Europa Capital Partners

Copyright: David Lawson –Property Week  Dec 2001

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It takes chutzpah to contradict Sam Zell. The legendary US real estate investor recently decreed there was no way to make money in Europe and he was off to Latin America.  The silence from fund managers buried up to their armpits in European markets was deafening.   But not for those at the Paris conference where Sam’s pearls of wisdom were cast.   ‘We couldn’t hear him behind the noise of chattering about deals,’ jokes Charles Graham, chief executive of Europa Capital Partners.

  The threat that dollars will stop flowing across the Atlantic is no laughing matter, however.  Fund managers due to make pitches in the US over the next six months face the double whammy of a declining economy plus the uncertainty  following the terrorist attacks.   But Graham seems strangely unshaken. ‘Everyone is still in a state of shock, but that will pass,’ he says. ‘Wall Street is there to make money, and it can be made here.’

  So why can’t a money-machine like Zell see that? Graham believes it is down to approach. ‘Institutional  investors were probably unwilling to write him a blank cheque when he has no local infrastructure.’   Or in layman’s terms, funds are no longer willing to throw money at the amorphous splodge called Europe and expect it to stick in all the right places. They want people on the ground – sharp local operators who can sniff out the best deals and then run them up to speed over several years.  Graham would say that, of course. One of the main selling points of ECP is its network of ‘country partners’ which co-invest in projects across Europe.  And it seems to have caught on, he says. ‘Haven’t  you noticed how all the fund managers have been importing teams in Europe?

  He has a point. JE Robert, Apollo and  PRICOA all jump to mind. That shows two things, says Graham: they recognize they have as little chance as Zell of persuading US funds to invest without a strong local base. The other is that they are digging in for the long term.  So the predictions earlier this year by banks like Morgan Stanley and Goldman Sachs that a ‘wall’ of dollars was set to topple on Europe remain feasible. The figure of up to $25bn may be debateable after the latest economic news but Graham points out that large amounts are already committed by closed-end vehicles.

  ECP did its bit in 1999 by raising Euro 225m from US institutions like Ohio State Teachers and a couple of UK names to set up European Real Estate Opportunity Partners LP [Europa Fund for short], which is 40% towards a geared target of Euro 1 billion over three years. Significant amounts have gone into a development programme with a potential for 257,600 sq metres in half a dozen countries  This year alone, ECP  has hardened up plans for a Barcelona joint venture  involving 105,000 sq metres of offices and spent Euro 19m  on two Vienna office sites  capable of taking 72,000 sq metres.

   The fund has quietly made its mark in the UK as well – although many might not have noticed.. Portfolio Holdings has made all the waves over Harry Hyams’ legacy, Oldham Estates,  snapped up last September for almost £500m from MEPC.  But Europa was playing a significant role in the background. Roger Orf of Pelham Partners, who was hunting for Apollo in those days,  invited ECP to the party and Europa ended up splitting 50% of the portfolio with Deutsche Bank.

  About half has already been sold, fitting Graham’s investment mantra: buy at a good price, fund on the back of rental values, spin off assets to reduce debt,  refinance to return equity and patiently manage the rest for the long term.

  This is a good illustration of ECP’s philosophy across Europe, which is a mix of short payback and longer development/ management returns by concentrating on strategic sites in areas of tight supply. If it seems hauntingly familiar, that is not surprising. ECP is a practically an old boys’ club for London and Edinburgh Trust, the merchant developer that that burned so brightly in the Eighties before cleverly selling up just before the crash.

  Founder-partner John Beckwith brought Graham, LET’s US managing  director, back to the UK in 1994 to set up fund manager Pacific Investments, the parent company.  The initial aim was to give the giant US insurance group AIG a foothold in Europe but it proved hard going. They did some mezzanine finance deals with Electra Investment Trust and Scottish Amicable such as Piccadilly Plaza in Manchester but found mainland Europe a hard nut to crack.   Spain and Portugal looked ideal territory for cherry-picking assets during the recession but both UK and US funds were reluctant in those days, and only half the $100m target could be raised.

