, the nordic region has seen a rush of investment over the past
several years. But as the stellar yields of three years ago have fallen, investors are
starting to look at new strategies for growth. By Dave keating
The Stockholm skyline at sunset is one of the most beautiful
sights one can see in Northern Europe. The sun, setting
over the Mälaren, bounces off the new and old buildings in all
directions. The landmark DN-huset office building on the water’s
edge, rising far above the surrounding properties, seems
to grab more of the sun’s rays than anything else. In fact it’s
impossible to miss it as you scan the horizon.
Perhaps it comes as little surprise that Niam, the Nordic
region’s largest private equity real estate firm, acquired the
tower last year. After all, big firms like big properties, and
Stockholm’s big properties have been receiving their fair share
of attention.
Sweden, the largest country in the Nordic region by population,
size, GDP and property market, is just one part of a
region whose successful economic past and rosy forecast for
the future have been increasingly attracting the attention of international
real estate funds eager to diversify their holdings.
But though the macroeconomic factors are expected to remain
strong, yields have been steadily decreasing as more and more
investors check in to the region’s two hottest areas for investment,
Sweden and Finland.
It’s not hard to see what has lured international funds to
the Nordic real estate market: Its high liquidity and transparency,
low frictional costs for transferring assets, good access to
property financing and stable political and economic outlook
make it an excellent target for investors who want to diversify
their exposure without significant risk. It also has a well-established
service industry in place, which makes the due diligence
process relatively painless compared to other markets.
The real estate markets of Sweden and Finland have opened
up significantly over the past several years, while their neighbors
in Norway and Denmark have remained largely closed
to foreign investors with a comparatively small number of in-
34 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
vestment opportunities.
One international firm investing in Sweden and Finland
is ING Real Estate, which first bought itself into the Nordic
property market in September 2005 and last September
launched a €1 billion Nordic Property Fund focusing on core
assets in the two countries.
“The shift of capital came from the fact that money is looking
for higher yielding properties all the time,” says Peter Helfrich,
ING Real Estate’s Nordic managing director. “There
were relatively higher yields in Sweden and Finland than there
were in the UK and in Holland, and in other countries. Everybody
wants to be able
to diversify, and here
you have less correlation
with the European
currency market, but
the market is also easy
to operate in. Clients
are asking for it because
they don’t have a
Nordic allocation, especially as the pension fund market is
maturing and it’s looking for diversification into new sectors
and areas.”
As transparency goes you can’t get much better than Sweden,
market participants say, and Finland has made significant
improvements over the past several years as well. Sweden has
a property register going back 100 years and has always guaranteed
the validity of these records.
“I don’t think that you’ll find any country in Europe that’s
less bureaucratic than Sweden,” says Lennart Sten, managing
director at US investor GE Real Estate, which has invested
€106 billion in Swedish real estate so far this year alone. “It’s
very easy to do deals in both Sweden and Finland. The state
guarantees that the property register is correct. If there was
something wrong with the register, you will be paid by the
Swedish or Finnish state—so there’s much less consultant cost
here than in many other countries.”
“I don’t think that you’ll find any country in Europe that’s less bureaucratic than
Sweden. It’s very easy to do deals in both Sweden and finland. The state guarantees
that the property register is correct. If there was something wrong with the register,
you will be paid by the Swedish or finnish state—so there’s much less consultant
cost here than in many other countries.”
capital invasion
The real estate transaction volume in the region reached new
heights in 2006 and 2007. The Swedish market alone had a

Special report: Nordic region
record total transaction volume of €16.9 billion in 2006, up
from the previous record of €13.9 billion in 2005, according
to Swedish analyst Newsec. The total transaction volume in
Finland more than doubled between 2005 and 2006, reaching
€5.5 billion. International investors accounted for 43 percent
of the deals in Sweden and more than half of the total in
Finland.
Doughty Hanson is one of those foreign investors. The London-based
firm’s real estate arm was one of the earliest international
entrants into the market through Doughty Hanson
European Real Estate I, which closed in 1999. Over the past
two years, the firm has been on a selling spree to realize investments
from the fund.
“What’s interesting is how dramatically the interest from
international investors has increased over the past few years,”
says Julian Gabriel of Doughty Hanson Real Estate. “It begs
the question, why weren’t more people interested in 2000 and
2001? The answer is that there’s now more of a willingness
for these investors to come into these markets. When we were
here in the early days, local players mostly liked to do business
with themselves. They were nervous about doing transactions
with outsiders.”
Aberdeen Asset Management has also been active in the region
for seven years through Stockholm-based subsidiary, Aberdeen
Property Investors. The firm now has a dozen countryspecific
vehicles in the area as well as a pan-Nordic fund that
invests in the whole region and the Baltics. Since then Blackstone,
Goldman Sach’s Whitehall Funds, Carlyle and Coller
Capital have also joined the party.
falling Yields
Investors like Doughty Hanson and Aberdeen certainly got in
at the right time. In 2000, property prices were relatively low
and yields were at a high. Today yields have bottomed out,
and the fast-rising turnover in the property markets has forced
both buyers and sellers to adjust to the higher demand.
“For a long time it was fairly easy to see, with all the interest
gathering up, that that would push the yields down and en-
36 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
hance the property values up,” says Sten. “I think that became
increasingly obvious in 2004’ as, for the last three years, we’ve
had this rapid cap rate expansion. For a long time cap rates
in central Stockholm were around 6 [percent]. Today, I’d say
they’re probably less than 4 or 5 [percent]. With all the money
coming, it almost had to happen because there’s only so much
property to buy.”
One macroeconomic factor also affecting yields in Stockholm
was its turnaround in March 2004, as the market
cycle turned up, vacancies stopped increasing and rental decline
ended. Since then, both the Stockholm market and that
of Gothenburg, Sweden’s second-largest city, have been in
recovery.
In Finland, the very high yields of just a few years ago have
also dropped. “Finland is almost getting to where the Swedish
levels are,” says Sten. “The problem is the yields compressed
too quickly. We haven’t done anything in Finland, but we
probably should have two years ago.”
However Newsec’s analysis predicts further yield compression
in Finland this year, with a transaction volume of around
€5 billion, meaning it may not be too late to get a good yield
spread in the country. In Sweden, however, yields may not
drop much further.
“We don’t underwrite yields going any further down, but I
can’t really say they’re coming up either,” says Niam’s Bergman.
As the heady days of low prices in Sweden and Finland fade
into the sunset, private equity real estate funds have adopted a
variety of strategies to target the best areas for growth.
follow the herd
Undeniably, the most popular play in the Nordic countries
right now is in office space. In both Sweden and Finland, the
labor market has drastically improved over the past several
years, creating a strong need for new office stock in both main
and secondary cities.
“In terms of performance outlook, the Nordic region is one
of the few regions where we have a very good outlook for
Stockholm: future looking bright

offices,” says Jon Lekander, recently appointed chief investment
officer at Aberdeen Property Investors. “If you look at
the four major office markets, there’s a different story behind
each one of those. Oslo has been doing well for some time on
the rental side as well as the investment side. In Copenhagen,
the demand is still robust, but the investment side is not as
strong now as it was six months ago. The most similar markets
in the Nordics would be Helsinki and Stockholm, where
both economies have done very well in terms of GDP growth
but the employment market has been lagging quite a bit. What
we see coming out now is that employment is picking up quite
significantly. The market in the past six months has improved,
which means that office rents are also slowly ticking up.”
Another factor particular to the Nordic region making the
office space an attractive target to some is the short-term lease
structure found in these countries. Office leases in Sweden and
Finland are typically three to five years, shorter than the European
average. In Finland you frequently find contracts-at-will,
where a tenant can get out of a lease with just a short notice
period.
“The drawback is that your income side becomes more variable,
but if you’re in the market and you know how to handle
it, it’s manageable,” says Lekander. “The benefit is your depreciation
tends to be lower, because once your lease contract
runs out you do some tenant improvement in order to lease
the office again. Our experience is it’s more of a benefit than
a drawback.”
going to norway and Denmark
In 2006, Norway had the second-largest total turnover after
Sweden, with its transaction volume growing by almost €3
billion to reach an impressive €8 billion, according to Newsec.
But those investments were largely from local players, including
a number of high net worth individuals.
In many cases, foreign investors just can’t compete with the
money floating around in Europe’s only oil economy. Still,
the noteworthy success of the real estate market in Oslo is an
attractive target for those with a local presence. Aberdeen’s
first entrance into the Nordic market was in Denmark and
Norway with dedicated
funds, investing in the
central office markets
of Oslo and Copenhagen.
Because of this
history the firm is able
to get in on deals where
other international investors
could not. At
press time the firm was
close to acquiring Oslobased
Norgani Hotels
for Nkr3.5 billion ($612 million, €442 million) bid.
“The Norwegian market is a very domestic market on the
transaction side; transactions are made much more quickly
than in other countries in Europe,” says Lekander. “So it’s
difficult for a non-Norwegian to understand how the system
works. But there are good opportunities there.”
In Denmark, a few big players in a small market with a lack
of product have made for a big perceived barrier to entry for
foreign firms. But some foreign investors have been able to
crack the market. Carlyle recently made two acquisitions in
Copenhagen, just a year after opening its Nordic real estate
office. In July the firm made its fourth Danish acquisition, the
purchase of a 49,100-square-meter office block in downtown
Copenhagen from KTAS Pensionskasse, the pension fund of
the Danish telecoms group.
“what’s interesting is how dramatically the interest from international investors has
increased over the past few years. It begs the question, why weren’t more people
interested in 2000 and 2001? The answer is that there’s now more of a willingness
for these investors to come into these markets. when we were here in the early
days, local players mostly liked to do business with themselves. They were nervous
about doing transactions with outsiders.”
Copenhagen: city of traders
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 37

