Valesco goes all-in on European offices
Source: https://realassets.ipe.com/special-reports/valesco-goes-all-in-on-european-offices/10068948.article
September/October 2023 (Magazine)
Shiraz Jiwa talks to Maha Khan Phillips about clinching France’s biggest office deal of the year
Shiraz Jiwa
In June, real estate investment manager The Valesco Group acquired hospitality firm Accor’s Paris headquarters for €460m, in a transaction that raised eyebrows as the largest continental European office deal this year – and the largest in France since 2021.
Despite lacklustre market sentiment more broadly, founder and chief executive officer Shiraz Jiwa is bullish about the office sector. “We are seeing an indiscriminate reduction in pricing across commercial real estate, without necessarily an appreciation of the type of asset in particular, and the underlying real estate fundamentals. The market is throwing the baby out with the bathwater,” he says.
Jiwa argues that prices are reducing indiscriminately, leaving missed opportunities. “Everything is coming down, but the high-quality, mission-critical office assets that serve tenants and ultimately their talent’s discerning needs are few and far between. Real estate fundamentals are actually strengthening for these and rents are increasing due to the dearth of such stock. There is a mispricing and so grade-A/grade-A-plus is coming down and is not deserving it, while grade-B is coming down and needs to come down even more because it’s not fit for purpose.”
The acquisition of 26-storey Sequana Tower is arguably one such example. It was the first acquisition Valesco made for its new fully discretionary fund, which had a first close anchored by sovereign capital. In the period from when it entered into exclusivity to when it closed the transaction, Accor’s market cap went up from €5bn to €9bn and revenues returned to pre-pandemic levels, with year-on-year EBITDA up 3,000%, according to Jiwa. It was an example of improving credit in a great location, but at a price that was 120bps wider than the last recorded transaction.
“Sequana Tower is a high-quality, mission-critical asset with strong ESG credentials in a micro location that is home to the headquarters of Nestlé, Microsoft, Cisco, Johnson & Johnson, Huawei and others. Sequana is exceptionally well amenitised. And because of Accor’s hospitality DNA, there are multiple canteens, there is a travelling chef that has a Michelin star, there are leisure facilities, auditorium, concierge, hairdresser, manicurist, pedicurist, yoga, wellbeing zones, it is a home away from home,” says Jiwa.
Key deals
| 2018 |
Cannon Bridge House |
London |
£248m |
|---|---|---|---|
| 2018 |
Microsoft HQ |
Reading |
£100m |
| 2019 |
Twin City Tower |
Slovakia |
€120m |
| 2020 |
Finance Tower |
Brussels |
€1.2bn |
| 2023 |
Sequana Tower |
Paris |
€460m |
Valesco began deploying capital in April 2018 and has since amassed €2.5bn in assets under management, making it one of the most rapidly growing specialist real estate investment firms in the region. To date, it has entirely invested in the office sector, delivering an average net income since inception of over 9%, and running an internal rate of return of about 16%, more than double that of its peer group, it says. The market cap of its occupier roster is in excess of €4trn, including Amazon, Microsoft, Accor and Natixis. It is the largest private landlord of the Belgian government.
“We seek to apply a lens that is particularly forensic and looks at real estate as an alternative asset class in its own right, seeking out pricing dislocations, unearthing high-quality assets out of complex situations and restructurings. Everything we’ve done to date has been done off market, out of complex, dislocation situations,” says Jiwa.
Sequana Tower was the first acquisition Valesco made for its new fully discretionary fund
It is about finding the right opportunities, he says. “Everything has been thrown at the world since we launched – the aftermath of Brexit, a global pandemic, the war in Ukraine, rising inflation and interest rates. Navigating through that has played to our strengths. We do well seeking out those needles in haystacks from pricing dislocations. There have been more needles, but you have to combine that with investment discipline and strike with conviction when the opportunities are compelling.”
Jiwa sees market resilience in London and Paris, combined with pricing dislocation. He also sees distressed opportunities coming from the top five cities in Germany. Europe, he suggests, is following Asia in that workers are returning to the office, at least for several days a week.
“The future of the office is not really that different to today, but for me it’s a place where individuals are thriving, self-actualising and contributing, and their value systems are aligned with the value system of the companies they are working at – manifesting in their office space – there has to be a return on experience,” he says. “I see this as evolution rather than revolution.”
