Meyer Bergman and the art of investing

Marcus Meijer’s love of contemporary art is evident throughout the new Soho offices of Meyer Bergman, the private equity real estate firm he founded with his father, Ton, in 2004. “If you buy the right works from the right artists and you like them, it’s a good investment,” says Meijer, who has collected works by artists including Georg Baselitz, Adrian Ghenie, Antony Gormley and Damien Hirst. Meijer’s eye for an investment and appreciation of aesthetics is more commonly seen in his property dealmaking. The firm is currently tackling the £1bn high-end redevelopment of Grade II listed former department store Whiteleys, in Bayswater, W2, into a mixed-use scheme, and the £300m creation of Borough Yards, a retail and office project that is seeking to echo its Victorian industrial surroundings close to London Bridge. Meijer founded the firm, which has some €5bn of assets under management, with his father, with the holdings of the latter’s previous development business, MAB Group. That business was sold to the real asset investment management division of Rabo Real Estate Group, Netherlands-based Bouwfonds, in 2004. The good-humoured and amiable Meijer sat down with EG to discuss the growth of his business, which is developing high-end schemes in London and Monaco, is targeting the launch of more funds, and has formally launched its proptech investment arm, Revolt. In the nearer term, he addresses the challenges of proving that Whiteleys, an asset that has been sitting in Meyer Bergman’s second fund since 2013, will turn out to be a good investment. Market-proof Meyer Bergman secured planning approval for the Whiteleys development in 2016. Since then several tweaks to the plans have been made, including a reduction in the size of the residential apartments to lower the price points, meaning the number of apartments has increased from 129 to 153, including 14 affordable units. The scheme will also include a hotel, as well as shops, leisure space and restaurants. Meyer Bergman has lined up an as-yet-unnamed equity partner for Whiteleys and secured a debt package for the scheme. The firm is also close to finalising leases for the hotel and gym at the development, which Meijer says should help attract buyers for the apartments. Smaller homes also make the scheme “more market-proof”, he adds, “because in today’s market where stamp duty has gone up and with Brexit there is less international interest for resi units”. He adds: “The more affordable you can make that price point, the safer it is. It’s in nobody’s benefit to be stuck with 100 or so units you can’t sell.” Meijer admits that he would not take on the challenge of a project like Whiteleys again without first having a partner in place to deliver it. “The difficulty with these projects is the amount of equity they require and the timing,” he says. “I would do it again but not with a 100% value-add fund because the timing is so difficult to control […] It’s really complicated because it usually takes longer than you think, rarely does it go faster, and usually there are cost overruns, even if you’ve got it all under control.” Then, Meijer adds, there is the issue of market timing. “If instead of five years, it takes eight years, you might find yourself in a recession or you might hit a high and you can’t really plan that timing ahead,” he says. “Plus for us, as a fund manager, we really shouldn’t try to be a developer as that often goes wrong – which is why we brought [development manager] Finchatton on board [in February 2019]. “It’s very tempting to buy a site and talk to an architect and everything else, but it’s not what we should be doing. We’ve also brought Queensbury into Borough Yards as development manager as you need that fiduciary relationship as a fund manager.” Meyer Bergman won’t start marketing the apartments until later next year, so for now the focus is on getting ready to start construction in January. Borough Yards is also fully funded and under way with around a third of it preleased. Has the firm considered an exit from the Bayswater project without seeing it to completion? “If you had a piece of land today in London, particularly for high-end resi, and you tried to sell it without staying on board as a partner, I think in almost every case in the current environment, it would be difficult,” Meijer says. “The immediate assumption that potential bidders make is that you’re distressed and the only reason why you’re selling a piece of land with planning is because you can’t fund it.” He continues: “If the market was incredibly hot and people would pay a crazy price then maybe we’d do that [sell Whiteleys] to not have to go through the trouble of developing it – it’s fun but it’s a lot of work – but the market isn’t there today for that, so if you weren’t prepared to leave your money in, I think, you’d have to take a pretty big hit on your current valuation.” [caption id="attachment_1003229" align="aligncenter" width="847"] The proposed Queensway entrance to Meyer Bergman’s Whiteleys scheme in Bayswater[/caption] Avoiding the idiotic Meijer hopes to raise around €1bn for the firm’s fourth pan-European value-add fund. He expects a first close by the end of the year and already has assets in Germany and France lined up for the fund. Initially this fourth fund will focus on Europe due to the lack of clarity around Brexit, but Meijer does not rule out investing in London at a later date. The fund will most likely have 70% urban mixed-use assets and 20% logistics with the balance given over to opportunistic opportunities that fall outside of these two sectors, the chief executive says. Meijer points out that due to the late stage of the cycle, deployment of this fund will not necessarily be as quick as it was for the firm’s previous funds. “You have to be more discerning about what you buy,” he says. “Cap rates are generally at record low levels, other than in the UK or for retail. Prime cap rates are around 