A flight to property?

As far as private equity managers are concerned, real estate investment seems an altogether different kettle of fish to mainstream private equity deal-making – low-yielding, slow moving, hard to fathom and generally not worth losing much sleep over. Isn't it?

Actually no. Opportunistic real estate investment, a concept pioneered just over a decade ago in the United States, had failed to win much of a following in Europe until financial markets turned and returns from property plays started to look tempting even on a relative basis. Since then, US opportunity funds and property savvy investment banks have done much to promote their trade in European real estate markets, and a small number of European players have joined in.

Nevertheless it's early days, and it would be a bold bet to predict that a flight to property is going to be the next big thing in European private equity. Understanding property valuations is a different ball game, and institutional investors in Europe are yet to be convinced that discretionary investment is the way forward in the real estate sector.

However, what works for US investors today tends to be all the rage over here tomorrow. Opportunity funds operating in Europe don't have much to show for themselves in terms of exits, but once they do, institutions are bound to take another look. We thought we should take a closer look now: hence this month's cover story.

Philip Borel

Managing Editor