ACROSS: What do international institutional real estate investors investing in European shopping centers expect from their local asset managers nowadays?
STEFFEN HOFMANN: Holistic thinking. Investors expect that all project-specific decisions taken on the asset management level make good economic sense and follow the logic of the investor’s overall investment strategy.
ACROSS: How do global real estate players select their retail asset managers?
HOFMANN: Investors want to be sure that they benefit from their selected partners’ specialist sector knowledge and local network. Otherwise, they could do it on their own. They also analyze the past record of performance and accomplishments and want to see evidence that their asset managers can deliver what they are mandated for. That’s what we call a track record. When it comes down to the remuneration of a selected asset management team, most institutional investors are prepared to offer attractive financial rewards for skilled key personnel involved. Investors don’t like asset managers acting like coin-operated units. A strong team commitment, high-caliber personalities, and personal accountability are prerequisites for these high remuneration packages, however.
ACROSS: Are there any typical contractual standards that go into an asset management agreement between investors and their asset managers?
HOFMANN: While we won’t be able to talk about any specific individual agreement, a new market standard has evolved in recent years with some omnipresent key requirements that will be reflected in one form or another whenever formalizing an instruction between investors and asset managers. The overwhelming concern is creating a powerful alignment of interests. This can be established through a performance-oriented remuneration structure as well as through demonstrated skin in the game on side of the asset manager, be it through equity participation, deferred fee arrangements, or even the partial conversion of fees into shares in the investment property that the asset managers are instructed to look after. Ultimately, the personal interest of the asset manager in the outperformance of an asset should be aligned with in the interest of the client in this respect. In many cases there are also break clauses for investors when key personnel leaves the selected asset management company.
ACROSS: How does decision making work between asset managers and investors?
HOFMANN: Investors want to remain in control of their properties and, in particular, of their invested equity. That’s why full transparency on the risks of an investment decision is expected. At the operational level, a regular information upstreaming process in line with international reporting standards is implemented. Formal investment recommendations are documented in written board memos. Key decisions are taken in joint board meetings on a quarterly or semiannual basis. Business plans are approved on an annual basis. A strategic review of an asset’s optimal holding-period happens less frequently, most likely every two or three years depending on the investment strategy, fund lifetime, overall market conditions, and achieved asset management milestones.
ACROSS: What do asset managers need to be prepared for when outlining an interesting investment opportunity for their investors?
HOFMANN: Although shopping center acquisitions on behalf of institutional real estate investors usually follow a rigorous standardized investment process, asset managers always need to present an individual asset management strategy and a profound business plan for each and every asset. Investors want to understand the rationale behind the investment recommendation and will ask detailed questions about key business plan milestones, performance critical issues, return sensitivities, and the future exit strategy. Last but not least, they will ask “Would you buy it if it was your own money?” Unless there is enough skin in the game, this question can’t be skipped.
ACROSS: What do you think is the most important soft skill an asset manager needs to have?
HOFMANN: The capacity to anticipate what’s around the corner and the ability to manage all the expectations that go with this.
ACROSS: Is there anything investors don’t like to see at all from their asset managers?
HOFMANN: Investors expect loyalty from their partners and thus hate conflicts of interests.
About Steffen Hofmann
Our interview partner was Steffen Hofmann (38), Founder and CEO of iMallinvest Europe GmbH. He is a genuine European retail real estate specialist with more than 15 years of shopping center industry experience. Having operated in six international markets (Germany, Austria, the UK, Spain, Portugal, and Italy), he displays a sophisticated understanding of European shopping center investment mechanics. iMallinvest Europe is an independent and dedicated retail asset management advisory firm. The company advises real estate investors and developers of modern shopping destinations in their acquisition and disposal programs as well as in their asset-specific, strategic business planning.