M7 Real Estate knows where it is going. This pan-European investment and asset manager specialises in “value-add investment opportunities in the multi-tenanted commercial sector” – across Europe.
As we sat down to talk with David Ebbrell, CEO of M7 Real Estate, and Chief Operating Officer Teresa Dyer, five key areas emerged: their acquisition by Oxford Properties Group; opportunities in UK retail warehousing; the newly launched property stock exchange, IPSX, of which they are a shareholder; and ESG … as well as the importance of having fun.
M7 Real Estate finds its roots in Munich, hence the ‘M’. The ‘7’ refers to the number of ‘shed heads’ gathered together that October 2008, possibly around a few glasses of good German beer, and a bit of laughter, but we didn’t pop the question.
The seven had come together in Munich to talk about what a successful new fund management business might look like – what lessons could they learn from the Great Financial Crash. The next year they founded M7, and since that day M7 Real Estate has built up a portfolio of 42 million sq ft across Europe.
Despite its early roots in sheds, the M7 portfolio is now made up of 37.1% offices (they are particularly strong in the Netherlands); 35.3% industrial & logistics; and 15.8% retail warehousing (they’ve pumped some £700mn into the sector in the UK alone over the past 12 months).
Oxford’s acquisition of M7 is due to go through at the end of September 2021. This will allow Oxford – owned by the Ontario Municipal Employees Retirement Scheme (OMERS) – to access opportunities across Europe and to use the M7 platform to deploy capital, with M7 continuing to operate as a stand-alone business, says Ebbrell.
The value of data imperfection
While Oxford manages nearly US$70bn of assets globally and employs over 2,000 people, M7 has €4.1bn under management in Europe and 220 people. It is this platform across 14 countries in Europe, as well as in Hong Kong SAR, which gives M7 its strength, says Ebbrell.
“Our on-the-ground teams are in a position to spot trends; from ways to enhance rental growth to levels of illiquidity, as well as uncovering where there’s an interesting read-across from a value perspective,” says Ebbrell.
“The great thing about real estate is that information is imperfect,” he continues. “It is that imperfection of data that provides the opportunity for managers like M7 to spot trends. Add this to our deep market experience, and our pan-European view with a global understanding of the real estate trends, and this allows us to provide outsized returns for our investors.”
The great thing about real estate is that information is imperfect. It is that imperfection of data that provides the opportunity for managers like M7 to spot trends – Ebbrell, M7
Data is becoming increasingly key to understanding M7’s assets and their tenants, says Ebbrell. Covid has served to underline this. “With some 4,000 tenants, we needed to understand, for each and every one of them, where things were in the fast-paced environment of the pandemic as countries started to lock down,” recalls Ebbrell.
M7 lines up opportunities in retail warehousing
The UK retail warehousing market is particularly interesting, says Ebbrell, because of its “disconnect” between the occupier market and the capital markets. “Retail warehousing has been an area where we’ve seen deep value, and we were quick to capitalise on that last year,” says Ebbrell.
New supply of retail warehousing in the UK is restricted by tight planning laws, and in turn this finite amount of stock is dwindling as it is converted to alternative, higher value uses, such as light industrial. But for retailers, retail warehousing is a very efficient form of space, explains Ebbrell.
If you stock pick correctly [in UK retail warehouse market], we believe you’re going to see huge amounts of upward rental pressure – David Ebbrell, CEO, M7 Real Estate
“Everyone has talked about the rise in e-commerce and home deliveries. What people have not been seeing in the same token is the rise of click and collect and the logistics function of retail warehousing. This has led to high levels of take-up, especially among the discounters and the bulky goods retailers. If you stock pick correctly, we believe you’re going to see huge amounts of upward rental pressure.”
Last year, M7 launched two retail warehousing funds in the UK, M7 Box+ I and M7 Box+ II, with a total portfolio of just over £300m of properties. “The potential for future rental and capital growth lies through careful asset management and we anticipate a re-pricing of the asset class with the growth of the logistics function of these properties”, says M7.
Priory Retail Park, London: as part of its UK retail warehousing shopping spree, M7 Real Estate bought a £156.9mn UK retail parks portfolio from RDI REIT last autumn. The portfolio, purchased on behalf of the M7 Box+ II fund, includes this south-west London retail park.
IPSX: the “world’s first real estate stock exchange”
With the start of trading in M7’s Mailbox REIT this May, M7 took part in the first initial public offering on IPSX, the new, London-based real estate stock exchange, regulated by the Financial Conduct Authority, and in which M7 is a shareholder.
The Mailbox REIT, valued at £182.2mn in June, offers 698,000 sq ft of office space, anchored by the BBC, as well as retail and leisure, including a Harvey Nichols department store, on a 48 acre waterfront site in Birmingham.
With the launch of IPSX, this is the first time that tradable equity shares in a single commercial property investment have been made available – Ebbrell, M7
The initial dividend target is 7% per annum and M7 expects the dividend yield to increase to over 7%, as new asset management plans are implemented. These plans include converting the level one of retail to 50,000 sq ft of flexible office space operated by IWG plc. As part of a new type of arrangement, rent will be paid directly to the Mailbox REIT and IWG’s management fees based on a percentage of rent received.
“With the launch of IPSX, this is the first time that tradable equity shares in a single commercial property investment have been made available,” says Ebbrell. “It’s about providing an investor with the same income yield and capital value performance as if they owned the property direct, but for £1 per share rather than many tens of millions.”
Building the ESG framework & processes for M7
“We have a big platform; we are in multiple countries, where the [ESG] rules are all slightly different; and we have 570 assets,” says Teresa Dyer, M7’s COO, when asked about the company’s approach to ESG.
“We are not a developer doing massive new prime, mixed-use schemes, where the focus is on creating zero-carbon assets,” and neither is it about announcing “big initiatives on a few big buildings”, Dyer adds
We’re almost at the point where we have finalised our ESG framework and processes and then we will roll this out across the business – Teresa Dyer, COO, M7 Real Estate
The approach M7 has taken is to look at introducing a comprehensive framework for the business as a whole. “We’ve been working with EVORA [consultancy]. We’re almost at the point where we have finalised our ESG framework and processes, and then we will roll this out across the business,” says Dyer.
M7 will also be adopting an environmental data management system, she adds, given that “without having good data you can’t set sensible targets”.
Dyer believes that a focus on ESG will set M7 apart from other investors in the multi-tenanted market. She points out that legislation has still not “bottomed out” and that rules and regulations have until now been “few and far between”. Legislation also varies country to country. “There is a lot to get on top of,” she adds, confidently.
Fun takes the lead for M7
MIPIM World asked Ebbrell for his final word. “We are a pan-European business. It is testament to all of the team over the last 18 months that everyone has worked together to protect our investors’ capital as best they can, and the results are there. The team is key.
Fun is a key ingredient in building a successful team, Ebbrell expands. It’s about celebrating successes together. So maybe a bit of laughter and a few glasses of German beer were part of the founding moment of M7 back in Munich in 2008. Cheers to that!
Join us at the MIPIM September edition in person in Cannes or online, with the digital pass, to find out what else everyone is talking about across Europe.