Special report: Nordic region
Malmö: strong market in a secondary city
“Historically, Denmark is more of a nation of traders,” says
Thomas Lindstrom, the managing director for Carlyle’s Nordic
activities. “In Sweden it is more open and transparent, and
the processes when you sell properties are very structured. In
Denmark it’s more open to negotiations: There’s a little bit
more wheeling and dealing, which I think it’s a good thing.
Some other investors are a little bit hesitant to go into these
types of processes, because they think that the local competitors
will have advantages. But I think this presents more possibilities
and opportunities.”
Considering that vacancy rates in Denmark are now at an
all-time low and rent levels rose in most market segments in
2006, finding ways around the perception of a closed market
could be a wise strategy for international investors.
Buy from the state
Sweden’s national election in 2006 resulted in a massive shift
in government, with the center-right Alliance ending a 12-year
run by the left-wing coalition. The result has been a steady
program of tax cuts and privatization.
“The new government has said, ‘It’s not our core business to
be a real estate owner,’” says ING’s Helfrich. “So they’re selling
off many government vehicles, which still hold a lot of real
estate. Because they are government-owned, they have had the
tendency to not be very well managed, so we can add value to
these kinds of properties.”
There are several government disposal opportunities that
have just been sold or are about to come onto the market. The
city of Stockholm is selling all its shares in the retail company
38 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
CentrumKompaniet, which owns a portfolio of ten shopping
centers in the Stockholm area, to Boultbee in the UK for €1.2
billion. In September the Swedish government said its planned
sale of six companies, the largest privatization plan in the history
of the country at a windfall of Skr200 billion ($29.4 billion),
is now entering a transaction phase.
Finland saw a similar sell-off recently with the sale of government-owned
property investment company Kapiteeli to the
Finnish-listed property company Sponda, the largest transaction
in the history of Finnish real estate at an underlying value
of €1.3 billion. Sponda then turned around and sold part of
that portfolio to Goldman Sachs’ Whitehall Funds.
changes ahead
Though the lower yields may mean the purely cyclical game
is over, private equity players in the Nordic region are saying
there are still plenty of opportunities for active real estate
managers.
For those investors that can structurally add value, it is still
a promising area. And as for those foreign investors who have
been in the market for a long time, they say there’s still plenty
of room for newcomers.
“It’s more competitive now, but it’s become a better market,”
says Doughty’s Nils Styf. “There are now different types
of investors which are continuing to open up the markets and
provide more liquidity. Four years ago, all the liquidity was
in capital cities, but the liquidity today is high even in smaller
local realty markets. We won’t be seeing that interest stopping
any time soon.”

Special report: Nordic region
having focused exclusively on the residential sector for
your first two funds, why did you decide to broaden your
mandate for your third fund?
Niam Fund III, which is now almost fully invested, has been targeting
offices, retail, logistics and light industrial assets. We’re
an opportunistic fund; we don’t look at core assets at all. We
buy properties and portfolios with a problem. We wanted to
look at institutional properties that aren’t institutional for the
moment because of vacancies or they need refurbishment or you
can work on the cost side. We said, ‘Where we can add value is
through active management.’ Niam I and II bought blocks with
rental apartments. Those were pure residential bets—where
Niam bought portfolios of rental blocks in Sweden—and we
made out very well. But then the yields were at eight or nine
[percent] in certain areas, whereas now, in the same areas, the
yields would probably be four or five [percent]. So I think that
play is over.
So is adding value to residential properties in the nordic
region today too much of a difficult play?
Not always. What you can do in Sweden and Finland is develop
a rental property for sale because then you’re in the
free market. If you develop apartments for rent, the rents are
regulated so tightly in these countries you can’t add value to
them. But converting these properties for sale, I think that is
an interesting market. And that’s something we’re looking at,
especially in Sweden. It’s quite advantageous when you take a
property from the rental market and sell it because the ownership
market of apartments is a free market. So you take it
from a socialist system and put it into a capitalist system. One
example is a project going on right now here in Stockholm: We
bought a mixed-use block in a good city center location with
residential, retail and office space. We created a multi-level
property out of the residential part and sold it to the tenants.
What we made was an office building with shopping on the
ground floor and a storage area one floor below. It’s in a good
location in terms of subways and road access: There are lots
40 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Q&A
Johan Bergman
managing director
niam
Johan Bergman is a big name in Nordic real estate. As the managing director for
Niam, the largest private equity real estate firm focused on Northern Europe, Bergman
knows the market inside and out. Niam’s first fund in the late 1990s was also the
first Swedish property fund ever launched. Today, its first two residential funds have
been fully divested and the firm has closed its latest fund, Niam Fund III, which has a
larger mandate for other sectors and an investment capacity of more than €1.8 billion.
The vehicle has so far invested in Sweden, Finland and the Baltics and the firm has
been raising its fourth vehicle since early this year. We spoke with Bergman at Niam’s
Stockholm headquarters about the ways the firm is able to add value to its properties
in the Nordic region.
of people moving around the area. So now we’re transforming
the storage area and the whole floor beneath the building into
retail, and we’re actually quadrupling the square-meter rent,
because it used to be Skr800 ($119; €86) per square meter and
now it’s up to more than Skr3,000. That, of course, took some
planning and zoning and permitting, but in the end it was well
worth the effort. There are other opportunities in residential as
well. Sweden is one of the few countries in Europe that has a
growing population. We take quite a few immigrants, and the
birth rate is quite good as well. So a growing population needs
more apartments.
As foreign investors have increasingly moved into the nordic
market, are you feeling increased competition for deals?
Our competitors, as we see it, are really the local construction
companies that have a development arm and the major local
quoted property companies. Whereas the international players,
we see them today as the natural buyers of our products
once we fix them. We have some 20 locals on the spot here in
the Nordic countries. Of course, we have an advantage having
years of experience in this region. Also, being part of the Stronghold
Group where [analyst] Newsec is a sister company gives
us a big advantage over foreign investors. They are really the
Jones Lang LaSalle of the Nordic countries. Of course, there are
all kinds of Chinese walls between the two activities, but still,
we can utilize their network for sourcing deals. They’re in daily
contact with the whole market, and they’ve put together this
proprietary five-year model where they try to forecast yields,
rents, vacancies, returns and so on. And that’s not sold out to
the market, that’s kept within the group. Niam can then use
that model when we form our strategies.
what are your main strategies for adding value to
properties in this region?
It’s along the whole line. Over the past nine years we’ve had a
track record of 30.3 percent annual IRR. That’s done through
cost control. That includes actively managing the cost side, but

Post-sorting terminal: ready for the wrecking ball
even more so it’s about managing the income side. We want to
make all of the existing square meters pay more, and we do that
through re-tenanting, renegotiation and adding more space. It
also includes building more efficient units, as in portfolios. Of
course we have had a passive yield shift—that goes for all of
Europe. But we like to believe that we’ve actively been able to
accomplish some of the yield shift, as well, by doing things better
and by building portfolios.
can value be added through greenfield product
development?
Greenfield product development is well within our scope. We’re
in the midst of one major project now in central Stockholm,
right next to Grand Central Station. It’s a mixed-use hotel
and office project with some 60,000 square meters. Today it’s
a derelict building that will be torn down. We’ve been taking
it through planning, zoning and permitting and we will start
physical construction later this year. Previously it was a postsorting
terminal, but it’s been abandoned for a number of years.
It was city-owned. The city of Stockholm has wanted something
to happen on that site for some time.
when you’re looking to rezone like that, is that a difficult
process in Sweden?
The processes here are quite efficient. It still takes time, but
that’s the story everywhere. It’s predictable: You know pretty
much what you’re going to get. In Stockholm we have quite
tight zoning and regulations in terms of height, but that can
be good because you could say that that keeps the pipeline at
a reasonable level, in terms of putting new square meters out
on the market.
That’s perhaps one of the real advantages compared with the
foreigners, being able to move in that system and have the right
contacts in the different municipalities.We like to believe we are
quite good at handling the red tape.
why is it that you’ve chosen to target light industrial
properties for this latest fund? Is there significant
opportunity there?
We have some logistics and light industrial properties which are
predominantly in Sweden. The light industrial properties are involved
in various kinds of manufacturing, but not the polluting
kind, just assembling things. I think perhaps that’s a difference
between the Nordic countries and the rest of Europe. As an
asset class, light industrial is quite primitive; it’s less developed
here than in most European countries. I think the foreign investors
and the Swedish players haven’t really thought much
about it, but it’s definitely coming up, especially as commerce
increases.
Looking ahead, are you concerned that the global credit
crunch is going to negatively affect your investing here?
We see the credit worries as a good thing for us. The spread
has become too small between core properties and properties
that need a lot of work to become core properties. So, as we go
for the management-intensive opportunities, we want to see the
yields coming up for those properties, because, of course, then
we can buy them cheaper.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 41

