Vendredi avec Hines France

On Friday we visited the Hines France Regional Office in the central business district of Paris.  We met with Managing Director, Patrick Albrand, who is a graduate of Columbia's MSRED program.  In 1995, Mr. Albrand was instrumental in the establishment and supervision of the Hines' French subsidary.  Hines is a privately owned global real estate firm with 3,750 worldwide and 250 employees in 11 European cities.  Hines has developed 42 square meters of real estate in Europe.  The company was founded in 1957 and is headquartered in Houston, Texas.  Mr. Albrand explained fundamental differences in the American and European real estate markets.   In his opinion, the American markets are a sum of different submarkets, whereas the European markets are more concentrated.  For example, 19% of the population (living in Île-de-France) generates 29% of the French GDP.  The concentration is one explanation as to why sourcing deals is so difficult in the French real estate market.

Hines is currently active in ground-up development of office buildings in Boulogne-Billancourt, just south-west of La Défense and within the Île-de-France limits.  Boulogne-Billancourt is home to the French automaker Renault and is the populous suburb of Paris.  The area is undergoing a comprehensive redevelopment.  The urban planning initiative is to visually connect the suburb to Paris' historic Axis, which extends from the Louvre Palace, to gardens of Tuileries, to Place de la Concorde, along the Champs-Éylsées, through the Arc de Triomphe, to La Défense, and gestures westward towards Versailles.  In addition to the Hines' office developments, the city is building new bridges, roads, and parks to accommodate anticipated increase in volume of vehicular and pedestrian traffic.

Model of Horizon Tower by Jean Nouvel Arteliers

MSRED team looking at model of Boulogne-Billancourt, where Hines  France has 746,000 square meters of office development to be delivered to market. 

Construction of Horizon Tower, an office development in Boulogne-Billancourt that is 40% pre-let to a Swiss pharmaceutical  company.

Site visit of Horizon Tower with Hines' Project Manager.

MSRED 2011 students with Rosemary Kang, an MSRED graduate who works at AIG Global Real Estate in Asset Mangement remotely from Paris.

MSRED group touring the new tower and enjoying views of Paris.

MSRED group photo of outside the Horizon Tower

Bon Voyage dinner!

Jeudi avec Morgan Stanley

On Friday we visited the Morgan Stanley offices in the Central Business District.  The building was located in a Parisian hôtel-particulier, in which the corps de logis (main building) is separated from the street by an interior courtyard.  We were welcomed by a team who had worked with Professor Schaefer, when she was head of asset management for Morgan Stanley based in London.  The Morgan Stanley team prepared a presentation on the state of the European CRE debt market.  German banks over the past 2-3 years have been active, providing most liquidity in real estate.  Specifically due to the German Pfandbreif market, which has remained an efficient funding source.  For the large part, banks are getting back to the "bricks-and-mortar"of underwriting criteria: strong cash flows, strong covenants, maturity of leases, historical vacancy, location location, replacement cost, and state of maintenance (recent and projected capital expenditure).  The interest rate environment has softened significantly; long and short term rates are at historical lows.  In 2007 we saw yields on property drop lower than risk-free rates on 10-year bond.  While property yields have climbed back up and the spread is as wide as ever, financing is less attractive.  There is 550-600 BN of European CMBS that will mature in 2013, which will bring about sales and foreclosure.  However, the foreclosure process can take longer in Europe than in the US.

After the presentation, and for the first time this trip, we explained our investment thesis to the Morgan Stanley team.  Overall, they agreed with our conclusion: that French real estate market was too competitive for US pension fund capital seeking opportunistic returns.  We agreed that when 2005-06 debt matures over the next 2-3 years there will be more investment opportunities.  We then went on to discuss the state of the Eurozone and how France is less exposed to the sovereign debt crisis than other European countries.   Too wrap up, we enjoyed a less formal conversation with the Co-Head of Global Real Estate the Investment Banking Division of Morgan Stanley about defining a career path.  He then asked each student what had surprised them most about our trip to France.  Some responses:

- How different the market was from 5-10 years ago
- The amount of government regulation
- The Parisian real estate market has proven less volatile than other European cities
- The lack of refurbished property in prime market locations
- How difficult it is to source off-market deals, even with a local team
- The amount of languages European real estate professionals are required to speak


All this took place in a conference room that overlooked gardens landscaped in the typical french style. We sipped espresso and pastries, as the conversation extended beyond the scheduled meeting time.

