London MF REPE is paradise

You are 25 years old.

You work in REPE at a MF in London. You just tell people PE.

You live alone in a one-bedroom flat in Marylebone because you have convinced yourself that paying £4,050 a month to eliminate a twenty-minute commute is an investment in productivity.

The flat is 487 square feet. The bedroom faces an internal courtyard containing six extractor fans and the bins of an Italian restaurant. At 5:30 every morning, a reversing delivery van announces that it is reversing.

The letting agent described the flat as an “exceptional lateral apartment in the heart of Marylebone Village.”

Nothing about it is lateral.

You tell people you chose Marylebone because you like the neighbourhood feel. You have never been inside any of the neighbourhood shops. You pass them each morning before they open and return after they close.

Your alarm goes off at 5:48 a.m.

You are already awake.

At 4:56, your VP sent you a Teams message.

Small ask before IC. Can we run a revised downside with 50 bps of exit-yield expansion, slower lease-up and no refi?

The IC is at 8:00.

The asset is a £1.7bn pan-European logistics portfolio consisting of 46 warehouses across the UK, Germany, France, the Netherlands and one building in Belgium that nobody remembers adding to the perimeter.

You have never visited any of them.

You have spent eleven weeks underwriting the portfolio and refer to the assets by row number.

The investment thesis is that modern logistics supply remains structurally constrained in infill locations benefiting from e-commerce penetration, supply-chain reconfiguration and long-term rental growth.

Thirty-one of the warehouses are beside motorways.

Fourteen are beside other warehouses.

One appears, based on Google Maps, to be beside a field containing a horse.

You open the model.

It is called:

Project Atlas_LGS_Portfolio_LBO_v143_FINAL_FINAL2_Updated.xlsm

It contains 79 tabs.

Twenty-two are hidden.

Seven are called Rent Roll.

Three are called Returns.

The live output is on Returns_2.

The original model was built by an Associate who left for a US fund after receiving what he described as “an offer I couldn’t really turn down.”

Nobody has rebuilt it because everyone says rebuilding it would introduce execution risk.

The base case produces an 18.4% IRR and a 2.1x MOIC.

The VP wants a downside case with slower lease-up.

There are only three vacant units.

You increase the void period from nine months to eighteen months, reduce ERV growth from 4.0% to 3.5% and widen the exit yield by 50 bps.

The IRR falls to 11.7%.

You stare at the screen.

An 11.7% downside will not survive IC.

You increase leverage from 60% LTV to 65%, reduce lifecycle capex and assume the Belgian asset is sold separately in Year 3 at a 12% premium to allocated purchase price.

The downside now produces a 14.1% IRR.

At 6:12, the VP replies.

Helpful. Can we get to fourteen-five without making it feel engineered?

You increase the Belgian disposal premium to 15%.

The IRR becomes 14.5%.

You rename the case from Severe Downside to Downside Case.

At 6:18, the VP responds.

Perfect.

At 6:44, you shower, dress and put on a navy quarter-zip bearing the discreet logo of a fund with $190bn of AUM.

Your mother thinks the logo belongs to a golf club.

You leave the flat at 7:03.

Marylebone is quiet. Delivery vans idle outside bakeries. Private-school children are being driven four streets in Range Rovers. A man in running clothes carries coffee from a café where an oat flat white costs £6.20.

You own running clothes.

They are folded inside a drawer beneath three fund-branded gilets.

You walk south towards Mayfair.

At 7:16, you enter the office.

The reception contains limestone, smoked glass and an enormous abstract sculpture purchased from the wife of an LP.

Your fund occupies five floors of a building it does not own.

The annual rent is £235 per square foot.

Last month, the European office team rejected an acquisition because the occupational cost looked unsustainable.

At 7:23, your VP arrives.

He is 33 and lives in Fulham. He describes his house as “pretty modest,” although it has a wine room and a separate entrance for the nanny.

He stands behind your desk.

“How are we looking?”

“Fourteen-five in the downside.”

“Good. What moved?”

“The Belgian disposal assumption.”

He looks at the model.

“Are we comfortable with fifteen percent?”

You say recent transactions support a premium for scarce last-mile assets with alternative-use potential.

The asset is forty minutes outside Liège.

The alternative use is another warehouse.

The VP nods.

“Fine. Let’s not overthink it.”

At 7:37, the MD arrives.

The MD is 44 and has worked at the fund for nineteen years. His biography says he has invested across logistics, residential, hospitality, offices, data centres and alternative real assets.

His actual specialism is asking why the IRR has changed since the previous version.

He opens the IC deck.

It was circulated at 1:31 a.m. with the subject line:

Project Atlas — Final IC Materials

At 1:34 a.m., the Head of Europe replied:

Thanks.

The file-activity log shows that nobody else opened it.

The deck is 112 pages excluding appendices.

You spent eleven weeks preparing it.

It contains an asset-by-asset underwriting summary, a detailed rent roll, seven regional market studies, technical diligence findings, environmental diligence findings, a tenant-credit assessment, a financing section, a capex programme, a 28-page value-creation plan and seventeen return sensitivities.

The MD reaches Slide 6.

“Why does the portfolio have 46 assets? I thought it was 48.”

You explain that the seller removed two assets from the perimeter three weeks ago.

“Right.”

He reaches Slide 14.

“Is it mostly UK?”

“The UK is 31% of gross asset value.”

“Okay. We should make the European angle clearer.”

The title of the deck is European Logistics Portfolio.

At 7:43, the VP asks whether the MD wants to review the downside.

The MD looks at his watch.

“No, I think we know the key points.”

You rebuilt the downside four times since midnight.

The MD flips to the returns page.

“Why has the downside improved?”

You explain the revised Belgian disposal assumption.

He looks at the VP.

“Are we comfortable with that?”

The VP looks at you.

You repeat that recent transactions support a premium for scarce last-mile assets with alternative-use potential.

The MD says:

“Fine. Just make sure we’re not being aggressive.”

At 7:56, the deal team walks into the IC room.

Printed copies of the deck have been placed around the table.

Nobody touches them.

The Senior Partner is not there.

The Head of Europe is on a call.

One IC member is standing by the window speaking to someone about a school application.

Another is eating yoghurt while answering emails on his phone.

There is no broker in the room.

The broker will never enter this room.

The broker is sitting in an office several miles away, beside his phone, because the MD told him the IC discussion could take most of the morning.

At 8:03, the Senior Partner enters.

“Sorry. What are we discussing?”

The MD says:

“Atlas. European logistics.”

The Senior Partner sits down.

“Right. Remind me of the size.”

“£1.73bn.”

“And the return?”

“Eighteen percent base case. Fourteen-five in the downside.”

The Senior Partner frowns.

“Fourteen-five feels low.”

The MD says the downside includes 50 bps of exit-yield expansion, slower lease-up and no refinancing.

The Senior Partner asks:

“What’s the entry yield?”

“Five-point-four.”

“And exit?”

“Five-point-six-five in the base case.”

“So we’re assuming yields widen?”

“Yes.”

“And rents grow?”

“Yes.”

“How much?”

“Approximately four percent annually across the hold.”

He pauses.

“That sounds punchy.”

The Head of Europe finishes his call and looks up.

“What does?”

“Four percent rent growth.”

The Head of Europe asks where the assets are.

The MD says the UK, Germany, France, the Netherlands and Belgium.

The Head of Europe says:

“I don’t love Belgium.”

There is one Belgian asset.

It represents 2% of portfolio value.

The VP begins explaining that the Belgian asset may be sold separately during the hold.

The Senior Partner interrupts.

“Do we need to own Belgium?”

The MD says no.

“Fine. Sell Belgium.”

You have modelled the disposal in Year 3 at a 15% premium to allocated purchase price.

Nobody asks about the assumption.

At 8:05, the Senior Partner asks what the seller paid for the portfolio.

The MD says it was assembled over seven years and there is no directly comparable entry basis.

“But roughly?”

You know the answer is approximately £1.3bn.

The MD says:

“They bought well.”

The Senior Partner nods.

“That’s what worries me.”

Nobody asks what he means.

The Head of Europe turns to you.

“What’s the biggest risk?”

You have prepared a page containing fourteen principal risks and twenty-seven mitigants.

You say:

“Probably tenant rollover combined with weaker occupational demand.”

“How much rolls?”

“Approximately 38% of rent during the hold.”

He looks at the MD.

“That’s a lot.”

The MD says the rollover creates an opportunity to capture the reversion.

The Senior Partner asks how much the reversion is.

“About 18% on average.”

“So the risk is also the upside?”

The MD smiles.

“Exactly.”

The Senior Partner nods.

The transaction has become more attractive.

At 8:06, an IC member who has not spoken asks whether the roofs have solar panels.

The VP says twelve assets already have solar installations and another nineteen are being assessed.

The IC member says:

“Could be interesting.”

He returns to his phone.

You spent three weeks modelling the solar programme.

It contributes six basis points to the base-case IRR.

The Senior Partner asks whether the debt is done.

The MD says the fund has highly executable terms from three lenders.

The debt terms changed at 11:16 the previous night.

Proceeds fell by £55m, the margin increased by 40 bps and the cost of the interest-rate cap increased by £18m.

You updated the model at 12:03 a.m.

The Senior Partner asks:

“Anything unusual?”

The MD says:

“No. Pretty standard.”

The debt schedule contains four facilities, three currencies, six amortisation profiles and a cash trap triggered by three separate covenants.

“Good.”

At 8:07, the Head of Europe asks whether there is any data-centre angle.

The portfolio consists of warehouses beside motorways.

The MD says two assets may have longer-term power-enabled redevelopment optionality.

This sentence was added to the deck at 10:17 the previous night.

The Head of Europe asks whether the value is included in the underwriting.

The MD says no.

The value is included in the exit premium.

The Head of Europe says:

“Nice.”

At 8:08, the Senior Partner asks where the team is on price.

The MD says the seller wants £1.75bn and the team believes £1.73bn could secure exclusivity.

The Senior Partner asks what the deal looks like at £1.70bn.

You say the base-case IRR would be approximately 18.5%.

He asks what it looks like at £1.75bn.

You say approximately 17.6%.

He looks at the MD.

“So we’re arguing about nine-tenths of a percent.”

The MD says:

“It’s £50m of equity value.”

The Senior Partner shrugs.

“Not if we execute the plan.”

At 8:09, the Head of Europe asks whether the team likes the deal.

The MD says:

“Yes. We have conviction.”

The VP nods.

You nod.

You have spent eleven weeks identifying reasons not to have conviction.

The Senior Partner asks:

“Is this one we’ll regret losing?”

There is a brief silence.

The MD says:

“I think so.”

This is the only question that matters.

At 8:10, the Senior Partner closes the deck he has not opened.

“Okay. Let’s proceed, but stay disciplined.”

The approved price is £1.73bn.

The seller’s asking price is £1.75bn.

The Senior Partner stands up.

“Good. What’s next?”

The meeting moves on to a hospitality refinancing.

Nobody discusses the technical diligence.

Nobody discusses the flood risk.

Nobody discusses the tenant break option.

Nobody discusses the £41m of immediate capex.

Nobody discusses the fact that the largest tenant issued a profit warning.

Nobody discusses the downside case you rebuilt at 5:48 that morning.

The total elapsed discussion time is seven minutes.

At 8:12, you return to your desk.

The broker is still waiting beside his phone.

At 8:14, the MD calls him.

“We have approval,” he says. “But we’re going to be very disciplined on price.”

At 8:17, the broker calls back.

The seller will accept £1.75bn.

At 8:19, the MD walks over to your desk.

“Can you update the model at one-seven-five?”

You remind him that IC approved £1.73bn.

