It is a regular romance. Quilvest, a global wealth manager, and Lebanon’s BlomInvest Bank have tied the knot with a new product partnership, allowing the Lebanese bank’s wealth management clientele to buy into Quilvest deals via a special purpose vehicle called the Blom-Quilvest European Real Estate Fund. The two are teaming up for the second time in three years to market investment opportunities. The difference from their first collaboration, which was a l’Americaine, is that the current arrangement is focused on European property investments.
“What is most important in our relationship is that the very spirit of [both] Quilvest and the bank are very much alike,” says Marc Manasterski, partner and global head of the real estate unit at Quilvest. “BLOM has a family approach to business and we have the same,” he adds and iterates a line from the Quilvest Group’s corporate narrative to explain how the group is distinguished from the hoi polloi of fund management by always committing its own important equity stakes into projects. According to Manasterski, Quilvest does not prioritize fund management fees as its revenue source. “We are investors before we are fund managers,” he enthuses.
For Fadi Osseiran, the general manager of BlomInvest, it was enlightening to see how the investment opinions on both sides moved in sync. “We said, [this is] great, we see eye to eye,” Osseiran explains, referring to how he saw that Quilvest was targeting the United States at the same time when the BlomInvest team thought the US was the ticket three years ago. They also talked about Europe just as BlomInvest was looking to invest there, given the weakening Euro and central bank efforts to stimulate an economic turnaround.
Another enticing element of convergence was the all-important perspective on risk, Osseiran says. “People are greedy,” he elaborates. “Whenever they are approached with promised returns, they don’t look at risk. We have always a lot of opportunities when funds come to us but when we pick a fund, we don’t just look at the performance, which shows only the growth but not the risk. Looking at Quilvest we saw a family fund that has a track record of 70 years of investing its own money directly. Our cultures are very similar in terms of risk mitigation.”
Looking to Europe
The Blom-Quilvest European Real Estate Fund is seeking to accumulate $20 to $30 million in investor money and deploy interesting amounts into select projects in European capitals and gateway cities. Projects will generally not be new developments but consist of property acquisitions targeted for refurbishing and repositioning, aiming for annual returns of 12 to 13 percent. According to Manasterski, the monies will be deployed over two years and the holding period of the investments will be about four years, aiming for liquidation by 2020 or 21, with interim income delivered in the meantime. He emphasizes that the investments will be in the low-risk European environment, but will offer premiums of 900 to 1000 basis points (bips) when compared with returns achievable from high-quality sovereign bonds that yield less than three percent.
“The strategy in the current partnership is not to invest in funds but only in direct deals with pre-identified investments; another characteristic is that investments are in deals that secure value creation upfront so that the exits are not so exposed to market swings. Therefore, if we do not secure the 12 to 13 percent, we serve eight percent at worst, comparing to the treasury bond at 2.5 or 3 percent, [representing] a 500 bips riskless type of investment return,” Manasterski says.
He outlines his rationale for targeting the European property market over other investable real estate markets around the world. While property values in the US still have room to increase, one has to be cautious and very selective in the coming three to five years to avoid being caught in market adjustments. Markets in Singapore and Hong Kong are very active, but these East Asian property environments are, value wise, under the influence of China. The country, in Manasterski’s view, is in a phase of no development which he specifically attributes to the Chinese government’s anti-corruption drive that has hit decision making in state-owned enterprises. Latin-American property markets in turn are sluggish because of the dependency on Chinese demand by most of the continent’s economies.
For BLOM clients, the Blom-Quilvest European Real Estate Fund is accessible on a retail level, Osseiran says. But that is retail in a manner of speaking, to the value of a $250,000 minimum ticket size compared to the multimillion dollar participation requirements that Quilvest usually imposes as an entry barrier. “We use the word retail as opposed to the minimum ticket of $5 million or $10 million,” Osseiran clarifies.
Given the Blom-Quilvest fund’s minimum ticket size of $250,000, the audience for buying into the fund seems destined to range in the dozens and not in the hundreds of clients. Osseiran says he expects that respondents to the fund offering will comprise perhaps sixty percent of clients who already use BlomInvest. This would give the bank important opportunities to appeal to wealth clients that have ties with the parent, BLOM Bank, and to approach potential new clients in the market place where the BlomInvest Private Banking unit competes in Lebanon with the likes of Audi Private Bank, the Saradar Group, and FFA Private Bank.