Special report: Nordic region
If you build it, they will come
finland has seen ten years of economic growth, which has translated into robust
consumer demand. with a dearth in retail properties, there is opportunity for new
development—but it takes a lot of local knowledge to be successful. By Dave keating
Tucked as it is at the far northeastern corner of Europe, Finland
is often forgotten by its larger Western European neighbors. After
all, it’s only been an independent country for 90 years. Until
recently it was the only country in the EU to speak a non-Indo
European language (Hungary and Estonia have now joined it
in that honor) and that, combined with its geographic isolation,
has always made it seem like a foreign, distant place.
Yet throughout the past 50 years the country has had one
of the most impressive economies in the world. Today its per
capita output is equal to that of larger countries like Sweden,
France, Germany and the UK. The World Economic Forum declared
Finland to be the most competitive country in the world
three years in a row from 2003 to 2005. It’s a far different picture
than just 15 years ago, when the country was in the midst
of a severe depression brought on by the collapse of the Soviet
Union, which had accounted for 20 percent of its foreign trade
while it operated as a free market ‘grey zone’ trading with both
the USSR and the West.
Finland’s economic recovery since then has coincided with a
period of impressive growth in the Nordic region as a whole.
But the rapid recovery has yielded a country with increased
economic activity and few commercial centers to support it.
Helsinki in particular is poised for growth. According to
Nordic analyst Newsec, the Helsinki metropolitan area is one
of the strongest-growing metropolitan areas of Europe, with
its population forecast to reach 1.3 million by 2020. With a
nationwide demographic trend toward metropolitan areas, the
country’s secondary cities are also banking on growth in the
coming years. These expanding cities like Espoo, Vantaa and
Tampere will need new properties to be developed, particularly
in the commercial space, while existing commercial centers will
also need to be modernized and expanded.
42 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
capman’s strategy
CapMan, a domestic private equity firm based in Helsinki,
is targeting this demand as part of a new development strategy.
Already actively investing its first real estate fund, which
has been limited to core assets in Helsinki, the firm recently
launched a new development fund in April with €600 million
($833 million) in firepower. This second fund—which
will target the whole country and use a more opportunistic
strategy—is the first private equity fund to exclusively target
development opportunities in Finland. Markku Hietala, head
of CapMan Real Estate, says the firm is particularly focusing
on shopping center development
projects,
because the need for
retail space in Finland
is so great.
“The market has
been very good for
some time,” he says.
“If you’re building a
big commercial shopping
center you will
not have a problem
getting tenants in there. More people are coming to the cities,
so there’s been a big need for shopping center development for
many years.”
In June CapMan acquired an 11.5-hectare development site
in the Kivistö area of Vantaa, which it plans to develop into a
commercial center. The fund has also acquired sites in the cities
of Hämeenlinna, Tampere and Mäntsälä, all of which are
in southern Finland and within 200 kilometers of Helsinki.
The fund’s main focus is on developing commercial properties,
but it also has a remit for construction projects and redevelopment
projects in logistics, hotels and offices. The firm’s
plan is to develop the properties during a period of three to
seven years and then sell them.
“This second fund was taken very positively by our investors,”
says Hietala. “They were interested in the opportunistic
development part, but it’s quite impossible for them to do that
themselves. There are a few [institutional investors] who have
a big enough organization, but not many. They’ve expressed
their interest to us because we have a strong track record.”
This interest in development projects isn’t entirely limited
“The market has been very good for some time. If you’re building a big commercial
shopping center you will not have a problem getting tenants in there. more people
are coming to the cities, so there’s been a big need for shopping
center development for many years.”

Dowsett: the funds are not dumb investors
to Finnish investors. Stockholm-based Niam, the largest private
equity firm in Northern Europe, is also actively targeting
shopping centers in Finland for development or add-ons. The
firm recently acquired Kesko, a large Finnish retail chain, for
€200 million.
“We acquired Kesko with an eye for add-on projects,” says
Niam managing director Johan Bergman. “They have grocers
and a brand for home improvement stores. Within that portfolio
there are lots of opportunities to do add-on projects by
either extending the existing store area or building totally new
stores next to existing ones. That’s a portfolio with some 80
or 90 assets all over Finland, so there are quite a lot of possibilities
there.”
Same need, different supply
Private consumer consumption in Finland is forecast to grow
by 2.5 percent during 2007, according to Newsec. This growth
is also mirrored next door in Sweden. The Swedish Research
Institute for Trade predicts that retail sales in Sweden will
grow by 5 percent in that country in 2007, having already
grown by 7.5 percent in 2006. The factors causing this growth
are similar in both countries: Lower unemployment, wage increases,
minor tax cuts and a healthy economy have all helped
these numbers rise.
Helsinki: room for development
The big difference between the two countries is that Sweden
already has the commercial properties to handle this growth,
while Finland does not. Finland actually has one of the lowest
rates of shopping centers per inhabitant, roughly one third
that of Sweden, according to Newsec. Construction has been
heavy to make up the difference, with retail construction activity
in Finland peaking in 2003 at the highest level since the
late 1980’s.
Most of these projects have consisted of retail parks, shopping
centers and hypermarkets along the main highways and
ring roads in southern Finland. Currently the total retail stock
in the Helsinki metropolitan area consists of just 3 million
square meters of space. This number is rising fast to meet the
huge need. In the first three quarters of 2006 alone, 100,000
square meters were approved for retail building permissions
in Helsinki.
“In Finland, there isn’t much risk of oversupply,” says Bergman.
“But I think Sweden is the country in Europe with the
largest amount of square meters of shopping centers per capita.
Private consumption’s been growing very healthily, and is
forecasted to continue to do so. But still, I think in Sweden
you should be a bit more cautious with retail. There’s already
so much stock, and if you look at Stockholm, there’s a very
impressive pipeline of more shopping centers coming up. So
we would be on the cautious side there.”
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 43

Special report: Nordic region
Hietala: focusing on shopping centers Fogelholm: projects can be complicated
Barriers to entry
As much as the commercial development is needed, foreign
investors are saying it is still a difficult play without a significant
local presence.
Christian Fogelholm, head of the real estate transactions
practice at Finnish law firm Borenius & Kemppinen, says he
has seen much interest from foreign investors in development
projects, but such acquisitions can be complicated enough to
scare them off.
“As yields compress and foreign investors see less opportunity
to buy cheap, they’re looking at development as a good
opportunity,” he says. “But it’s difficult because it requires a
lot of knowledge of the local market.”
“It’s a lot of work and the risks are very difficult to evaluate,”
agrees CapMan’s Hietala. “You need local connections
to make things happen. It’s important to know how the different
communes are working.”
Hietala also says that although the Finnish market has become
more open recently, there are still some hang-ups about
foreign ways of doing business.
“Foreign investors have new business habits and ways that
older people may not be used to,” he says. “They may not like
Anglo-Saxon business methods, or agreements all in English.
There is a part of the market that is not interested in working
like that, and of course it’s a possibility for us [as a local firm]
not to.”
But while foreign investors have mostly shied away from development
projects, they’ve been actively snatching up existing
retail properties throughout the country. Doughty Hanson got
in on the game early. In 2004 the firm acquired a portfolio of
eight shopping centers from Ilmarinen Mutual Pension Insurance
Company in Finland. In August the firm sold the last of
the properties, the Iso Omena Shopping Center in Helsinki, to
44 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Citycon Oyj for €329 million. Now completely divested from
the Finnish retail market, total returns from that portfolio
were 7.6x on the fund’s equity investment, with a gross IRR
of 100 percent. Doughty Hanson sold three of those portfolio
properties to ING Real Estate in May for €186 million.
The firm undertook an active management strategy while it
held the properties. At Iso Omena, it obtained 7,000 square
meters of additional building rights to extend and redevelop
the center, increased the rental income and increased the occupancy
to 100 percent.
Other transactions in Finland’s retail sector in the past year
include JER Europe Fund II’s €42 million acquisition of a
retail portfolio from Finnish company RealInvest; Kenmore
Property Group’s €74 million acquisition of 76 retail and
industrial units from Citycon Oyj; and the sale of Helsinki’s
Kamppi shopping center to a partnership of Britain’s Boultbee
Construction and Royal Bank of Scotland for €345 million.
Kamppi shopping centre, built above Helsinki’s new underground
bus and coach terminal, opened in March 2006 and
tallied more than three million visitors in the first month.
Given the high level of retail construction, it may be only
a matter of time before foreign players decide to move into a
development mode or undertake significant redevelopment at
some of these properties. Hietala suspects that, like Sweden, it
will not be long before the foreign funds become comfortable
with retail development plays.
“A big difference between us and Sweden is that foreigners
have been there so long they are now already selling,” he
says. “They’ve come here and they’ve stayed here, so I suppose
our liquidity will stay also. Sixty foreigners have already made
acquisitions here, but many have only done one or two deals.
Only a few have a long track record. But I do think those
investors will stay.”

UK student accommodation
Back to school
Student halls are not just hangouts for undergraduates these days. As some highprofile
London projects have shown, student accommodation has become an attractive
asset class for private equity real estate investors in the Uk. By Robin marriott
Turn left out of the King’s Cross train station in north central
London and walk east along Pentonville Road. Dodging the
hamburger wrappers and backpackers, visitors pass a betting
shop, a luggage shop, an internet café and numerous fast food
counters. Walk further still and you come to a hodgepodge
of uninspiring buildings, including the headquarters of senior
citizens charity Help the Aged.
Given the drab surrounds, it makes it all the more surprising
to find a new development rising 16 floors above the street
complete with twin towers decked out in funky two-tone blue
panels. The building’s ground floor is being fitted out with
trendy shops and smart cafes.
This building—the only new development currently visible
from King’s Cross station—is not the headquarters of a cuttingedge
media company or an edgy architectural practice—rather
it’s one of London’s newest student accommodation blocks.
The first of 1,045 students began renting studio flats and
private apartments at Nido King’s Cross last month. For
£180 (€264; $365) per week for a studio (or £120 for shared
apartments), students can live in high style with access to free
internet service, separate study rooms, a gym and even laundry
cleaning with pick-up service. Security is provided for by
swipe cards.
Nido, which means “nest” in Spanish and Italian, is the
name of a student accommodation platform owned by The
Blackstone Group, which hopes to scale up the business across
Europe starting from its London base. As well as the £95 million
investment in King’s Cross, the firm has a second, larger
project planned for the City. When both projects are complete,
Blackstone will operate 2,200 upmarket student beds in London—with
more to come.
46 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Student demand
According to market participants, there is a strong demand
for more student housing in an international city like London,
which attracts students from all ends of the earth. Stuart
Grant, a managing director of real estate at Blackstone, said
the firm began looking at the sector three years ago and recognized
the opportunity in the space thanks to growing demand
and a shortage of supply in London and other key markets.
“London has
a strong stu-
dent body and
the Mayor of
London [Ken
Livingstone] is
promoting the
city as a worldclass
learning
center,” he says.
“You are seeing increasing numbers of foreign students here
particularly from America, China and other parts of Asia, as
well as Europe.”
There are 300,000 foreign students in Britain, which makes
the country the second largest importer of students in the
world after the US. Moreover, the supply-and-demand equation
in London, where Blackstone is focused, points to increasing
rents. According to the firm, there are an estimated
33,000 institutionally owned and operated student beds in the
city. The dorms are running at 100 percent occupancy and
demand is running at levels high enough to fill 120,000 beds,
notes the investor.
Students coming to London from China are one of the three
major groups fueling demand, according to Blackstone. A side
effect of Beijing’s loosening grip on foreign travel is a 62 percent
increase in Chinese students studying in the UK since
1998. Secondly, students from recently admitted EU member
states are also putting pressure on rents and continued enlargement
of the EU is expected to bring an additional 20,000
students to the UK from Europe over the next five years. The
third group come from the US, with a fair number being attracted
to London’s storied business schools.
“London has a strong student body and the mayor of London [ken Livingstone] is
promoting the city as a world-class learning center. You are seeing increasing numbers
of foreign students here particularly from America, china and other parts of Asia, as
well as Europe.”