He says:

“Yes, but they approved the deal.”

You update the purchase price.

The IRR falls below 18%.

The VP stands behind you.

“Can we find twenty or thirty basis points somewhere?”

You increase the exit portfolio premium.

The IRR returns to 18.0%.

The VP looks at the screen.

“Good. That’s consistent with what IC approved.”

At 9:02, the broker circulates the final process letter.

The fund must submit its bid by Thursday afternoon with a fully financed SPA mark-up, evidence of funds, final debt terms, a confirmatory diligence statement and limited conditionality.

It is Tuesday.

The email ends:

The seller is seeking a clean and deliverable proposal from a high-conviction buyer.

Your fund decided it liked the portfolio twelve minutes ago.

At 9:30, you join the technical diligence call.

There are 28 people on Teams.

The engineers have identified roof defects at seven assets, drainage issues at four, non-compliant fire doors at three and a retaining wall in Germany that may require replacement.

The total immediate capex estimate is €41m.

The IC case includes €18m.

Your VP asks whether the works can be phased.

The engineer says some can.

The VP asks whether the works can be treated as lifecycle capex rather than Day 1 capex.

The engineer says that is an investment decision.

The VP turns to you.

“Can we profile more of this later?”

You move €17m from Year 1 to Year 4.

The IRR increases by 30 bps.

The roof defects remain in Year 1.

At 10:41, the environmental adviser presents the flood-risk assessment.

Two assets are in areas of elevated flood risk.

One flooded in 2018.

The adviser says physical mitigation measures may be required.

The MD asks whether insurance is available.

The adviser says probably, at a price.

The MD says:

“Okay, so it’s insurable.”

You write Risk mitigated through comprehensive insurance coverage in the IC follow-up materials that nobody has requested and nobody will read.

At 11:26, the ESG team joins.

They want solar panels, EV charging, LED lighting, upgraded EPC ratings, biodiversity measures and green leases across the portfolio.

The projected programme costs £36m.

The underwriting includes £14m.

The asset-management team says the improvements will increase rents, reduce operating costs and support exit liquidity.

You ask how much rent premium is supported by evidence.

They say it is difficult to isolate because ESG is increasingly part of the broader occupier proposition.

You add 2% to ERVs at upgraded assets.

The programme becomes accretive.

At 12:08, the leasing team sends updated market rents.

They are 6% higher than the numbers received three weeks ago.

You ask what changed.

The leasing team says there has been “strong recent evidence.”

The evidence is one letting completed in a smaller unit twenty-seven miles away.

You update the ERVs.

The base-case IRR rises to 19.1%.

The VP says the underwriting is beginning to reflect reality.

At 12:46, lunch arrives.

It is a £19 salad from a restaurant that has removed all seating to focus on institutional lunch delivery.

You eat it at your desk while reviewing the SPA.

The seller has proposed a locked-box structure, limited warranties, no financing condition, minimal recourse and a liability cap equal to 0.5% of purchase price.

Your lawyers describe the drafting as “highly seller-friendly.”

The MD asks whether anything is unusual.

The lawyer says the package is aggressive but consistent with a competitive process.

The MD says:

“So market.”

At 1:32, you join the insurance call.

At 2:06, you join the tax structuring call.

At 2:47, you join the financing call.

At 3:31, you join the asset-management call.

At 4:16, you join a call to coordinate the other calls.

At no point do you inspect a property.

At 5:02, the VP asks you to prepare a one-page summary of all outstanding diligence items.

There are 146 open items across legal, tax, technical, environmental, commercial, insurance and financing workstreams.

You create a traffic-light tracker.

Thirty-seven items are red.

The VP asks whether some can be amber because the number of red items “sends the wrong message.”

You change twenty-one to amber.

No underlying issue changes.

At 5:44, your university friends message the group chat.

One is going for drinks in Soho.

Another has booked dinner in Marylebone and asks whether you can join.

The restaurant is four minutes from your flat.