  A breakthrough came in 1997 with an $800m  fund specialising in French property. Half has already been sold, including the FFr2bn Credit Lyonnaise HQ in Rue du Quatre Septembre, Paris,  taken by German fund DEKA. Then AIG saw the potential for a fund that could dip into any promising European market but Beckwith and Graham realised this would not work without a local network of co-investors.

  So ECP was born. This was set up as a Delaware Limited Partnership, a structure US funds are comfortable with. But is was based in London to give UK funds assurance and operated via Luxembourg for tax purposes. The team included another LET old boy,   Christopher Curtis, and joined by Noel Manns, previously a director of Richard Ellis,  Robert Martin from St Quintin, Robert Sloss from the United Bank of Kuwait and Peter Cluff from Deutsche Morgan Grenfell Private Equity. Development director Erik Ruane and associate director James Morse swelled the numbers this year, joining from Development Securities and Greenwich Group

   More old LET contacts have been brought in as country partners. Graham sees this network as the difference to other opportunity funds. Partners are contracted to offer first choice of deals to ECP, which in turn is sole manager for Europa Fund.  Each co-invests the equivalent of their fees [or more], providing the vital element of ‘incentivisation’ lacking when AIG and Pacific were taking the lion’s share of rewards.  Europa was even  denominated in Euro to show there was no element of currency speculation.

  Management made up six per cent of the subscribed funds when the fund closed last May. Names such as Merseyside Superannuation and Bank of Scotland Private Equity are also involved, showing how UK attitudes have changed since the first attempts to attract them overseas

   Graham returns to the fact that the management stake from a local network is the source for success. ‘It means we never go into a country blind,’ he says. They are not all giant names: in fact, some are one-man bands. But they are all trusted to be ahgead of the market.

  That does not  eliminate every pothole, particularly those outside local control. In Vienna, for instance, the Euro 95m spent on the Gasometers shopping and entertainment centre looked shaky when Loews Cineplex went bust. ‘We were four months from opening with no prime tenant,’ says Graham. It opened on time with a new tenant but at a lower rent.

  On the other hand a good local partner helped Europa beat intense competition from big German investors to Boblingen Business Park near Stuttgart, which has just been forward sold to SaschenFonds GmbH Haar for more than DM100m. A similar situation won partnership in Almeda Park, Barcelona, which has permission for more than 100,000 sq metres of extra offices.

   More of the same is on the drawing board as ECP searches for specialised partners for retail developments in Spain, logistics in Portugal. Then comes the real test: another round of fund-raising in the US to create Europa Two. Graham is confident because he can demonstrate returns the fund has already realised. Perhaps even Sam Zell might be persuaded to change his mind by then.

Major Schemes


52,400 sq metre office park with permission for 105,000 sq metres of development

Joint venture with World Trade Centre Barcelona and a local partner


£495m joint purchase with Apollo, Deutsche Bank, Pelham and Portfolio Holdings of  Oldham Estate, 150,000 sq metres in 12 buildings including landmarks like Centre Point and Drapers Gardens, producing £40m rent per annum. Half already sold.

Also a joint venture with Portfolio bought Healey & Baker’s 2,020 sq metre office in St George Street.

Dusseldorf - Hammfelddamm Business Park

Eur 11.7m sale/leaseback  with Focus Clinical Drug Development at 6.56% yield

11,100 sq metre of extra development  substantially pre-let to Focus and MicroSoft

Joint venture with local partner Project-Construct

Stuttgart - Boblingen Business Park

Eur 28.5m sale/leaseback with IBM of 14,355 sq metres

28,500 sq ft further development 75% pre-let to Hewlett-Packard and forward sold to SaschenFonds for DM102m. Zoning for further 73000 sq metres 

Joint venture with local partner Project-Construct, which also participated in the Eur 48m purhase of six C&A department stores across Germany.



Eur95m paid for 75% of the 24,500 sq metre Gasometers Shopping Centre. Further development of 33,700 sq metre entertainment centre.

Euro 19m spent on neighbouring sites with permission for 72,000 sq metres of offices

Joint ventures with country partner GZK in a country seen as attractive for tax benefits on profit repatriation


 Around 30% of Europa fund is earmarked for Eastern and Central Europe. ECP is also looking for logistics opportunities in Portugal and seeking a partner for retail development in Madrid.