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14-08-15

Alma Property looks to capitalize on Nordic trends

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Since emerging as a new player on the Nordic investment market in October 2014, Alma Property Partners has cast its die as an asset manager with institutional ambitions.

It has hit the property headlines a number of times in its short career, most recently for its strategic alliance with Stockholm-based asset manager Möller & Partners. The pair formed the Akka Egendom joint venture to identify real estate investment opportunities for a private Swedish pension fund and two Swedish state-run funds.

In May, it purchased 70 apartments in Karlstad, Sweden, and in July it upped its game with another 112-unit acquisition in the same town. It has leveraged firepower of 2.5 billion Swedish kronor, or approximately €261 million, and has a stated ambition to become the “partner of choice for institutional investors seeking real estate exposure in the Nordic region.”

SNL asked Alma CEO Sloan Wobbeking and founder and Chief Investment Officer Simon de Château how it intends to achieve this and what challenges the Nordic market holds for a new entrant with lofty aspirations.

What follows is an edited transcript of their emailed responses.

SNL: When Alma Property Partners was formed last October, what was the rationale behind this move? Did the founders identify any market gaps?

One of the primary reasons we founded Alma Property Partners was because we saw a need for a Nordic private equity real estate firm with no passive ownership. The organization is owned by members of the senior management team and it is built on the principles of active ownership and strong alignment with investors. The senior management team at Alma believes that an owner-managed organization with no passive ownership is the preferred model for creating strong alignment of interests with institutional investors and attracting the top real estate investment talent to the company.

Can you outline Alma’s immediate and longer-term business strategy?

Our immediate business strategy is to continue seeking and hiring the top talent in the Nordic real estate market and to raise capital for our two fund products. The company was founded by three highly experienced real estate investment professionals and we plan to hire around 12 people in total. We recently hired two acquisitions professionals and our chief financial officer — so we are making good progress in building the team. We also achieved a major milestone in May by raising 750 million kronor for Akka Egendom. We hope to raise an additional 750 million kronor for Akka Egendom by the end of the year.

Finally, we are making good progress in raising capital for Alma Property Partners 1, an opportunistic real estate fund that will make property investments in the Nordic Region. Alma Property Partners 1 is targeting 2 billion kronor to 2.5 billion kronor and expects to have a first close during the fourth quarter.

Can you outline the company’s operating model?

Alma’s primary areas of expertise are developing investment strategies and sourcing and executing real estate acquisitions. We have a deep understanding of the key drivers that affect the property markets in the Nordic countries, both on a macroeconomic level and local market level. We closely follow and analyze trends in the local property markets to understand factors which feed into our continuous development of current investment themes.

We typically acquire properties that require extensive active asset management and we supplement our asset management capabilities by partnering with niche, best-in-class asset management partners to deliver top performance.

Simon de Château pioneered the model of partnering with entrepreneurial asset managers in the Nordic real estate market over 10 years ago. The model is similar to the use of specialized operating partners in the private equity market. Simon has been one of the most successful private equity real estate investors in the Nordics over the last decade and we believe that this operating model contributed significantly to his track record of producing a net leveraged IRR of 22% from 2003 to 2015.

You formed the Akka Egendom joint venture in May to, initially, purchase €160 million worth of rental housing in Sweden. Why did you specifically choose to focus on this sector?

Akka Egendom is a Swedish residential investment company that is jointly managed by Alma Property Partners and Möller & Partners. We saw a market opportunity to acquire stable, rental apartments in small and medium-sized Swedish municipalities that show good population and economic growth. These small and medium-sized cities are often overlooked by the large residential funds and we see the opportunity to bring professional, long-term, asset management to the rental apartment market in these areas. Akka Egendom will have an investment capacity of approximately 2.5 billion kronor by the end of the year.

Do you envisage further strategic alliances as a means of delivering value?

We are always open to considering any strategic alliance that enhances our ability to add value. In the case of Akka Egendom, we saw the opportunity to co-manage a Swedish residential fund with one of the most experienced asset managers in Sweden — and our investors recognize that the combination of Alma and Möller & Partners gives us a robust platform. With respect to our opportunistic fund, our operating model is to work with best-in-class asset management partners, which involves the formation of strategic alliances at the portfolio level.

What volume of assets under management are you targeting within five years?

We do not have a specific target but we believe it is realistic that our assets under management will be 15 billion kronor to 20 billion kronor in five years.

Describe the quality of assets you target.

There is a wide range of asset quality but our property investments are made with the aim to deliver gross returns of 18% to 20% per year on average to our investors. Generally, our investment themes for our opportunistic fund revolve around making impaired assets more attractive to institutional or core buyers, i.e. “manufacturing core” through either repositioning, leasing up, developing new product or executing portfolio roll-up or break-up strategies. We cannot acquire core or dry assets but rather we have to create them — either by fixing them or building them.

One of Alma’s stated ambitions is to become the “partner of choice for institutional investors.” What attributes will allow Alma to achieve this?

People, performance and alignment of interests. Our primary source of capital is institutional investors and, if we are permitted to oversimplify the process, most investment decisions are made based on the quality of the team, investment performance and alignment of interests. There are other factors that are important, of course, but people, performance and alignment are usually at the top of the list for most investors. We believe we have created a unique PERE platform in the Nordics that will attract the top talent and we believe that our operating model will enable us to meet or exceed our return targets. Our company is owner-managed and we invest significant personal capital alongside our investors which creates a substantial alignment of interests.

What level of debt to equity are you comfortable with?

For the opportunistic fund, we are comfortable with 65% to 75% debt to equity. For Akka Egendom, we have a 50% leverage cap.

What challenges will Alma encounter going forward and how will you navigate those?

Our primary challenges in the near term will be finding top talent and, of course, raising capital. There has been a lot of change over the past year in terms of people switching firms or starting new companies and catching good people amongst all this movement is certainly a challenge. That said, it is not every day that a new private equity real estate firm is started, and we believe that our owner-managed platform will attract the top talent.

Raising capital is always a challenge in any market. The real estate groups at the large institutions are, generally speaking, severely under-resourced so they are limited in the number of opportunities that they can evaluate. We expect that our strong past performance, unique investment themes and robust transaction pipeline will attract the top institutions to invest in our opportunistic fund.