UK student accommodation
Private dorms
A fundamental shift has taken place in student housing in
Britain. In the 1990s, it was construction companies such as
Jarvis who spotted an opportunity in student accommodation
by buying properties from universities and taking over
the management contracts as well. Nowadays, private equity
firms, real estate fund managers and operators with private
funds have muscled onto campus.
There is little mystery why private equity firms are moving
into the space. About three years ago, investors saw that
returns from UK commercial property were dipping after an
unprecedented bull run, so many began scouting fresh oppor-
Nido King’s Cross: a nest above London
tunities. Upon close inspection, some concluded that demographic
trends and economic data indicated that student accommodation
could be an attractive investment proposition.
“The market has moved,” says Trishul Thakore, vice president
at placement agent M3 Capital Partners. “It started with
universities selling stock on long leases that they had built or
with entering into outsourcing contracts. People saw that as
dry, long-term investments with inflation-linked rental uplifts.
Now purpose-built new accommodation is being built typically
off-campus in city centers.”
Thakore—who helped Britain’s biggest student accommodation
company, Unite, close its £370 million UK Student
Accommodation Fund this year—explains how the sector is
set to outperform traditional asset classes. “Expected total returns
are approximately 200 to 300 basis points higher than
48 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
core real estate for stabilised student accommodation properties
with good prospects for rental growth,” he says.
Unite’s fund is Europe’s largest specialized vehicle focused
on owning and acquiring direct-let student accommodation in
the UK, but there are other significant players that have moved
into managed student accommodation funds recently. Pan-
European property fund manager firm Cordea Savills recently
raised a Student Hall Fund, having spent six months in 2006
researching the sector. It tapped some of the unsatisfied demand
for Unite’s vehicle and returned 19.5 percent in its first
year. The exceptional return has been helped by yield compression;
the long-term target of the ten-year vehicle, however,
is 10 percent.
There are others firms investing in the sector, too. One of
those with a longer pedigree is University Partnerships Programme,
a company jointly owned by Barclays Private Equity
and London LBO shop 3i. The private equity firms backed
a management buyout of the business in 2004 when it was
a division of construction company Jarvis, which began by
building blocks for universities via private finance initiatives
in the 1990s. Another investor in the space is London-based
Brandeaux, whose Brandeaux Student Accommodation Fund
owns 10,000 beds, is into its eighth year of operation and
targets annual returns of 8 to 10 percent a year.
class risks
There are varying operating models at work in the industry,

ut at the higher end of the risk spectrum are funds that own
an operating company that manages planning, construction
and direct leasing risk.
Renting rooms directly to students can obviously be more
challenging than other sectors where leases are typically longer
than a school year: Not only does the operating company
have to fight for footloose—and increasingly demanding—
students in a competitive market such as London, but once
it gets them it faces the challenge of “re-leasing” its properties
each academic year. To an extent, Unite and Blackstone
mitigate the present risks by issuing 41- or 42-week leases and
locking students in for the whole term.
Few students move during the academic year so companies
don’t have to worry about filling rooms during
a term, but companies in the student accommodation
business also face management challenges.
For example, at the end of each term,
the rooms need to be readied for the next occupant—not
necessarily the easiest thing to do
as anyone with a passing knowledge of student
cleanliness and hygiene can attest. In addition,
reputation is everything: Fickle students will
rapidly spread the word if a property fails to
match expectation.
For Blackstone, some of the risk is mitigated
because the firm’s properties are not dependent
on just one or two nearby universities:
Its blocks are situated to take advantage of
numerous academic institutions in London.
Unite is following suit by significantly increasing
capital deployment in London and investing
in properties that can also service multiple
universities.
Moreover, to balance the local market risk,
globetrotting Nido executives are busy striking
up longer-term deals with universities
across the world. New York-based Blackstone
has the obvious home advantage of signing up
American academic institutions to so-called
“nomination agreements”—essentially longterm
commitments by a school to send students to a company’s
halls. It is also adding to its stable of clients by visiting
academies as far apart as Hong Kong, Mumbai and Montreal.
Longer-term lets with universities and short-term lets with individual
students can help mitigate risk by creating a “hybrid”
of leasing risks, according to Grant.
Cordea Savills operates a variation on the Blackstone and
Unite investment models, seemingly at the less risky end of
the spectrum. Though Cordea Savills directly leases around
a third of its assets to students, two-thirds of the £300 million
invested to date are in properties subject to nomination
agreements or, safer still, long-term leases to student housing
operators.
Last year Cordea Savills studied the British market over a
period of six months, compiling an internal report with intel-
ligence on every university student hall across the UK. This
helped it steer away from cities such as Liverpool and Lincoln,
where it found oversupply as a result of significant amounts of
completed halls. This sort of oversupply makes direct leasing
of student accommodation very risky, according to Andrew
Allen, head of research and strategy at the firm.
But is has also found opportunities. For example, in March
it bought a 179-room student hall development in central
Loughborough, a short walk from the local university.
With more funds chasing student accommodation, properties
have become more expensive to buy and Blackstone’s
Grant says yields have fallen 2 or 3 percent. But a wider issue
might be what happens in an economic downturn.
In a downturn
Given that the UK government has a target to increase the
number of young people going through university, there is
little wonder why some see student accommodation as a safe
bet even in weakening economies. This thesis could be tested
if the subprime crisis in the US fosters a widespread economic
malaise in the UK.
“There is something quite strange about student halls,” says
Allen of Cordea Savills. “The fundamental drivers of demand
are nothing to do with economies. The worse the economy
gets, the longer students study.” He notes this has been the
case in Germany, which is only just beginning to climb out of
economic stagnation.
However, Allen does not go as far as to say that student
accommodation is immune from an economic downturn. In
fact, some of the challenges to investing in student housing are
discussed in a recent report published by RREEF, the infrastructure
and asset management arm of Deutsche Bank.
In “Prospects for Student Housing Investment,” published in
April, the investment firm says that the student accommodation
sector has gained awareness globally, particularly as three
student housing real estate investment trusts (REITs) have
launched in the US since 2004. In the US, the student population
is growing twice as fast as the US population, the report
notes. It also says university-owned accommodation has failed
to keep up with demand and the private sector has been slow
to fill the void.
However, the report concludes that the student accommodation
sector could be hit hard in the event of an economic
downturn. “The demand for student housing overall is less
cyclical than for other real estate categories,” the report concludes.
“Even so, student housing projects may see occupancy
fluctuate over the course of the business cycle, as more students
opt for less expensive units during recessions.”
This could affect the posh upmarket dorms that Blackstone
plans to roll out and investors in student accommodation
might find students more concerned about cost—and less interested
in fancy trimmings. Still, the concept has yet to be
fully tested in the UK and, for now, there is little sign that
student accommodation investment is a passing fad.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 49

US firms move abroad
US firms, global strategies
The world of private equity real estate—not a huge community to begin with—is
getting smaller as more and more US-based firms look at ways they can take their
strategies to Europe and beyond. By Aaron Lovell
In early 2006, Behringer Harvard made their first investment
in Europe. The Dallas-based real estate investment firm
teamed up with Hamburg-based HCI Capital to acquire a
five-story office property near Schipol Airport on the outskirts
of Amsterdam.
It was a modest investment, but turned out to be the first
step in the evolution of the firm’s European investment strategy.
Later in the year, Behringer Harvard announced a fullfledged
joint venture with HCI to invest $1.3 billion (€1 billion)
in European real estate, looking at product across the
sectors and with a regional focus on the Netherlands, Germany
and the UK.
“Real estate has become more and more global, and in a
global view European real estate still holds and promises a
lot of potential,” Oliver Georg, a managing director at HCI,
said in a conference call at the time of the announcement.
“Through solid, improving economic fundamentals in Europe,
there is a strong potential for rental growth combined with a
realistic opportunity for yield compression.”
The partnership, which is targeting short- and mid-term opportunistic
and value-added investments, acquired two more
office buildings in Amsterdam this fall. Speaking recently
about the firm’s move abroad, Jason Mattox, executive vice
president at Behringer Harvard, says it had always been a part
of the firm’s overall growth plan. “This has been a long-standing
goal,” he says.
going global
The firm’s growth from a US-focused player to one with an
international presence is something many firms are seeking
to emulate as they look to establish platforms abroad in Europe,
Latin America or Asia. The benefits to a move abroad
are myriad, but close to the top of any list is a growing need
for geographic diversification.
“The larger real estate investment community has turned in
a verdict that investing overseas is part of proper diversification,”
Mattox says.
As institutional investors have increased their allocations to
real estate, many have also expressed an interest in increasing
their geographic diversification—if a fund manager is
experienced.
“Investors like their fund mangers on the ground,” Dee Dee
Sklar, managing director and financial institutions head at
West LB Capital Markets, says of real estate fund LPs. “They
50 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
like their fund managers to either have direct geographical
presence or solid local operating partners. Investors do a
great amount of due diligence to decide on countries and fund
strategies.”
Susan Stupin, a managing director with The Prescott Group,
a firm that has done real estate advisory work around the
globe and has plans to expand its investment program to Europe
in the near future, says moving into some emerging European
markets also offers investors a “unique opportunity to
be part of the expansion of the economy.”
To a lesser extent, Stupin also says that, while US firms are
exporting their own expertise abroad, they can also learn from
their local operating partners, particularly in areas like green
buildings and energy-efficient design which have advanced in
places like Europe and the Middle East.
US- and global-focused firms are able to bring intellectual
capital into new markets, says Sklar of West LB. For example,
in some markets, she says, firms can increase leasing at a property
by doing something as simple as keeping the rental office
open over the weekend.
Other investors are encouraged by the continued development
of more liquid markets in Europe, spurred on by the introduction
of tax-efficient real estate investment trusts: These
vehicles were introduced in the UK this year, while Germany
continues to mull a similar vehicle.
For Behringer Harvard, a firm that has a number of real estate
investment trusts in the US, the development of REIT-style
vehicles in Europe also encouraged the firm’s expansion into
Europe. Mattox says that the new structures are helping to increase
liquidity and interest in institutional-grade real estate.
Dipping a toe in the water
In an increasingly globalized world, overseas expansion is increasingly
seen as a natural step in the evolution of a private
equity real estate firm. For a large investment bank, taking
an investment platform abroad might be relatively easy—especially
if it already has people on the ground and an international
presence. For a smaller investment firm, it can be a
trickier proposition.
Once a target market is identified and thoroughly researched,
a firm will usually proceed with a local operating group and
look to test their investment thesis vis-à-vis a small deal, a
path pursued by Heitman in Poland or Walton Street Partners
in Mexico. As the firm becomes more confident and comfort-

Sklar: LPs want managers on the ground
able, it will most likely increase its activity and incrementally
grow into the new market, practitioners say, eventually establishing
a more formal partnership with a local operator or
investment firm.
Sometimes another business line at the firm—like a real estate
investment bank or leveraged buyout arm—can provide
entrée in new markets. For firms with international investment
banking or advisory practices, doing project financing
and raising capital in a new market can sometimes lead to an
expansion of the group’s investment platform. This was the
case with The Prescott Group, which is looking to establish a
European office in France or Germany, and has done various
advising work in Europe, Mexico and Australia.
“In some cases, it has been used to dip a toe in the water
by advising clients active in those markets,” Stupin says, adding
that advisory work is an important way to meet potential
operating partners.
Stupin also says that US firms can also look into establishing
a joint venture arrangement with a European wealth management
firm, a path that Prescott is exploring. A joint office
in Europe gives a US firm the opportunity to expand their
franchise in a new market—and have access to other markets
throughout Eastern and Western Europe.
know your partner
Mattox: firms’ need for diversification
Moving into any new market, foreign investors need to be
aware of the country’s legal and regulatory climate and, to a
lesser degree, communication issues—and these must be factored
into a firm’s strategy.
“There is an education challenge,” says Maury Tognarelli,
chief executive officer and president of Chicago-based Heitman,
a real estate firm that expanded into Poland and Central
Europe in the mid-1990s and is now looking at Russia. “You
are dealing with a completely different culture, a different political
structure, a different economic environment and a different
real estate market. You really have to make an up-front
investment to get comfortable with all of those dynamics.”
Stupin: starting with advisory work
Along with the cultural differences, Tognarelli adds that
the time difference adds another layer of complexity, as the
management of people and assets is made more difficult when
offices are separated by several time zones. Once firms master
those challenges, he says, they can focus on learning about the
country’s property market.
In addition to knowing the new markets and their inherent
risk, many GPs who have made the jump stress the need to
have a quality local partner. After all, this group will usually
be the partnership’s face in the country and its on-the-ground
presence. In many cases, the partner will be in charge of dayto-day
property management—and an integral part of any
sort of lease-up strategy, for example. This makes having the
right partner, in Mattox’s words, “bottom-line essential.”
Stupin says selecting the right partner is an important part
of any expansion—and one deserving of plenty of scrutiny.
“Who are you dealing with?” she asks. “Who is your operating
partner? How well do they know the marketplace?”
But once those questions are answered and the platform is
up-and-running, opening additional overseas offices gets easier,
market participants say. After opening their initial European
office, Heitman went on to add offices in other European
countries and, in 2005, established an Asian presence with an
office in Tokyo. It got easier for the firm to expand, Tognarelli
says, because the firm already had a sense of the tax and regulatory
challenges in each country.
“It’s not as complicated a step as your first one,” he says.
“You’ve got a much higher degree of comfort with the issues.
Your expectations are much better reflected in what you see
going forward.”
Firms are establishing these offices as the markets of Europe
and Asia present an attractive investment proposition for successful
US firms. But moving into a new market—be it suburban
Amsterdam or the heart of Sofia—a firm can’t lose sight
of the strategy and philosophy that made it successful in the
first place.
“You don’t have assets overseas for the sake of having assets
overseas,” Mattox says. “You have to have a purpose.”
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 51

Nuts & Bolts
Below-market upside
As Apollo Real Estate and Ing clarion have shown, subsidized housing in new York
city is the biggest game in town. forget about the red tape – the hardest part is
finding and winning these prized assets. By Eva Poon
It wasn’t a typical New York City housing deal—private equity
real estate firms investing in Big Apple residential assets tend
to gravitate to shiny, glass-clad buildings and ritzy Manhattan
addresses. But in late 2005, Apollo Real Estate Advisors made
headlines by acquiring an eight-building public-housing complex
in the decidedly less tony Soundview section of the Bronx.
The deal, valued at $100 million (€72 million), involved 19story
residential towers bordering the 158-acre Soundview
Park, located southeast of the intersection of the Bruckner Expressway
and the Bronx River Parkway. Comprising 1.4 million
square feet of residential space, the low- to middle-income
complex has been namechecked in hip-hop hits, a point of
pride for some but not necessarily an indicator of rising property
values.
“we started by formulating a strategic plan. Demographic trends including
increase in population, the reemergence of the urban cores of major urban areas,
the decreasing attractiveness of suburbs, increasing commute times—all of that
leads to a repopulation, flight from the suburbs.”
The companies that made up the Soundview project—the
Lafayette Morrison and Lafayette Boynton housing corporations—were
rechristened Lafayette Estates after being acquired
by Apollo. They fell under a New York housing program
known as Mitchell-Lama.
Bidding wars over similar developments, such as Stuyvesant
Town-Peter Cooper Village in Manhattan and Starrett City in
Brooklyn, are testament to a shift in investor appetite toward
a road less traveled, in this case, properties tied up with regulatory
complexity. Despite seemingly insurmountable bureaucratic
obstacles, including a year-long, state-regulated buyout
process, private investors have been circling New York’s socalled
Mitchell-Lama affordable housing developments. These
deals are hard to come by and hard to execute, but they offer
surprisingly conservative risk-reward profiles.
News of the Lafayette Estates acquisition came as no surprise
given Apollo’s record of outer-borough acquisitions. But
the firms still had to do a special kind of homework on the
apartment complex, which it plans on turning into co-ops to
52 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
capitalize on the rising numbers of people moving to the city.
“We started by formulating a strategic plan,” says James
Simmons, a partner at Apollo. “Demographic trends including
increase in population, the reemergence of the urban cores of
major urban areas, the decreasing attractiveness of suburbs,
increasing commute times—all of that leads to a repopulation,
flight from the suburbs.”
Apollo acquired the Lafayette Estates for $41,000 per unit,
or $53 per square feet—an acquisition price approximately 70
percent below market. The units will be sold to existing tenants
for approximately $80,000 per unit and to the open market for
approximately $120,000 per unit. Additional government subsidies
of $10,000 per unit are available to current residents.
Apollo partnered on the deal with Housing and Services,
a nonprofit developer
of affordable housing,
and global alternative
investment firm Ramius
Capital Group.
The Soundview project
is one among several
ventures by Apollo in
the affordable housing
market. In January
2006, the firm partnered
with Vantage Properties
to acquire the Delano Village complex in Harlem for $175 million.
The seven-building, 1.3-million-square-foot complex between
Malcolm X Boulevard and Fifth Avenue, renamed Savoy
Park, was 99 percent occupied at the time. All 1,800 units are
rent-regulated.
Eight months later, Apollo acquired a portfolio of condominium
units at Fairfield Towers, a mid-rise housing complex
in the East New York section of Brooklyn, in a joint venture
with Taconic Investment Partners. Purchased for $90 million
from the Lightstone Group, the 19-building, 983-unit complex
along Flatlands Avenue was built in the 1960s under the
Mitchell-Lama program and converted to condominiums in
the 1990s.
“From a risk-adjusted returns perspective, [affordable housing]
is one of the best investments available,” says Simmons.
“Rents are well below market, and there is less of a chance for
those rents to decline. Because we’re investing in improving
neighborhoods, we believe the probability is high that we can
move those rents closer to market value.”

The buyout process
The process of converting Lafayette Estates from a state-subsidized,
rent-regulated complex to one with market-rate housing
was not easy. “It is a year-long, public process defined by
regulatory oversight whereby we take the asset out of Mitchell-
Lama,” says Simmons. “The next step is to submit an offering
plan—get it approved—and start to sell and close units.”
Introduced in 1955, the Mitchell-Lama Housing Program,
named after Manhattan Senator MacNeil Mitchell and Brooklyn
Assemblyman Alfred Lama, was created to encourage the
building of affordable housing for moderate-income residents.
Private developers in the program were offered property tax
breaks and low-interest mortgage loans for up to 95 percent
of total development costs. In exchange, they were required to
limit profits and regulate rents.
According to the New York State Division of Housing and
Community Renewal (DHCR), a total of 269 Mitchell-Lama
developments with more than 105,000 apartments were built
under the program.
In a provision added to the Private Housing Finance Law in
1957, building owners in the Mitchell-Lama program became
eligible to “buy out” of the program after 20 years. After withdrawing
from the program, the housing company would no
longer be subject to DHCR regulations or the limitations on
profits or rents.
The DHCR is responsible for regulating the buyout process.
Withdrawing from the program requires submitting a buyout
application to the DHCR at least a year before the anticipated
date of dissolution. Once it has reviewed all materials, the
Eastchester Heights: ING’s Big Apple buy
DHCR authorizes the housing company to proceed and then
notifies the public of the buyout. After fee payments including
mortgage prepayment and outstanding expenses have been received
by the DHCR, it then issues a certification of dissolution
to the Secretary of State and a “Certificate of No Objection” is
issued to the housing company.
Still, despite the mountains of paperwork, the Mitchell-Lama
buyout process has not presented itself as a significant obstacle
to investors. “The number one challenge is finding [these properties],”
says Jeff Barclay, a managing director at ING Clarion,
the US investment management arm of ING Real Estate. “Once
you own them, the number one challenge is executing the strategy,
which is why we have operating partners. So the challenge
is finding the right operating partner.”
The 20-year contract expiration is one of the reasons investors
have been interested in properties governed by Mitchell-Lama,
says Stuart Saft, a real estate lawyer and partner at LeBoeuf,
Lamb, Greene & MacRae. The options available for properties
after they are bought out from the Mitchell-Lama program is
a matter of age and the year the property was built, says Saft.
Properties built after 1974 become rent stabilized after leaving
Mitchell-Lama, meaning owners may only raise rents by a
certain percentage each year. Properties built after 1974 become
“free market.”
Additionally, according to Saft, under New York’s “luxury
decontrol” law, if an apartment’s rent has increased to $2,000 a
month or the tenant’s income exceeds $175,000 for two consecutive
years, at the end of the lease the apartment becomes free
market—as anyone who has spent anytime in the New York
real estate market quickly learns.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 53

Nuts & Bolts
neighborly unrest
According to the DHCR, of the 269 developments built under
Mitchell-Lama, there are currently 184 developments with approximately
73,000 units left in the program—85 properties
have dissolved and left the program so far.
“The market has been so hot in New York City, there has
been an enormous loss of affordable housing in New York
State and the Downstate market,” says Deborah Van Amerongen,
commissioner of the DHCR. “There has been very heated
interest in the market, especially after the focus on Starrett City
which was such an enormous unit.”
Van Amerongen is referring to the Starrett City housing complex
on Jamaica Bay in the East New York section of Brooklyn.
Built in the mid-1970s under the Mitchell-Lama program,
the 140-acre complex is comprised of 46 buildings with 5,881
units. New York real estate investment shop Clipper Equity
signed a contract earlier this year to purchase Starrett City for
$1.3 billion, but the plans were derailed in April when, following
its review, the DHCR refused to approve Clipper Equity’s
proposal citing reasons including a flawed affordability plan,
the possibility of rents being raised to market levels and concern
that the deal would set a precedent for other Mitchell-
Lama purchasers.
Other deals in the space have been more successful. In one of
the biggest real estate deals in US history, New York property
group Tishman Speyer, in a joint venture with BlackRock, acquired
the Stuyvesant Town and Peter Cooper Village complex
in Manhattan from Metropolitan Life for a staggering $5.4 billion.
The 110-building, 11,232-unit complex, built in the late
1940s by MetLife, sits on 80 acres along the East River.
Other firms, including Apollo and ING, had high interest in
the Stuyvesant Town-Peter Cooper Village property. “We were
very active in pursuing Peter Cooper Village,” said Jeff Barclay,
a managing director with ING Clarion, the US investment
management arm of ING Real Estate. “There are probably
very few properties of that size and scope.”
In March, London-based investment group Dawnay Day
purchased a portfolio of 47 buildings in East Harlem for approximately
$250 million. The buildings include 1,137 residential
and 55 commercial units. The firm established a new
54 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Stuyvesant Town-Peter Cooper Village: big deal in the big city
company, Dawny Day US Real Estate Management,
based in New York, to manage the Harlem
portfolio and is currently assessing similar types
of US acquisitions, according to the group.
Also in March, ING Clarion acquired the
1,400-unit Eastchester Heights apartment complex.
The acquisition was made through a joint
venture with Taconic Investment Partners and
purchased for approximately $120 million, according
to Barclay.
The spate of recent Mitchell-Lama buyouts have
inspired concern from tenant groups seeking to
preserve their community and keep rents low—a
potential political obstacle that private equity real
estate firms looking at affordable housing investments
need to keep in mind.
Housing lawyer Saft says that landlords can engender
goodwill with current tenants of a Mitchell-Lama
building by providing a realistic timeline
for rent increases. He says new owners can “faze
in rent increases over four or five years—a reasonable period of
time— for tenants who demonstrate they can’t afford market
rent right away.”
The influx of capital in affordable housing is not without its
merits. Many of the properties built under the Mitchell-Lama
program have fallen into disrepair in the intervening years, according
to Saft. “Mitchell-Lama was a terrific way of developing
housing, but the owners’ return was limited to 6 percent
a year,” he says. “There was little motivation for landlords to
upgrade the properties.”
Private investors, on the other hand, are more likely to make
capital improvements on the buildings, particularly as they
raise rents and attract new tenants. “There is no limit on returns
for landlords after leaving the Mitchell-Lama program,”
Saft points out.
ING Clarion’s Barclay is optimistic about activity in the
affordable-housing sector. His firm has invested in affordable
housing in New York and he says he sees the investments as a
way to boost the economy.
“[These investments] are a strong vote of confidence in the
New York economy,” he says. “Many institutional investors
focus on the luxury end of the market—properties that typically
draw its demand from not only New York buyers but also
foreign owners and buyers. We think investing in this type of
asset helps New Yorkers and the economy.”
Indeed, the surge in New York City real estate prices has
cast a softer light on neighborhoods that were once written
off—and plenty of firms are now acting on an attraction to
affordable housing.
New York’s rent stabilization rules should not be viewed as
inherently bad for investors, Barclay says. Return on investment
in stabilized buildings, though never a sure thing, can be
expected as the stabilized rents eventually increase to market
levels.
“Our institutional investors look for both stability and
growth,” Barclay says. “[These projects] predict returns reasonably
well—not only steady but growing returns. There is
strong demand for these properties because rent stabilized
apartments are below market rents by definition. They can
grow to market level relatively predictably—just let things take
their natural course.”

Capital Watch
fUnDS In mARkET/comIng To mARkET
fUnD fIRm hEADQUARTERS STRATEgY TARgET (m)
Global funds
N/A Alpha Real Capital London Europe/Asia diversified €400
Beacon Capital Strategic Partners V Beacon Capital Boston US / Europe diversified $3,000
Blackstone RE Partners VI The Blackstone Group New York Global diversified $8,000
Colony Investors VIII Colony Capital Los Angeles Global diversified $2,000
Contrarian Real Estate Fund Contrarian Capital Stamford (CT) US/Europe distressed $250
DLJ Real Estate Partner IV Credit Suisse New York Global diversified $2,000
GoldenTree In Site Partners Oppty Fund Golden Tree InSite Partners New York Global diversified $500
Lehman Brothers Real Estate Partners III Lehman Brothers New York Global diversified $3,000
Lone Star Fund VI Lone Star Funds Dallas Global diversified $6,000
Macquarie Global Property Fund III Macquarie Global Property Advisors Hong Kong Asia/Europe diversified $3,500
N/A Perella Weinberg Partners New York Global diversified N/A
Rockpoint Real Estate Fund III Rockpoint San Francisco Global diversified $2,000
Walton Street Real Estate Fund VI Walton Street Capital Chicago US/Europe diversified $2,500
WCP Real Estate Fund I Westport Capital Partners Westport (CT) Global diversified $500
Westbrook Real Estate Fund VII Westbrook Partners New York Global diversified $1,250
global funds subtotal $35,036
North America funds
AEW Value Investors II AEW Boston US diversified $500
AG Realty Fund VI Angelo Gordon New York US diversified $500
Avenue Real Estate Fund Avenue Capital New York US distressed $300
Blackacre Institutional Partners Blackacre New York US distressed N/A
Black Creek Mexico Residential Fund Black Creek Group Denver Mexico diversified $500
Brascan Real Estate Opportunity Fund Brascan New York NA diversified $1,000
Broadway Real Estate Partners III Broadway Partners New York US office $1,000
Buchanan Fund V Buchanan Street Partners Newport Beach (CA) Global diversified $400
Canyon Johnson Urban Fund III Canyon Johnson Los Angeles US urban diversified $750
Capri Urban Investors Capri Capital Partners Chicago US urban diversified $1,200
CASA Partners IV Henderson Global Investors Chicago US multi-family $300
CB Richard Ellis Strategic Partners V CB Richard Ellis Los Angeles US diversified $1,000
Ceres Realty Fund II BlakelyStern Investment Advisors New York US northeast diversified $100
CityView LA Urban Land Fund I American CityVista / Saybrook Capital San Antonio (TX)/Santa Monica (CA) California development $150
Clarion Development Ventures III ING Clarion Partners New York US development $350
CIM Urban Real Estate Fund III CIM Group Los Angeles California diversified $750
CREF IV Calare Properties Hudson (MA) US northeast diversified $30
Crown Capital Opportunities Fund Crown Capital St. Louis US diversified $200
N/A Crescent Hotels and Resorts Fairfax (VA) US hospitality $350
Cronus Capital Fund I Cronus Capital New York US diversified $200
Colony Realty Partners II Colony Capital Los Angeles Global diversified $1,000
Concierge Apartment Fund Concierge Asset Managment Tiburon (CA) US multi-family $250
Cornerstone Apartment Ventures III Cornerstone Real Estate Advisors Hartford (CT) US residential $400
Crocker Partners IV Crocker Partners Boca Raton (FL) Global diversified $300
DRA Growth & Income VI DRA Advisors New York US diversified $1,250
Dunmore Capital Fund Dunmore Capital Sacramento (CA) California development $200
Embarcadero Capital Partners Fund II Embarcadero Capital San Francisco US office $400
Fidelity Real Estate Growth Fund III Fidelity Boston US diversified $750
Fremont Strategic Property Partners III Fremont Realty Capital San Francisco US diversified $750
Green Courte Real Estate Partners II Green Courte Partners Lake Forest (IL) US diversified $225
Guardian Realty Fund III Guardian Realty Investors Bethesda (MD) Mid-Atlantic diversified $500
Hampshire Partners Fund VII Hampshire Partners Morristown (NJ) US diversified $350
Hanover Real Estate Pertners III Hanover Financial Los Angeles Western US diversified $250
Hearthstone Path of Growth II Hearthstone Advisors San Rafael (CA) US development $500
Henderson Manager of Partners Fund Henderson Global Investors Chicago Global diversified $200
HG Capital VII HG Capital Menlo Park (CA) Western US diversified $65
House Investment RE Opportunities Fund IV House Investments Indianapolis US development $30
Hudson Real Estate Fund IV Hudson Realty Capital New York US diversified $300
Hunter Chase Real Estate Opportunity Fund Hunter Chase Irving (TX) US diversified $250
ING Lion Mexico Fund ING Clarion Partners New York Mexico diversified $500
Intercontinental Fund IV Intercontinental Boston Value-added US diversified $250
InvestLinc Real Estate Capital 3 Fund Investlinc Group Chicago US diversified $150
Invesco Real Estate Fund III Invesco Real Estate Dallas US diversified $500
Jamestown Coinvest IV Jamestown Properties Atlanta Southeast US diversified $500
JBC Opportunity Fund III John Buck Co. Chicago US diversified $300
JER Real Estate Partners IV JER Partners McLean (VA) US diversified $1,250
KBS Best Property Fund II KBS Realty Advisors Newport Beach (CA) US diversified $500
Kelly Capital Real Estate Special Situation Fund Kelly Capital San Diego US diversified $100
Kimpton Hospitality Partners II Kimpton Hotel San Francisco US hospitality $300
KMF Senior Housing Investors Fund KMF Senior Housing Investors Chicago US senior housing $250
LaSalle Canadian Income & Growth Fund II LaSalle Investment Management Chicago Canada diversified $350
LaSalle Medical Office Fund II LaSalle Investment Management Chicago US medical office $350
Lazard Freres Strategic Realty Investors III Lazard Freres & Co. New York US healthcare $500
LBA Realty Fund III LBA Realty Irvine (CA) US office / industrial N/A
Lexin AmTrust Real Estate Partners II Lexin Capital New York US residential $150
Los Angeles Development Partners Chadwick Saylor Los Angeles Southern California urban $150
Macfarlan Special Situations Fund Macfarlan Capital Partners Dallas US distress $300
MacFarlane Urban Realty Partners MacFarlane Partners San Francisco US urban diversified $1,000
N/A MayfieldGentry Realty Detroit US urban diversified $150
Market Street Capital DivcoWest San Francisco US office $650
Miller Global Fund V Miller Global Properties Denver US diversified $400
N3 Opportunity Fund I N3 Realty Advisors Forth Worth (TX) US diversified/retail development $50
Urban Strategy America Fund New Boston Fund Boston US urban redevelopment $200
O’Conner North American Property Partners O’Conner Capital Partners New York North American diversified $750
Palisades Distressed/Value-Added Fund Palisades Financial Englewood Cliffs (NJ) US diversified $200
Genesis Workforce Housing Fund Phoenix Realty New York Los Angeles residential $175
Metropolitan Workforce Housing Fund Phoenix Reality New York US residential $250
Praedium Fund VII Praedium Group New York US diversified $700
PLA Industrial Fund II Prudential Real Estate Investors Parsippany (NJ) Mexico industrial $140
PLA Residential Fund II Prudential Real Estate Investors Parsippany (NJ) Mexico residential $400
Prudential Senior Housing Partners III Prudential Real Estate Investors Parsippany (NJ) US senior housing $300
RCG Longview Equity Fund Ramius Capital Group New York US diversified $300
Sarofim Multifamily Fund I Sarofim Realty Advisors Dallas US residential $150
Savanna Real Estate Fund I Savanna Partners New York East Cost diversified $400
56 PRIVATE EQUITY REAL ESTATE OCTOBER 2007

