Fiera’s Brexit gamble

Canada’s Fiera Properties is not taking much notice of the bleak Brexit forecasts.  The property arm of investment giant Fiera Capital took a majority stake in UK boutique Palmer Capital in April this year – having announced the acquisition would go ahead months earlier, whether Theresa May secured her Brexit deal in March or not.  It marked its first purchase of a property business outside its borders. The move forms part of a global expansion programme for the Toronto-based property unit, with New York also a target. Palmer Capital, run by founder and chairman Ray Palmer and executive chairman Alex Price, adds £800m to Fiera’s assets under management, boosting the value of its products to around £3bn. The firm is looking to double this to £6bn over the next five years. The uncertainty around Brexit simply adds to the attraction of the UK market, argues Fiera Properties president Peter Cuthbert. “We see Brexit as a bit of a blip. Often a little bit of dislocation creates opportunity, so it is in fact an opportune time to enter the UK market.” Fiera and Palmer Capital anticipate companies will be forced to re-examine their real estate footprint and supply chains to meet new trading arrangements. Additionally, they expect Brexit will provide a catalyst for occupiers to drive to future-proof their property assets in the face of rapid technological change.  Cuthbert is also optimistic about the UK’s long-term prospects, despite the UK government estimating the UK economy could be 9% smaller under a no-deal Brexit, which is still the default option if MPs can’t agree anything else.  He says: “We see a country with 67 million people, with transparent and clear ownership structure for real estate, and a population expected to grow to 74 million-plus over the next several years with one of the younger populations in Europe. We are strategically growing globally, and the UK will remain important with its growing population. Real estate is a broad bet on the economy.” Cuthbert adds that over time, Fiera Properties will grow faster in the UK and US markets than in Canada. “They are much bigger markets with more opportunities and strategies we can deploy for clients,” he says. Fiera says it was particularly attracted to Palmer due to its wide UK network. The business has a minority stake in nine regional property firms throughout the UK, including Edinburgh’s Manse and Bristol’s Cubex Land. In addition, Palmer is also a shareholder in two pan-UK specialists, Packaged Living and Wrenbridge Sport, a UK sport and stadia developer and consultant. Cuthbert explains: “This provides unprecedented access to deal flow at the local level, and we view that as a differentiator from an investors’ viewpoint. “We have unique infrastructure in the UK. By backing such great teams in our operating partners, we now have access to the talent and experience required to modernise and regenerate real estate across the UK – which we will need to do in a post-Brexit world, due to technology and population growth,” adds Price. For Palmer, Fiera offers multiple advantages. “The deal has given us access to shared real estate knowledge, access to North American investors and better shareholder stability. As a team, we like being part of Fiera’s growth and retaining a stake in Palmer Capital. Becoming significant shareholders in Fiera’s business [which is listed in Toronto] is also a huge positive,” says Price.  The Palmer management team retain a 20% stake in the business, but Fiera has the right to buy the remaining equity in four years’ time. Going forward, Palmer is looking at taking on fewer, but more valuable, projects. “We will probably be doing around 60 to 70 projects in five years’ time, but that project size will have gone from an average of £13m to £25m,” says Palmer. The firm’s £800m in assets under management is divided equally between core funds and value add projects. It has a further 25 assets which are managed directly by its operating partners. “We’d like to see the £800m double, and the £250m to increase,” says Price.  The firm will also seek to own built-to-rent apartment blocks, a departure from its current tactic of developing sites to sell on to housebuilders. Price says the firm is likely to be mostly invested in grade A offices, logistics, retail warehousing and build-to-rent residential going forward. It is also looking at re-entering Europe. Price says: “Next year we are very ambitious about re-entering continental Europe, having part-owned a business in Germany for six years. We want to go back into some of those markets, like France and Germany and maybe the Netherlands. But we will not be simply putting a dot on every part of the map – it’s about finding the right people to help us grow.”  Ultimately, the UK angle is part of a much broader play to allow Fiera to offer a wider range of options for investors. “The point is to move from selling individual funds to selling real estate investment solutions that are bespoke to an individual investor’s needs,” says Cuthbert. To send feedback, e-mail anna.ward@egi.co.uk or tweet @annaroxelana or @estatesgazette