The DNA of a developer

Troy Javaher, managing director, Lincoln Europe: There are a number of differences. First, AIG/Lincoln was primarily a development-oriented company when it entered the CEE region in 1997. Lincoln started 51 years ago as developer, and has since developed over 13 mln sqm of commercial space and over 209,000 multi-family residential units. When Lincoln brought AIG out to partner us in the region, the focus was predominantly on development, and less on investment properties. Now the reverse is the case, with the vast majority of the focus on investment (80 pct), and pure development making up a far smaller part. Lincoln still prides itself as one of the top active developers in the US, but it also recognises that the development landscape in the CEE region has changed significantly since the mid-2000s, with more regional/international developers present and highly accomplished local groups producing top quality projects and which have successfully achieved scale. It is just not such an open field anymore, and it is important to face that reality.

So how do you plan to engage with this new reality?

Having said all that, Lincoln plans to leverage its development expertise and its ‘developer DNA’ to add development value to the investments it pursues. There is an incredibly deep knowledge base within Lincoln, and that expertise will be available for the projects we are doing in the CEE region. I think this is key going forward as it will be increasingly important to be capable of actually value-engineering the real estate as opposed to value-engineering only the financials. Matching this investment focus with a true
development/re-development capability is the business model at Lincoln in the US, and it will be the same here in Europe. We do believe that there is a real competitive advantage to this combination, particularly when the deals are getting more and more difficult and require more and more of a hands-on approach.

Secondly, Lincoln will leverage our vast network of equity partners on a deal-by-deal basis. As most of your readers know, AIG/Lincoln was a 50:50 exclusive joint venture, which at the best of times was quite productive. However, Lincoln does not want to lock themselves into any one source of equity, and in the US we are currently invested with a very wide range of partners, ranging from very core pension funds to very opportunistic private equity partners. This flexibility is critical to Lincoln, and it allows us to move more quickly to take advantage of a wider range of deals. Several of these equity sources are interested in doing their first deals in the region with Lincoln, and we look forward to matching these opportunities to the right parties.

Will you be focusing on different markets?

We will invest wherever the market allows. The investment remit is for the whole of Europe – Western, Central and Eastern. But again, here we need to keep it real and recognise our constraints at the moment. As we have just re-launched in January 2016 and given where the various European markets are in the cycle, we will most likely focus on Poland, the CEE and the SEE regions in the near term. Lincoln has a track record in these markets, and I have been in the region the last nine years, which should provide an important focus for now. As we grow the teams and establish the transactional history, we will definitely look to Western Europe, and that is one of the reasons to base ourselves in Prague, which is an ideal central location.

In terms of specific markets, I think they all provide opportunities – the entire CEE and SEE regions. When I was the head of CEE capital markets at JLL, I was focusing almost exclusively on portfolio and cross-border deals, so I was often at the other end of these conversations about which markets were the most interesting, how they stacked up one versus the other, and I witnessed first-hand the various conceptions/misconceptions of the CEE as a region. For example, investors would say they were interested in the “CEE”, but there is no common understanding of what that term means: for some it meant ‘Poland and Prague 1”, while for others the CEE meant “anywhere where the deals/returns make sense”. I would say we are much more agnostic and in the latter camp.

I truly believe in Poland, but I also think that country-level discussions have limited value, especially when people are so quickly and overly influenced by what the news channels show them in their hotel rooms. The region’s real opportunities require more than ever a detailed understanding of the occupational realities on a lease-by-lease level, legacy issues, valuation issues, and the funds’ changing business models, etc. So as long as the risk-return stacks up, we are open to any European market.