fUnDS In mARkET/comIng To mARkET
fUnD fIRm hEADQUARTERS STRATEgY TARgET (m)
Sentinel Realty Partners VII Sentinel Real Estate Corporation New York US diversified $200
Somera Realty Value Fund II Somera Capital Santa Barbara (CA) US diversified $300
Square Mile Fund I Square Mile Capital Management Greenwich (CT) US distressed $300
Stillwater Real Estate Partners Fund Stillwater Capital New York US residential $50
Stockbridge Real Estate Fund III Stockbridge Capital Partners San Mateo (CA) US diversified $3,000
Strategic Office Fund I NNN Realty Advisors Santa Ana (CA) US net-leased office/retail $250
Stratford Lane Fund III The Stratford Company Tacoma (WA) US land $300
TA Associates Realty Fund VIII TA Associates Boston US diversified $900
Tishman Speyer Real Estate Venture VII Tishman Speyer New York US diversified $2,000
Thor Urban Retail Fund II Thor Equities New York US retail $500
Urdang Value Enhancement Fund VI Urdang Capital Mgmt. Plymouth Meeting (PA) US diversified $450
Williams Opportunity Fund Williams Realty Advisors Atlanta US diversified $120
north America funds subtotal $39,785
Europe funds
N/A AIB Capital Markets Dublin Poland diversified €100- €150
Arminius Real Estate Opportunity Fund Arminius Advisors Frankfurt Germany distressed €300
Capmark UK Realty Partners Fund Capmark Financial Horsham (PA) UK diversified €250
Carlyle Europe Real Estate Partners III The Carlyle Group Washington DC European diversified $1,500
N/A Catalyst Capital London Europe diversified €500
Colony Europe II Colony Capital Los Angeles Europe diversified €500
Corestate German Residential Corestate Capital Frankfurt Germany residential €4,000
Elgin Capital Fund Elgin Capital Dublin Berlin residential €60
EPI Baltic I EVLI Bank Helsinki Baltic states diversified €100 - €150
European Continental RE Fund Clearbrook Capital Partners London Europe diversified £1,000
GED Real Estate Eastern Investments GED Spain Europe diversified €100 - €150
Global Property Fund Global Finance Athens Balkan development $150
Fondo Azzurro Henderson Global Investors London Italy retail € 250
Heitman European Property Partners IV Heitman Chicago Europe diversified €500
Hines European Development Fund Hines Houston Europe development $430
Italian Opportunities II Cordea Savills London Italy diversified €300
LaSalle UK Venture Funds LaSalle Investment Managment Chicago UK diversified €2,200
MIL Equity Partners EquityInvest Boston Central/Eastern Europe diversified $100
Moor Park Real Estate Fund Moor Park Capital London Europe diversified €1,200
Central European Industrial Fund Morley Fund Mgmt/Teesland i0G London Central/Eastern Europe industrial €160
NIAM Nordic Investment Fund IV Newsec Incentive Asset Mgmt. Stockholm Nordic region diversified N/A
Europe funds subtotal $18,561
Asia/RoW funds
AEw Value Investors Asia AEw Singapore Asia diversified $350
AG Asia Realty Fund Angelo Gordon New York Asia diversified $300
Anand Rathi Realty Fund Anand Rathi Mumbai India diversified $115
Appian Indian Real Estate Portfolio Appian N/A India diversified $150
Horizon Realty Fund Capitaland/Pantaloon Retail Singapore/Mumbai India retail $350
N/A The Carlyle Group Washington DC Latin America diversified $400-$600
Carlyle Santa Fey Real Estate Fund The Carlyle Group Washington DC India diversified $300
Colony Asia Investors II Colony Capital Los Angeles Asia diversified $400
DHFL Venture Capital Fund II Dewan Housing Finance Mumbai India residential $200
N/A EAV Realty New York China diversified $100-$500
Fortune Capital Holdings PFH Investment Advisory Mumbai India hospitality $200
Forum Asian Realty Income Fund III Forum Partners Beijing Asia diversified N/A
N/A Greenwich Group International New York India development $1,000
HDFC Real Estate Venture Fund II HDFC Mumbai India hospitality $750
India Real Estate Opportunities Fund II IREO New York India development $400
N/A New City Capital Tokyo Asia diversified $1,000
LaSalle Asia Opportunity Fund III Lasalle Investment Managment Chicago Asia diversified $1,000
LaSalle Japan Logistics Fund II Lasalle Investment Managment Chicago Asia logistics $400
Kotak Realty Fund II Kotak Realty Fund Mumbai India diversified $350
Kshitij Venture Capital Fund Pantaloon Retail/Dalmia Group Mumbai India retail $60
Prosperitas Real Estate Partners I Prosperitas Capital Sao Paolo Brazil diversified $330
Red Fort Real Estate India Fund I Red Fort New Delhi India diversified $300
Tano India Real Estate Fund Tano Capital San Mateo (CA) India diversified $100-$500
Tishman Speyer Brazil Fund Tishman Speyer New York Brazil diversified $500
Tishman Speyer India Fund Tishman Speyer/ICICI New York India diversified $600
Tishman Speyer GSC China Fund Tishman Speyer/GSC New York China diversified $500
N/A Trikona Capital Grand Cayman India development $300
walton Street mexico fund I walton Street capital chicago Latin America diversified n/A
N/A West University Capital Houston India diversified $300
Asia/Row funds subtotal $14,225
Fund of funds
4IP European Real Estate Fund of Funds Sal. Oppenheim Zurich Europe fund of funds €300
American Value Partners Fund I American Value Partners Los Angeles US fund of funds $400
Composition Capital Americas Composition Capital Partners Amsterdam Americas fund of funds $300
Composition Capital Asia II Composition Capital Partners Amsterdam Asia fund of funds $400
Composition Capital Europe II Composition Capital Partners Amsterdam Europe fund of funds €350
Continental European Fund II Schroder Property Investment London Europe fund of funds €250
Fiduciary International Real Estate Fund 2 Franklin Templeton/Fiduciary San Mateo (CA) Global fund of funds $300
Goldman Sachs Real Estate Partners Goldman Sachs New York Global fund of funds $1,000
Madison Harbor Private Real Estate Partners Madison Harbor Capital New York Global fund of funds $400
Metropolitan Real Estate Partners V Metropolitan Real Estate New York US fund of funds $250
Metropolitan Real Estate Partners Int’l II Metropolitan Real Estate New York Europe fund of funds $200
Newlin Realty Partners Newlin Capital Partners Princeton (NJ) Global fund of funds $130
fund of funds subtotal $4,251
TOTAL $111,858
Notes: (1) Amounts converted from euros, pounds and Australian dollars at exchange rates of 1.3, 1.8 and 0.8, respectively. (2) Items in bold represent new additions to the list.
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 57
Source: Private Equity Real Estate

