We caught up with Christina Ofschonka, Managing Director and Head of Core Funds at AEW, in her office in Frankfurt’s 31-storey Eurotheum building. AEW’s pan-European open-ended fund EUROCORE made its first acquisition in the emerging European life sciences sector with the purchase of Sydmarken 5,
a fully let asset in the Medicon Valley of Copenhagen in March 2021.
Tell us a bit about yourself and your background. Where did you work prior to AEW?
I started working on the buy-side (that is, as an investor) at IVG Immobilien AG. My next job, as a real estate portfolio manager for a
life assurance company called Alte Leipziger Lebensversicherung aG, was also on the buy-side doing for example real estate transactions and preparing manager selection. In 2016 I moved over to AEW and the sell-side. AEW is a multi-cultural, multi-lingual firm with multiple offices, and this facilitates very rich discussions about sectors and individual assets, which I really enjoy.
What are the key features of your Eurocore fund?
The fund aims to provide stable, long-term income returns by investing in a future-proof diversified portfolio of core assets. We seek out tenants with resilient long term business models. Our investment philosophy is responsible too – for example, we look for logistics assets that are energy neutral. Our core markets are France, Germany, and the Benelux but we can also selectively add southern or northern European markets offering potential.
How would you describe the role of life sciences real estate assets such as Sydmarken 5 in your fund?
This asset sits within the fund’s broader office allocation, and it brings the benefit of long-term resilient income. We see the income as resilient because there is a limited supply of the top quality and highly specific stock that life sciences occupiers require; in addition, the number of top-quality clusters in Europe is also limited. Life sciences tenants are sticky when they find the right building in a location that can attract and retain staff, they tend to stay there.
When you buy an asset on a science park, is the process different to buying a shopping centre?
Our internal due diligence process is the same for all assets and all
acquisitions have to be approved by our standing European investment committee. However, the data that we feed into the process, the key metrics, varies by sector.
How does life sciences real estate compare to more traditional sectors in terms of liquidity?
Life sciences in Europe used to be a niche sector but it is becoming more mainstream, and the universe of investors has expanded. As this momentum
continues and life sciences becomes less “alternative”, liquidity for the highest quality assets, which is already good, will continue improving. Of course, for the third or fourth best asset in a given location, liquidity could be challenging but we do not buy such assets.
Are there any specific challenges you would care to mention? For example, are there any specific valuation issues arising from an investment such as Sydmarken 5?
Valuation is a comparative exercise, and we find that within a cluster it is possible to make those comparative assessments. Making comparisons across clusters is more challenging. When you’re doing a valuation exercise you
need to think carefully about the future reusability of an asset and the capex needed to bring such an asset back to “white box” status.
Looking into the future, will such assets play a larger part in diversified portfolios generally?
For us at AEW, yes because while we are aware that other core funds have also invested in the sector, we see strong megatrends supporting medical office/life sciences allocations.
Over €200 billion has flowed into European life sciences start-ups and scale-ups over the past decade. This funding is powering innovation and reshaping the sector's real estate.
