In Autumn 2012, a newcomer arrived on the UK property investment scene with €200m of Russian investors’ money in its pocket. Its brief was straightforward: start acquiring relatively low-risk assets that will support a strategy of capital preservation and generate a good level of income distribution.
The primary target was logistics properties and the vehicle was looking at buying in the Benelux countries as well as the UK. With world economies still on their knees and the Eurozone crisis around the corner, it was a good time to buy.
A first deal was secured in the Netherlands and then Delin bought its first UK asset with the €15m (£12m) purchase of 4mation, a 172,415 sq ft prime freehold modern distribution warehouse located on Cabot Park in Bristol.
It’s a deal that Delin’s CEO, Christian Jamison, looks back on with fondness – and not just because it was the company’s UK debut.
“In Bristol, we bought 14-year income at an initial yield of 7.75% which today I would say is going to be at least 100 bps more expensive.”
Not quite two years on, Jamison and his team – who work out of an office in London’s Knightsbridge – have amassed a 4m sq ft portfolio of 13 assets which are valued at €290m and reflect a net initial yield of around 7.3%. Given what similar assets are now changing hands for, Jamison is sanguine about the current situation but it was far from plain sailing to get to today’s position.
“The UK was a challenging market to penetrate. It’s still quite a relationship-driven environment. Fortunately, I think we were one of the few people in 2012 actively looking and wanting to buy logistics property. This was also the case in the Netherlands where we were originating quite a lot from developers and direct owners. There wasn’t a great deal of liquidity around so we got traction.
“In the UK, we managed to close some deals quite quickly before the whole world decided that UK logistics was the place to invest. Then the competition became very tough. Fortunately by then we had established our presence and one of the positives about the UK market is that there are high deal volumes.”
So how does a venture in its infancy (albeit with €200m to spend) break into a mature and sophisticated market place?
“You have to be relentless and very focused on what you want. You must be able to articulate in detail exactly what you are looking for and so create credibility.
“We have created credibility by being targeted and by performing well and very fast on deals when required. We haven’t tried to nickel-and-dime people with last minute re-trading and we have stuck to our views. “
He cites the acquisition of the £66m Wave Portfolio: “It was a complicated deal but we said to the sellers that we we’re totally committed and that we had done a lot of work up front. We agreed to exchange within 10 days and we did that.
“All of these things help you create the right reputation in the market.”
Jamison is a banker by training. Fresh out of college, he started with Robert Fleming & Co in 1997 before moving to Credit Suisse First Boston to do M&A work. It was there that he got his first taste of real estate when working with Pillar Properties on the take-over of Wates City of London.
“It was my first real estate M&A deal” he recalls. “I really enjoyed the transaction. I enjoyed learning more about real estate supply and demand dynamics.”
A move in 2002 to GE Capital saw him join the real estate business in Paris and then return to the UK team to work on originating new equity and debt opportunities for investment.
“This was at a time that the market was really coming back. GE was starting to move back into the debt space, but as the market continued to evolve it was very difficult to be competitive. That’s when I felt like it might be time for a change and I had an opportunity to join JP Morgan’s real estate structured finance team.”
Two years of lending, securitisation and syndication took Jamison’s story up to the crash.
“Having built up this team we had to dismantle it which was a fairly painful experience but I certainly learnt a lot and I made some very good friends. Unfortunately the securitisation and syndicated markets had dried up and there was no obvious way to do profitable business at that point.”
He left JP Morgan at the end of 2008 and set up his own consultancy and it was then that he was introduced to Delin Capital – an investment advisory group company for a Russian private investor. Delin was interested in possible UK investment opportunities, but Jamison also helped it sort out some legacy assets that they held in central and eastern Europe.
The work developed into a full time role and he joined them in 2010 and the plan to create the investment manager, Delin Capital Asset Management, began to take shape.
Although Delin had been a cross-sector investor previously, it was decided that the new venture would focus on logistics only initially.
Jamison explains: “We thought the logistics sector fitted our objectives because it’s a relatively stable asset class. It offers all the good characteristics of real estate, and also has an added benefit of the trend towards e-commerce, which is underpinning demand for space.
“We felt that even in low or zero growth economic environments prime logistics could still do well simply because of the increased influence of e-commerce.
“There is a view that logistics may be becoming a new sort of retail proxy. So we felt that if we could get in at a good time we would lock in to very healthy yields and cash-on-cash returns for our investors.”
With €200m of equity secured, the plan was to leverage up and assemble a €400m portfolio within two years.
“For that size of portfolio we didn’t want to spread ourselves too thinly and so we selected the UK and the Benelux markets as our focus point. Having a mix of sterling and euro was very important for us and for our investors. We like the UK because it’s got very long leases, triple net and very established infrastructure. It’s also extremely liquid.
“We liked Benelux because we felt it was a slightly lower competition environment, and it’s a real gateway to Europe through Rotterdam, Antwerp, Schiphol etc. There is a huge amount of trade that flows through the Netherlands in particularly, so it punches way above its weight from a logistics perspective. “
With about four months left of that original time frame, Delin is on track.
“The good news is we have all of our equity deployed and we are now just leveraging it. Our investors are getting a cash-on-cash return which is around 100 basis points higher than the minimum we promised them. We promised them 6% but we are now delivering around 7% net of fees and taxes.”
It is on the verge of securing a UK loan to provide some further liquidity, and the message from Delin’s investors is ‘more of the same, please’.
A second funding from investors is being planned with the aim to raise another €200m and to gear that up. Within five years, Jamison hopes to have €1+bn of assets under management and to double that “a few years after”.
It’s a very different environment from the one that Delin began buying into in 2012, but even though there maybe more competition out there Jamison remains very positive about the opportunities that the UK presents.
“The market is quite hot but what’s good about the UK is that it’s so liquid. We still see lots of deal flow and in certain key sub markets you will see some rental movement which is interesting.
“The rental growth prospects for the sector today are probably better than they’ve been for many years. We are long-term investors and can take a very positive view for the right opportunity. “
Having been a virtual ‘baby’ in the sector only 18 months ago, Delin’s growth spurt is seeing it mature fast and it intends to stay in the sector that has delivered returns to date.
“Logistics is our focus, we like the sector a lot and for the next few years that is where we are going to continue.
“We are pleased with what we have done to date but we are certainly not sitting on our laurels. It’s still just the beginning and we have got a lot of ambition.”