France MSRED on step of Morgan Stanley

Pallav (group photographer) in entrance to the street

Mercerdi in La Défense avec AXA Real Estate & Altarea Cogedim

La Défense from the East-West Axis

Another busy day for the half-way point of our trip! This rainy Wednesday morning we took the metro outside of Paris, to La Défense, the financial district just west of the Arc de Triomphe.   We met with AXA Real Estate, the largest property owner in Europe.  AXA is a global operation with 23,000 clients and 1,700 funds.  The Global Chief Investment Officer, Dennis Lopez, and his team gave us an overview of two recent deals: a retail project in the south of France and redevelopment of an office tower in La Défense.  Both deals were illustrative of differences between the real estate business in the United States and Europe.  Agreements between landlord and tenant are negotiated and drawn up in a contract in the US, whereas throughout much of Western Europe the process is highly regulated.  The intent is to preserve and implement urban planning initiatives.  When a lease expires in France, for example, a tenant is protected by law to remain in the building.  If the landlord wishes to evict the tenant, the case must go before a judge and the landlord will have to pay an indemnity to buy back the lease contract.

The team walked us through the redevelopment of the AXA Tower, originally built in 1974 by the UAP insurance company.  In 2001 AXA learned that the current tenant was going to vacate.  In 2004 they issued an RFP to 5 architecture firms. KPF was selected for the project.  In 2006, post permits and previous to construction, Beacon Capital Partners (a Boston based private equity firm) acquired the asset and development facility from AXA, assuming the development and leasing risk.  In 2007 the project was launched.  It took one year to remove asbestos from the building and three years of construction.  The redevelopment added 60 meters in height to the tower and an additional 10,000 square meters of leasable area.  AXA has already pre-let space to Ernst & Young.  Tower First, with 52 floors, is poised to become the tallest office building in Paris second only to the Eiffel Tower.  We will have a walking tour of Tower First tomorrow morning with the Project Manager, Altaréa Cogedim, who is responsible for overseeing the construction.

The employees at AXA were extremely gracious to us and we are grateful that Professor Douvas and Professor Brown arranged this meeting.  Professor Schaefer was instrumental in suggesting that AXA's New York team visit MSRED at Columbia next semester.  We wrapped up the day eating lunch and speaking with the analysts and associates at the firm.  Despite the clouds, we enjoyed a scenic view of the city.

Lunch with AXA Real Estate

Tower First from AXA's offices

Lobby in The Tower First

42nd floor on the Tower First with Eiffel Tower in the background

Mardi

Today we visited the Jones Lang LaSalle offices.  It was exciting because two of our group members, Genevieve Francois and Pallav Agrawal, worked there prior to coming to Columbia and because we gained a comprehensive overview of the French real estate market relative to that of Western Europe.  Paris proved to be less volatile in historic downturns than London, Munich, and Madrid.  This can be attributed to its central location, diversified economy, and lower debt-to-GDP ratios.  However, for the last thirty years France has seen an unemployment rate of 8-10%, which is higher than average in Western Europe.  Despite risks associated with the real estate market in France, when approached with experience, opportunistic (18-20%) returns can be made.

After lunch we took the metro to MGPA, a private equity real estate fund, who orchestrated the largest transaction in France in 2009.  MGPA's office is located in a 19th century building from the Hausmannization Period (1852-1870).  These buildings were designed for bourgeois homes on the wide avenues that were key to Hausmann's urban plan.  Today, most have been re-developed as offices and are common in the Paris CBD.  Although retrofitted, the building's grand staircase, central fireplace, and elaborate moldings made for a distinctively French business setting.  However, the building systems, such as heating, ventilation, air conditioning, electrical, and IT, are outdated and it is difficult to upgrade them without extensive work to the original structure and facade.  Due to French laws protecting historic buildings in Paris, it is difficult (with rare exceptions) to develop HQE assets (equivalent to LEED in the US) within the CBD.  Therefore, many players are looking for opportunities outside the CBD.  MGPA showed us an example of a transit-oriented-development of an  HQE office deal they did in Saint Denis. The meeting illustrated how a fund can evolve as it gains more local expertise and what the responsibilities of an acquisition and asset management team are.  After the meeting, we did an asset tour of Les Trois Quartiers,the largest transaction of 2009, which is located in prime location adjacent to the Church of the Madeleine.  

