Article published on 24 February 2019 in the magazine AGEFI Luxembourg.
Real estate investment has experienced unprecedented growth over the last ten years, whether through alternative investment funds or other dedicated vehicles. Widely appreciated for the financing capacity they offer to large-scale real estate projects, they have benefited from a favourable regulatory framework and tax support that make them attractive. Thus, the traditional real estate investment vehicle, whether regulated or not, is created at the initiative of one or more real estate projects that present a need for financing. The General Partner is then in charge of leading a distribution network of approved professionals aimed at canvassing professional investors. Thus, it is the packaging and the sales force that make the difference in the commercial success of a real estate fund.
Remarkable growth supported by regulations
The Directive for the Management of Alternative Investment Funds ('AIFMD') has given a real boost to alternative investment funds and in particular real estate funds. The regulatory obligations dictated by the Directive, which at first appeared to be a constraint due to the controls and reporting they imposed, quickly gave way to an obvious opportunity: the European passport. For these regulated funds, cross-border distribution has made it much easier to finance investments and has significantly increased the size of the funds. As a result, they have been able to benefit from economies of scale.
Real estate investment funds have thus played a major role in the development of the urban landscape of many regions and the regeneration of many neighbourhoods. The Directive has made it possible to significantly broaden the target group of potential investors. For a long time the sole preserve of large institutional investors such as insurance companies, local authorities or the Caisse des Dépôts et Consignations, these funds now reach a much wider clientele seeking to diversify their long-term investments. Beyond a return/risk ratio perceived as favourable, the tax attractiveness is still very present, insofar as these products are outside the scope of the real estate wealth tax (IFI). As a result, asset managers are taking a close interest in them.
Advanced skills to lead change
In this post-AIFMD wealth management, it is no longer simply a question of managing the client's personal or family real estate assets. Real estate is now seen as an investment vehicle in its own right, largely competing with traditional insurance or securities investment products. These real estate investments are even intended to be easily securitized. They now have all the assets they need to bring their often attractive returns to as many people as possible under normal market conditions.
This is a certainty for the Unik Capital team and its CEO Sylvie Proia, who has twenty-five years of experience in professional real estate and is co-founder of several real estate investment funds, including the ''Mercuriem'' real estate investment fund in Luxembourg. Mercuriem, focused on the selection and management of office and retail real estate assets in Germany, has achieved its fundraising target and is now closed for subscription. Sylvie wanted to launch a new investment fund (Unik Fund) and to develop her strategy towards sector and geographic diversification in Europe. To ensure the coherence of the range and the successful launch of its innovative products, she has surrounded herself with the solid skills of people with complementary profiles to her own. Its management team at Unik Capital now includes the twenty years of experience in Wealth Management and Private Equity of its partner Christoph Tunkl and the expertise in financial asset management dedicated to institutional clients of its Chief Operating Officer. The range of skills is completed by Florence Benoît, who has specialised in wealth and asset management for twenty-five years. The know-how of these specialists is therefore built around the three areas of expertise of real estate asset management, wealth management and financial engineering.
A 180-degree turn towards "à la carte" products
Sylvie and her team understand this: "Excellence in real estate investment vehicles will come from constant monitoring and understanding of investors' needs," she explains. Unik Capital's priority objective is to ensure the long-term performance of the solutions designed and developed by its teams. Product launches are accompanied by the effective support of specialised partners to provide solid governance in the interest of investors. From then on, the team has implemented a change of focus in the way it designs real estate funds and investment products. "It was necessary to start from the market, discover the needs and expectations of investors in collaboration with our network of partners to propose the most relevant investments. This is the only way we design our solutions, upstream of any product development," says Sylvie, who continues. "We were keen to give access to real estate development to categories of professional investors in the asset management sector that go beyond professionals in the sector. To achieve this, we relied on the expertise of our partners, management companies and custodian banks, to provide all the necessary governance for our projects. »
There are several dimensions to this identification of expectations for real estate investments. The first consists of analysing objective criteria such as the presumed duration of the investment, the desired return, the type of risk accepted, the manner in which income will be received, whether at the maturity of the investment or divided into periodic payments. In addition, and this is the part that requires solid experience and fine psychology, there are many subjective criteria. "Investors traditionally have strong or more subtle preferences for investments covering certain geographical areas, whether or not taking into account elements of geopolitical stability. Climatic, eco-responsible or sustainable development factors are now becoming predominant in their decisions. Investors want to become players in the future of the planet through their investment choices. It is unavoidable! "says Sylvie.
