Proposed Investment in Meyer Bergman European Retail Partners II-TE

Memorandum to: State Investment Council
From: Christopher McDonough, Director
Subject: Proposed Investment in Meyer Bergman European Retail Partners II-TE, L.P.

The New Jersey Division of Investment (“Division”) is proposing an investment of €50 million in Meyer Bergman European Retail Partners II-TE, L.P. (“Fund II” or the “fund”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

The Division is recommending this investment based on the following factors:

  • Seed Assets: Fund II’s portfolio is approximately one third invested with nine assets in Western Europe, two of which have been realized already. Another one third of the Fund is visible in the near-term pipeline. The Division will be buying into the portfolio at cost plus fund expenses, leading to immediate valuation uplift. Staff and real estate consultant RV Kuhns believe the seed assets to be of extremely high quality and the visibility into the portfolio also significantly reduces the risk of the proposed investment.
  • Operational Capability: Meyer Bergman’s lineage is in real estate development with its parent company, MAB Group, which was founded in 1970 and responsible for €7.5 billion of invested capital through 2004. The team leverages its operational pedigree through a very active investment management strategy, including constant monitoring of tenant requirements and trends, supplemental revenue opportunities such as signage, and large scale redevelopments. Meyer Bergman is also equipped to handle capital improvement, leasing, operating and marketing in-house, unlike many of its peers, thereby reducing fees and increasing control.
  • Market Opportunity: “High Street” retail assets are exhibiting strong performance in major European markets, driven primarily by tourist spending and wealthy individuals. In addition, there are few planned retail developments across the continent, leaving a supply shortage even though most retailers in Europe’s major cities continue to expand. It is also important to note that prime European retail valuations have experienced lower valuation declines and greater valuation recoveries through several distinct real estate cycles.

A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.

Division Staff and its real estate consultant, R.V. Kuhns and Associates, Inc., undertook extensive due diligence on the proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures.

The fund utilized Greenhill & Co., LLC (the “placement agent”) as third-party solicitor in connection with the potential investment. Staff has determined that the placement agent and its representatives met the registration, licensing and experience requirements set forth in the Division’s Placement Agent Policy (the “Policy”). Pursuant to the Policy, the fund has disclosed the contract between the fund and the placement agent, specifying the scope of services to be performed by the placement agent and the fee arrangement between the placement agent, the general partner and any other third party.

We will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern the investment. In addition, the proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).

Please note that the investment is authorized pursuant to Articles 69 and 71 of the Council’s regulations. The Meyer Bergman European Retail Partners II-TE, L.P. will be considered a non- core real estate investment, as defined under N.J.A.C. 17:16-71.1.

A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on May 14, 2014. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.

We look forward to discussing the proposed investment at the Council’s May 28, 2014 meeting.

Source: State of New Jersey State Investment Council