MSRED Paris 2011 in front of Les Trois Quartiers Office Building, the largest transaction (223 Euro) in 2009

Church of Madeleine

View from office space in Les Trois Quartiers

Lundi avec Deutsche Bank RREEF

The Columbia University MSRED France team met with Deutsche Bank at their French Headquarters in the Central Business District of Paris.  Our team was surprised to learn that a small, experienced team of only 5 real estate professional is responsible for 4BN Euros of assets under management.  We enjoyed a lengthy discussion of RREEF's strategies for both their core and opportunistic funds.  As students, the dialogue gave us insight into how a real estate fund operates within a larger corporate structure.  The most notable deal was the recent acquisition of Printemps, a nineteenth century department store, as well as the actual retail operating company from PPR with 17 high-end department stores throughout France.  This innovative approach, of acquiring the real estate and the retail company, allowed for a value-add play.  RREEF repositioned the asset through extensive  refurbishment and rebranding efforts.  The business plan set out to make Printemps one of the chicest destinations for global connoisseurs of fashion and attracted luxury brands such as LVMH, Prada, Chanel, Alexander McQueen, Ralph Lauren, David Yurman, Tiffany's, Hugo Boss, and of course Paris's famed Ladureé.  Post acquisition the real estate company was seperated from the operating company.  However, acquiring both businesses allowed for the team to build value and will afford them of a flexible exit.  In the meantime, we were able to have a VIP tour of the flagship asset, Printemps!

France Team on the roof of 'Printemps' with view of Opéra National de Paris (back left)... and surprise arrival of Phinney

Main Entrance of 'Printemps' original Hausmann buildings (left 1864; right 1923). Both refurbished with extensive Capital Expenditure program of RREEF's Opportunistic Business Plan for the asset

Eiffel Tower from Musee de Hommes Cafe a Nuit!

Dinner with group with view of Eiffel

Apres dinner shot on viewing platform of Eiffel from the 16 éme

Sunday in Paris...

...some arrived at dawn... 

 

...and enjoyed  a nice sunny day in Montmartre...

...and a bienvenue dinner at chez MSRED :)

AND PREPARED FOR A WEEK OF MEETINGS:


Monday January 10

Deutsche Bank RREEFwalk to Printemps Department store for asset
tour.

Tuesday January 11

Jones Lang Lasalle

MGPA

Wed January 12

AXA REIM
Coeur Defense Tower B

Thursday January 13

Morgan Stanley

Altarea/Cogedim

Friday January 14

Hines France

What is the MSRED Program all about?

Vishaan Chakrabarti Director

Development is at the epicenter of the forces shaping our world today, be it the economy, the environment, or the planet's inexorable march towards urbanization. Columbia's rigorous Masters of Science in Real Estate Development program -- structured in the context of the world's most innovative laboratory for architecture, planning and preservation -- provides an unrivaled platform to tackle these pressing issues. Building off the extraordinary resources of Columbia University and the City of New York, students learn from both industry leaders who provide current real world knowledge and outstanding faculty who provide a lifelong theoretical underpinning.

The core mission of the RED Program is to create visionary builders of the global urban environment. The program focuses intensely on the three pillars of the field, namely the financial, the physical, and the legal. We teach development as a creative act in which issues of program, sustainability, building technology, and construction are taught alongside intensive financial and transactional coursework. This holistic curriculum directly engages the future of entrepreneurial, "ground up" development, which in turn allows our students to recognize and create value where others cannot.

The students are required to synthetically apply their studies in both domestic and international case studies, and are increasingly traveling - with a particular focus on the cities of the emerging "BRIC" economies - in response to the globalization of the industry and the densification of the planet. As the world has become more urban than rural - with issues of development, infrastructure, environment, and competitiveness at the forefront - we stand at the cusp of the transformation of our field into an endeavor that is global in scope, entrepreneurial at heart, and creative in practice.