The retail real estate business is traditionally associated with a significant capital burden, especially if you are a major developer and investor, as Sonae Sierra is. However, in recent years, the company has moved towards a capital light strategy, evolving into a services business with a capital component, writes Sonae Sierra CEO Fernando Guedes de Oliveira.
We seek to add value as service providers through our knowledge and experience, while remaining committed to sharing capital and risk. 2016 was a turning point for us on this matter, as we recycled capital at a higher pace than previous years, releasing funds to pursue new development opportunities and strengthen our professional services offering.
One of the key factors influencing this is the current, considerable investor appetite for properties in Iberia, where most of our asset base is concentrated. Key recent disposals have included reducing our stake in the Sierra Portugal Fund to 22.5%, and selling assets from the Sierra Fund to Iberia Coop, a joint venture fund created with CBRE Global Investment Partners (GIP), in which Sonae Sierra has a 10% interest and is responsible for fund and asset management.
On the one hand, the fact that we hold a minority relevant capital position in a property guarantees full alignment of interests between Sonae Sierra and our majority partners, while sharing capital and risk. On the other hand, this model allows Sonae Sierra to deploy its proven value-creation capabilities, to the benefit of all partners in the property. The success we have had so far in putting into place a number of these co-investment structures leads us to believe that this is a preferred option for many property investors. Despite favouring a capital light approach, we remain aware that the sustained success of our business model is contingent on the continuous availability of a range of resources and relationships spanning financial, manufactured, intellectual, human, social and natural capital.
Nevertheless, our financial capital risk exposure is reduced via this approach, and creates further opportunities to raise debt finance at asset levels. We need manufactured capital to acquire, develop, manage and sell real estate on behalf of Sonae Sierra and our clients. However, as part of our capital allocation approach, we look beyond traditional retail concepts for development opportunities. We position ourselves to enter partnerships and serve clients on mixed-use schemes, namely in urban regeneration projects. Intellectual capital constitutes a key differentiator for our company. We seek to off er our clients comprehensive retail real estate expertise, as well as cutting-edge market and consumer behaviour insights.
Finally, as a service provider, our human capital is the cornerstone of our growth strategy and harbours our main competitive advantage. By investing ever more in our capacity to deliver services, we access expanding market opportunities and ensure that we stay one step ahead. The increasing professionalisation of the real estate sector is likely to lead to a greater reliance on outsourcing services in the future, leaving Sonae Sierra well placed to remain the partner of choice in both existing and emerging markets. fg