‘With Blood Dripping Off Their Fangs’: This Book Charts How American Property Investors Changed Europe Forever

The way real estate works today, with capital flowing across borders, debt a normal part of the investment process, and U.S. opportunity funds roaming the globe looking for distress, is so normal that it feels timeless and eternal.

But the journey to this point in Europe is relatively short and started only recently. Women Talk Real Estate Director Andrea Carpenter broke it all down in her new book "High Rise And Fall: The Making Of The European Real Estate Industry."

The book focuses on the late 1990s arrival in Europe of U.S. investors, principally opportunity funds run by financial institutions like Goldman Sachs, Morgan Stanley and GE. Still less than a decade old themselves, these investors came to Europe to buy into the distressed assets and companies created by the early 1990s crash in France and the UK. They brought with them a new attitude to investing, focusing less on the underlying quality of assets than the financial possibilities created by their cash flows.

They also brought new banks and a new attitude to debt, which was wholeheartedly embraced by European investors, and ultimately brought about the financial crisis. The ability of funds to raise huge amounts of equity and the emergence of real estate as an institutional asset class occurred in this period, and over the course of Carpenter’s narrative the euro comes in and makes Europe a truly cross-border market, and Germany’s open-ended fund sector rises and then is bested by scandal.

The arrival of the U.S. funds was not always welcomed by their European peers. Carpenter describes arguments between U.S. and French investors at an Urban Land Institute conference in Paris in 1997, with Alec Emmott, then of Société Foncière Lyonnaise, describing “these people with blood dripping off their fangs, talking about returns of 20%”.

Later on, she describes the rise in lending levels from 2000-2007.

“Debt was like a warm bath that whole industry was enjoying.”

The deal by Lehman to buy Coeur Defense for €2.1B, where the bank was both borrower and lender, is the ultimate example cited of how the availability of debt became the main driver of deals. 

Carpenter told Bisnow that the U.S. invasion of European property changed it for the better in most ways, and that writing the book changed her perspective on the crisis.

“U.S. investors brought a much more entrepreneurial approach to the industry,” she said. “They were and are smart people who did smart deals and showed us how to look at things differently. They brought the first alternative sectors over here like student housing and senior living, and they brought much greater sophistication to the industry. The big investment banks and fund managers brought with them an army of capital raisers who were going around the world and talking about real estate to institutions, often for the first time.”

The problem was that it all happened so fast, Carpenter said. There are parallels with some of the changes real estate is going through today.

“It was an industry that wanted to innovate and be part of the financial industry, but it didn’t have the skill set — at that time the graduates in property didn’t have a background in finance and banking,” she said.

In spite of this, fund managers with little knowledge of how debt worked were loading up supposedly low-risk funds with 80% leverage.

“You can see it today with tech,” she said. “The industry needs the best of the tech world, but also to increase its overall skills in this area. Tech isn’t just a tool that will make what you do more efficient, it will fundamentally change the way people do their jobs.” 

Carpenter said her research changed her preconception of who created the financial crisis.

“I probably thought the banking industry was to blame for pushing out too much debt, but it was much more nuanced than that. There were a lot of people and factors to blame.”

And why, despite the fact that multiple people were warning that the market was overheating, did people carry on investing, and does this give us any lessons for today?

“I think people were having too much fun,” Carpenter said. “Mipim in 2007 was like a zoo. ... Also, people didn’t stop and consider that as it became part of the financial market, real estate was aligned with broader global financial movements. 

“Today, people are making money, but no one is having any fun. There is still the muscle memory of the last crash. Everything is much more in balance.”