Capital Watch
fUnDS cLoSED In 2007
fUnD fIRm hEADQUARTERS STRATEgY cLoSE TARgET (m) cLoSED (m) DATE
Global funds
Baynorth Realty Fund VII Baynorth Capital Boston US/ Europe diversifiied Final $400 $473 Mar-07
Beacon Capital Strategic Partners V Beacon Capital Partners Boston US / Europe diversified First $3,000 $1,200 Feb-07
Macquarie Global Property Fund III Macquarie Global Property Advisors Hong Kong Asia / Europe diversified First $3,500 $800 Jun-07
Morgan Stanley Real Estate Fund VI Int’l Morgan Stanley New York Non-US diversified Final $8,000 $8,000 Jun-07
Redwood Grove International Grove International Partners London Europe / Japan diversified Final $1,500 $2,000 Jun-07
Whitehall Street Global Real Estate 2007 Goldman Sachs New York Global diversified Final N/A $4,100 Jun-07
global funds subtotal $16,573
North America funds
Acadia Strategic Opportunity Fund III Acadia Realty Trust White Plains (NY) US retail First $500 $450 May-07
Avanti Strategic Land Investors V Avanti Investment Advisors Winter Park (FL) US land Final N/A $200 Feb-07
Birchmont Capital Partners I Birchmont Capital Partners Los Angeles North America diversified Final N/A $200 Feb-07
BPG Investment Partnership VIII BPG Properties Philadelphia US diversified Final $650 $850 Jul-07
carlyle Realty Partners V The carlyle group washington Dc nA diversified final $1,500 $3,000 Sep-07
cPI capital Partners north America citigroup Property Investors new York north America diversified final n/A $603 Aug-07
Equastone Value Fund II Equastone San Diego US office Final N/A $172 May-07
Harrison Street Real Estate Partners I Harrison Street Chicago North America diversified Final $150 $210 May-07
Heitman Value Partners II Heitman Chicago US diversified Final $800 $800 Jul-07
hines US office fund hines houston US office final $650 $828 Aug-07
IMT Capital Fund IMT Capital Los Angeles US residential Final N/A $350 Aug-07
Madison Marquette Retail Enht. Fund Madison Marquette Washington DC North America retail Final $350 $487 May-07
Noble Hospitality Fund Noble Investment Group Atlanta US hospitality Final N/A $310 Mar-07
Shamrock-Hostmark Hotel Fund Shamrock Capital Los Angeles US hospitality Final N/A $100 May-07
Shorenstein Realty Investors IX Shorenstein Properties San Francisco US diversified Final N/A $1,300 May-07
Rockwood Capital Real Estate Fund VII Rockwood Capital San Francisco US diversified Final N/A $1,100 Jan-07
Sterling American Property V Sterling Equities New York US diversified Final $400 $610 Jan-07
Place/Blue Vista Student Housing Fund Place Properties/Blue Vista Capital Atlanta/Chicago US student housing Second $200 $280 Apr-07
north America funds subtotal $11,850
Europe funds
CapMan Real Estate Fund II CapMan Stockholm Finland diversified Final €150 €150 Apr-07
cB RE Strategic Partners Europe fund III cB Richard Ellis Investors Los Angeles Europe diversified final €600 $1,000 Aug-07
cB RE Strategic Partners Uk fund III cB Richard Ellis Investors Los Angeles Uk diversified final £300 $877 Aug-07
cPI capital Partners Europe citigroup Property Investors new York Europe diversified final n/A € 1,162 Aug-07
Europa Emerging Europe Fund Europa Capital London Eastern Europe diversified First €200 €100 Mar-07
Harbert Real Estate II Harbert Managment Birmingham (AL) Europe diversified Final N/A €305 May-07
ING Real Estate Iberian Value Added Fund ING Real Estate Amsterdam Spain/Portugal diversified Final €250 €300 Jun-07
JER Real Estate Partners Europe 3 JER Partners McLean (VA) Europe diversified Final €300 €809 Jun-07
Marbleton Property Fund JER Partners / Alfa Capital McLean (VA)/Moscow Russia/Ukraine diversified Final $200 $321 Jun-07
Patron Fund III Patron Capital London Europe diversified Final €500 €895 Mar-07
Rockspring TransEuropean Property IV Rockspring Property London EU diversified first € 275 € 161 Aug-07
Tishman Speyer European RE Venture VI Tishman Speyer New York Europe office Final € 500 $1,350 Jun-07
Europe funds subtotal $8,750
Asia/RoW funds
CPI Capital Partners Asia Pacific Citigroup Property Investors New York Asia diversified Final N/A $1,290 Feb-07
hIREf International hDfc mumbai global diversified final n/A $800 Aug-07
Triseas Korea Property Fund Doran Capital Partners Seoul Korea diversified First $250 $135 Mar-07
N/A KK Davinci Advisors Tokyo Asia diversified Final N/A $2,800 Feb-07
SUN-Apollo India Real Estate Fund SUN Group / Apollo Real Estate Mumbai / New York India diversified Final $500 $630 Jan-07
Asia/Row funds subtotal $5,656
Funds of funds
Aberdeen Indirect Property Partners Asia Aberdeen Property Investors Stockholm Asia fund of funds Second $600 $435 Apr-07
Continental European Fund I Schroder Property Investment London Europe fund of funds Final € 250 € 253 Jul-07
Franklin Temp. European Fund of Funds Franklin Templeton/ Fiduciary San Mateo (CA) Europe fund of funds Final N/A $273 Feb-07
LaSalle Investment Company II LaSalle Investment Managment Chicago Global fund of funds Final $1,000 $1,000 Mar-07
funds of funds subtotal $2,047
TOTAL $44,876
Notes: (1) Amounts converted from euros, pounds and Australian dollars at exchange rates of 1.3, 1.8 and 0.8, respectively.
(2) Items in bold represent new additions to the list.
58 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Source: Private Equity Real Estate

The big boys
Funds in market with targets of $2bn or more
fIRm fUnD STRATEgY TARgET (m)
Beacon Capital Partners
US / Europe diversified $3,000
The Blackstone Group
Global diversified $8,000
Colony Capital
Asia diversified $2,000
Credit Suisse
Global diversified $2,000
Lehman Brothers
Global diversified $3,000
Lone Star Funds
Global diversified $6,000
Macquarie Global Property Advisors
Asia / Europe diversified $3,500
Rockpoint
Global diversified $2,000
Walton Street Capital
US / Europe diversified $2,500
Stockbridge Capital Partners
US diversified $3,000
Tishman Speyer
US diversified $2,000
LaSalle Investment Management
UK diversified $2,200
funds in market: mixing it up
Percentage of total fundraising targets by geographic focus
for funds in market/coming to market
Global 33%
North America 37%
Asia/RoW 13%
Europe 17%
more than $40bn raised year to date
$ amount raised by funds closed in 2005 - 2007 YTD
US $ (bn)
$60
$50
$40
$30
$50
$10
$0
$34
$54
$45
2005 2006 2007 YTD
Source: Private Equity Real Estate
funds closed: global and north America on top
Percentage of total fundraising targets by geographic focus
for funds closed in 2007
Global 39%
North America 28%
Asia/
RoW 13%
Europe
20%
OCTOBER 2007 PRIVATE EQUITY REAL ESTATE 59

If These Walls Could Talk
Williamsburgh Savings Bank Tower: dominating the skyline
Banking on it in Brooklyn
The Williamsburgh Savings Bank Tower has been a fixture on
the Brooklyn skyline since Prohibition—decades before the
legions of transplanted Midwesterners, dissonant rock bands
and asymmetrical haircuts invaded the “Borough of Churches.”
With 34 floors, it is the tallest building in Brooklyn and the
second tallest on Long Island—only the Citibank Tower in
neighboring Queens is taller.
When it was built by architecture firm Halsey, McCormack
and Helmer between 1927 and 1929, the four-sided clock face
was the largest in the world. The tower held this title until
the completion of the Allen Bradley Building in Milwaukee
in 1962, according to the Forgotten New York website. The
website also notes that the building’s distinct dome is an architectural
homage to the domed—though much shorter—Williamsburgh
Savings Bank building that is actually located in
the neighborhood of Williamsburg. (The tower sits on Hanson
Place in downtown Brooklyn, near the intersection of Atlantic
and Flatbush Avenues.)
In addition to offering breathtaking views of Manhattan,
the elaborately decorated building once played host to all
manner of medical offices, particularly dentists, in addition
to its namesake bank. But if generations of Brooklyn kids
were dragged to the building to get their cavities filled, at least
they were able to have their dental work done in a stunning
example of Roaring Twenties grandeur: The building’s elaborate
first-floor banking hall sports terrazzo floors, decorative
60 PRIVATE EQUITY REAL ESTATE OCTOBER 2007
Building façade: protecting the loot
Williamsburgh Savings Bank: seal of approval
chandeliers, 63-foot vaulted ceilings, 40-foot windows and
elaborate mosaics, while the building’s neo-Romanesque façade
was constructed of Minnesota granite and Indiana limestone—with
whimsical touches like carved lions, turtles and
birds decorating the exterior.
But change comes to all things, even Brooklyn. The public
observation deck on the 26th floor was closed in 1977.
(The building was landmarked the same year.) In 1987, the
bank—and its real estate—were folded into the Republic National
Bank and, later, into the Hong Kong Shanghai Banking
Corporation (HSBC). Somewhere in there, Brooklyn began to
change, too, and the rough-and-tumble borough became increasingly
gentrified.
By 2005, the Canyon Johnson Urban Fund, a joint venture
between Canyon Capital and Earvin “Magic” Johnson,
acquired the building with plans to convert it into luxury condos
anchored by a retail component with a Borders book store
in the former bank. Renamed One Hanson Place, the tower
sits in a corridor that is slated for a reported $3 billion in development
over the coming years, including the controversial,
large-scale Atlantic Yards development.
Despite the changes to the borough around it—and to the
building itself—the “Willie” as its known to many a local, will
no doubt continue to define the borough’s skyline for decades
to come.