Tell us a bit about yourself and your background. Where did you work prior to FIL?
Before joining Fidelity International I worked at Bouwfonds Investment Management, a subsidiary of Rabobank at the time, where I focused on research, business development and acquisitions, mostly in the Netherlands but also in Germany, Belgium, France and the UK.
What are the key features of your Eurozone Select Real Estate Fund?
It is an evergreen fund with assets under management of circa €1.5 billion and growing. The investment style is core/core+ and the gearing level is very conservative. We invest through the cycles and at the moment we target the core Eurozone markets of France, Germany and Benelux through which we have access to over 70 per cent of the investable Eurozone universe; however, we keep the geographic allocation under review, and we could invest in other eurozone countries in the future. In terms of sectors, we invest in the more traditional sectors of retail, office and industrial but also in residential,life sciences and healthcare. Our investors are all institutional investors and they come from across the globe including Asia and North America.How would you describe the role of life sciences real estate assets such as Mirai House in your Eurozone Select Real Estate Fund?
We see it as a robust defensive play that is resilient to the economic cycle because it is supported by two megatrends: demographics (population growth and increased life expectancy) and tech (which is catalyzed by a surge of investment into research and development).
When you buy an asset on a science park, is the process different to (say) buying a shopping centre?
I would say yes and no. The negotiation part is the same, but the underwriting is different. The building specification needs closer analysis – is it future proof? If built to suit for the current occupier, could it be suitable to other users and be relet in the future? The location’s attractiveness is closely examined too by posing questions that reflect the nature of science parks. Is the campus well set up to cater for the whole life journey of a successful life sciences company (from startup to scale-up to established business)? Does the park address a clear need of the occupier to be located there (such as the need to be close to a university or medical centre)?
Furthermore, we perform detailed cashflow analysis for all occupiers and leases and that is as true of life science tenants as others. Knowing your occupier and understanding the opportunities and constraints of your asset and the location is very important, having access to Fidelity’s 250 plus researcher analysts across the globe provides ample insights into sectors and companies, which is of great assistance in this regard.
How does life sciences real estate compare to more traditional sectors such as CBD office in terms of stability of income and liquidity?
We believe the income is equally stable, and on average has the potential to deliver higher rental growth. We gained good insights into the liquidity of the life sciences sector when bidding for Mirai House (the bidding was very competitive) and in the long term I personally believe this is not a passing trend and liquidity will increase further going forward.
What is the biggest single difference between life sciences real estate and offices?
For life sciences, it is all about innovation and the knowledge economy. Is the building itself but also the entire science park where it is based set up to facilitate innovation?
Are there any specific challenges you would care to mention?
You need to have above average understanding of the occupier, that’s the biggest challenge. Sometimes you hear that the capex required on life sciences fit out is a challenge but, in my experience, the specialised kit that is needed is funded by the occupier rather than the landlord and this makes the occupier “sticky.”
Are there any specific valuation issues arising from an investment such as Mirai House?
If the building is in good condition with the appropriate floor specification and so on the answer is no. In a science park, investors may have a leasehold interest rather than the freehold; however, this is not a problem where the lessor is fully committed to the science park, as the University of Leiden is.
Looking into the future, will such assets play a larger part in diversified portfolios generally?
Yes, they will. Liquidity is improving and life sciences assets can be useful diversifiers as well as providing long income and the potential for rental growth.
Are you on the lookout for other life sciences opportunities?
We continually monitor the key markets such as Benelux, Germany and France for the Eurozone Select Real Estate Fund. It is possible that our UK Real Estate strategy may also invest in this sector.