This is why no product is designed without having scrupulously checked that it corresponds to investors' expectations. However, this preliminary approach, far from being a constraint, becomes the key factor of success for the real estate project. "Indeed, not only does this analysis guarantee a fluid and solid financing, but also, it turns out that the investors' criteria, both objective and subjective, correspond to real levers for the future valuation of the investment! In the end, everyone is a winner", Sylvie appreciates.
Once the project has been initiated in this way, Unik Capital's research activity focuses on identifying the right investments and projects. "To do this, it is crucial to have real estate experts in its teams who have access to a wide variety of potential investments. Our managers benefit from privileged access to diversified sourcing throughout Europe, whether in construction, renovation or even off-market", Sylvie emphasises, adding that "this is how we have identified a particularly attractive pool of investments in Luxembourg real estate for our funds and our other recently formed products".
Luxembourg: an obvious choice
Thanks to its political stability, economic growth and resistance to the crisis of 2008, Luxembourg has experienced a remarkable evolution of its real estate indicators and the trend continues to grow. In this country where, undeniably, the main driving force behind this dynamism is the financial sector, other sectors of activity have demonstrated surprising competitiveness, whether in industry, specialised services, support and administrative services, etc. The result is a demographic growth of around 20%1 since 2010 and, above all, a demand for housing that is only partially satisfied, causing the price per square metre of new housing to rise by almost 100% since 2005! And this trend is even more obvious for office real estate, which showed an increase in occupancy of more than 18% in 2018 compared to the previous year2. These figures, combined with excellent tenant solvency and the lowest vacancy rate in Europe3 , make it a more than attractive investment opportunity.
Unik Capital has thus designed its four business lines, combining exclusive investment solutions and high-end real estate services, to meet the wishes of new types of investors in asset management in the broadest sense, depending on their investment horizon, their risk appetite and the form of payments expected. Unik Yield is aimed at investors looking for yield and gives them access to a selection of assets in mature property markets across Europe, with recurring rents and forward resale of the assets. Unik Value Add is a range of property investments, selected for their value creation potential, with a primary focus on property transformation and property development. Unik Bond offers privileged access to premium private real estate debt, which is particularly attractive in a low interest rate environment. For those wishing to launch their own real estate investment structure, Unik Capital even offers a global "white label" offer, Unik Solutions, ready to accommodate all types of real estate investments4. Each solution receives tailor-made support for the sourcing of properties. Finally, as soon as the structure lends itself to it, as is the case for our alternative fund Unik Fund, it benefits from the governance and risk control provided by a management company specialising in alternative funds, which analyses and validates each investment proposal upstream of the transaction, and from the asset custody and valuation expertise of our custodian partner. "This is how we manage this innovative and diversified range of real estate investments in compliance with regulations. This approach is proving successful with new investors, who are more attracted than ever to these solutions," concludes Sylvie.
Wings for growth
Far from the real estate development traditionally dedicated to professionals in the sector, the disruptive approach adopted by Unik Capital is fuelling the wave of new real estate investment vehicles by broadening access to investment. When real estate professionals, the vectors of this change, rethink their organisation, they rely on experts who are above all focused on customers and investors, to adopt an approach that is more agile than ever. On the strength of this new paradigm, aren't real estate investments, which until now have benefited from growth, preparing to become the pillar of future growth themselves, perfectly in line with a context of eco-responsible and sustainable development?
1 Source: STATEC 2018
2 Source: JLL 2019
3 Source: PWC, Julius Bear Report / Wealth
4 For more information: http://www.unikcapital.lu