3% in Berlin and Paris, making it harder to find deals that can generate value-add returns.” He adds: “Something would have to be really compelling price wise for us to consider it now before visibility on Brexit. You don’t want to be caught out where you buy something now and it’s a no-deal Brexit and you paid 20% too much. That’s just idiotic right? “Maybe a one-off distressed opportunity, but we haven’t seen those deals yet and the only place you do see them is in retail – but we don’t see those as good investments right now.” Meijer is also wary of the when the cycle will turn. “There is bound to be a slowdown or a correction at some point in the next couple of years. This growth isn’t going to last forever. So you don’t want to invest all of your next fund prior to that correction. You want to keep your powder dry to deploy it once the correction has taken place so you come in at a better price level.” Even so, Meijer is also looking at launching a core-plus fund, which would be Meyer Bergman’s first, “relatively soon”. Core assets in cities such as Paris, Berlin and Frankfurt “are still doing really well” due to the interest from local and Asian capital, while it is more difficult to source anything value-add currently “because everybody’s looking for it” Meijer says. He adds: “From a fundraising perspective we raise our value-add funds every one to two years, which doesn’t give it a lot of time so we don’t really want to compete between funds. We really would want to make them two distinct offerings. So I think a core-plus fund would be more like a joint venture set up where you have a handful of large investors that would back it rather than a proper co-mingled fund where you can have 100 investors. That also allows us to not have competition in fundraising between the two funds.” Meijer adds that having dedicated teams for each fund is also “crucial” in ensuring there is no conflict over resources. “We’re actively looking to build up that [core-plus] team to have it in place before we go to the market to raise it.” The firm’s focus continues to be on larger institutions such as insurance companies, pension funds, sovereign wealth funds and endowment funds from North America and the Middle East, although it also has some European investors and family offices in previous funds. No visibility At the same time as raising capital for fund four and adding to his team to launch a core-plus fund, Meijer is looking to sell the assets in the firm’s €750m third fund, which closed in May last year, over the next year to 18 months. “If you hold assets longer than you need to you might just get caught out by a correction and then the problem becomes that you either have to hold it through that correction, which will just take more time, or you’ll try to sell it in some kind of downturn, but then it will obviously significantly affect your pricing,” he says. “From our perspective, the next 18-24 months will still be a good time to benefit from the strong market and we, like so many, have no visibility on what the market is going to be like in 36 months or 40 months. What will happen to Trump, the US elections or here in the UK? We’d rather take advantage of the market because it’s pretty strong.” Raising capital, Meijer admits, is becoming “harder” as investors are wanting to make bigger commitments to fewer funds. A lot of investors want to invest at least €100m, he says, but only want to make up 10-20% of a fund, making it hard to accommodate them as it means fund managers need to raise at least €500m or even €1bn per fund, he says. There is also ongoing pressure on fees which pushes fund managers to scale, “which everyone says you shouldn’t do because you end up focusing on AUM instead of performance,” Meijer says. He adds that generally in such a scenario, medium and smaller-sized private equity managers either get taken over or wind down the company. But for Meijer “neither of those are particularly exciting scenarios” and so he is spending more and more time looking at how to make Meyer Bergman stand out from its peers. “You want to differentiate from your peers in a competitive market. We’re looking at how that investor appetite will continue to evolve over the next four to five years. We’re really trying to figure out how, over the next couple of years, we stay relevant and ultimately what we can offer our clients that continues to make us the partner they want to work with.” Meijer doesn’t think he’s figured it out, yet, but with the Whiteleys project picking up speed despite the slowdown in the high-end residential market and tumultuous retail sector, it seems he is at least part of the way there. Venture capital and value-add Meijer’s most recent launch is that of Revolt, an investment business specialising in series A and B funding rounds for companies with proven revenue. Meijer’s business has been investing in real estate tech since 2012, but until now in an ad-hoc way. With Revolt there is a dedicated team to focus on potential investment opportunities and grow this part of the business. The venture invests in any technology that has a direct relevance for Meyer Bergman’s portfolio or the firm’s clients’ portfolios where the tech is advanced enough to already be put to use. Typically the business will invest between £1m and £10m, in sterling, euros or dollars, alongside a partner such as one of the larger venture capital firms like Felix Capital and Index Ventures. Meijer explains that as the venture capital firms don’t tend have access to real estate assets or expertise this, as well as money, is what Revolt is able to bring to the table. “For them there’s real value-add to co-invest and for us to bring that,” he says. Revolt has made 12 investments so far, including in US-based NeueHouse, which provides workspace and is now targeting expanding into Europe, Appear Here and Block, which provides bathroom and kitchen renovation packages. To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette