What inspired you to launch your new club deal for science and technology-led real estate?
There are three parts to this. First, from the tenant perspective, we are convinced that we are at the start of a decade where the conversion of scientific R&D into tangible products will massively accelerate, fuelled very much by venture capital, and this growth is creating a need for more infrastructure and space for science-based companies. Secondly, from the investor perspective, science and technology led real estate provides diversification benefits because typical German or pan-European strategies tend to be heavily exposed to the financial and professional services sectors. Thirdly, from the GARBE perspective, we believe that our skill set gives us a distinctive edge in this sector because we are more than an investor; we area vertically integrated investor/developer with deep expertise in active management of assets and intelligent use of capital expenditure (capex).You aim to source properties that provide space to scientific institutes and technology companies. Can you give examples of your ideal tenant-type?
We aim to provide space as a service in preferably multi-tenanted buildings within established locations characterized by their function as a cluster. Our focus is on tenants who participate in and add value to the cluster as a whole. Those tenants will be working in life sciences, tech, aerospace or industry 4.0 and mostly focus on knowledge driven activities such as research and development.Where in the cycle do you believe these properties are?
Continental Europe is early in the investment cycle, and most investors do not yet have a “bucket” or active allocation to science and tech led real estate. This will change going forward, especially due to the unique set of characteristics which define investments in this space - including the exposure to high growth industries participating from global mega trends. Furthermore, the asset market (take-up of space) seems to move from a more owner-occupied towards an investor driven model. In terms of regions, we would describe the UK as mid-way, and the US as already mature. Being early in the cycle means there is scope for both rental growth and yield compression going forward.What is the vehicle’s target size and what level of gearing do you expect to apply?
We are targeting between €400 and €500 million (£332 to £415 million) of assets with our first fund, which has a club deal-type structure, and maximum gearing of 50 per cent loan to value at vehicle level. This venture is the starting point for our science and tech investment programme.Can you tell us anything about the three institutions which have already committed to invest?
All three are German institutional investors with a long-term investment philosophy.
The focus of current use must be on research and development – why is this important?
The locations we focus on have a common “pull factor” which is research and development. R & D is a key part of the economic value chain, and those who engage in it will benefit from long term mega trends such as the rise of biotech and digitalisation. This type of work is difficult to conduct remotely (at least outside of IT) and requires a high degree of collaboration and diversity to succeed.Tell us a little about the sectors (e.g. biotech) you are targeting. Is there a particular type of life sciences to which you are drawn?
We are agnostic between the distinct types of life sciences; however, in the higher risk segments we will look for the highest degree of third-party usability within the cluster, because this protects the stability of the cashflow.You have stated that the potential for third party usability of the assets is important – why is that?
Third party usability allows us to combine tenants who are high potential start-ups with more established tenants who are strong covenants, and this ability in turn protects the rental income and makes capex more manageable. Third-party usability within the cluster means we do not have to be over reliant on individual tenants but have exposure to the quality of the location as a whole, thereby delivering better valuations and more advantageous financing terms. In certain cases, vacant property value may even be higher than the property’s value in use - that creates a defensive investment and allows us to manage risk.You are seeking regional diversification across Germany, the Netherlands, France and the UK. Do you have specific target allocations in mind?
Our investment strategy is bottom-up in nature and therefore we do not target specific geographic allocations. The current club deal will have a high exposure to Germany, but our science and tech led strategy as a whole will see us invest more broadly.
Other European countries where GARBE is already present may also feature in the mix – Can you give examples of the countries or regions you have in mind?
Potential targets could include northern Italy, certain cities in the CEE region and the Barcelona area.