You look at the open model, the SPA mark-up and the 146-item diligence tracker.

You type:

Deal signing this week. Might swing by later.

You have used “might swing by later” to mean “no” since you joined the fund.

At 6:27, the seller grants access to the tenant-correspondence folder.

There are 3,800 documents.

The largest tenant has requested a rent reduction, a capex contribution and an option to break two years early.

The letter was sent four months ago.

The CIM says the tenant relationship is strong.

You forward the letter to the VP.

He calls immediately.

“Is this a real issue?”

You say it could affect the underwriting.

“How much?”

You run the break option.

The IRR falls by 90 bps.

There is silence.

The VP says:

“Let’s understand probability before changing the model.”

You leave the base case unchanged.

At 7:12, the MD asks whether the tenant break could create an opportunity to re-let the unit above passing rent.

You explain that the unit could theoretically be re-let at ERV, although there would be void costs, incentives, capex and execution risk.

He says:

“Right. So there may actually be upside.”

You create a scenario in which the tenant exercises the break and the unit is re-let within six months at current ERV.

The case produces a higher IRR than the base case.

You save it as Tenant Downside.

At 7:31, dinner arrives.

The firm pays for dinner after 7:00 p.m. up to £35.

You order £34.90 of sushi and consider this evidence that you understand value.

At 8:05, the MD sends comments on the revised IC deck.

Need stronger articulation of scarcity value. Can we show more conviction on rents? Page feels too negative. Next page feels too promotional. Add downside protection. Remove “downside” from the title. Need more on data centres.

The portfolio contains no data centres.

You add a paragraph explaining that selected assets may offer future power-enabled redevelopment optionality.

One asset has 2 MVA of grid capacity.

You do not know whether that is a lot.

At 8:47, the operating team sends its final business plan.

It assumes the fund can reduce operating costs, increase rents, install solar panels, improve tenant retention, complete yard extensions, subdivide larger units, monetise excess land and dispose of non-core assets at premiums to allocated basis.

You ask which initiatives are reflected in the base case.

The answer is all of them.

The VP says the business plan is conservative because it does not include data-centre redevelopment.

At 9:14, the model stops calculating.

The circularity switch no longer switches off.

The German tax schedule feeds into debt sizing, which feeds into interest expense, which feeds into taxable income, which feeds back into the German tax schedule.

You enable iterative calculations.

Excel produces an IRR of 482%.

You disable iterative calculations.

The IRR becomes #NUM!.

At 10:03, the VP stands behind you eating almonds from a paper cup.

“Any luck?”

You say you are working through the circularity.

“Maybe simplify it.”

The model includes a fourteen-tab waterfall he requested on Sunday.

At 10:42, you find the issue.

An acquisition fee has been entered in euros on a sterling-denominated sheet and converted twice.

Correcting it reduces the equity requirement by £23m.

The returns improve.

You briefly consider whether the error was actually an assumption.

At 11:16, the debt team sends final terms.

The margin has increased by 40 bps.

The interest-rate cap costs £18m more than expected.

The lender has reduced proceeds by £55m because of the tenant break option.

The IRR falls to 17.4%.

The VP looks at the screen.

“We need to get back above eighteen.”

You ask whether the purchase price can be reduced.

He laughs.

You reduce selling costs, phase capex, increase Year 5 ERVs and add a 1.5% portfolio premium at exit.

The IRR becomes 18.0%.

The VP says:

“That feels more sensible.”

At 11:58, the MD calls.

The seller has formally accepted £1.75bn.

The MD says this is an excellent outcome because the seller had previously indicated it might seek £1.80bn.

The broker’s process letter said £1.75bn.

You update the final sources and uses.

The IRR falls to 17.8% because one of the fees was not linked correctly.

The MD says:

“Let’s avoid becoming overly focused on a single output.”

For eleven weeks, every conversation has been about the IRR.

At 12:24 a.m., the investment team circulates the final bid letter.

It describes the fund as a high-conviction buyer with deep sector expertise, certainty of execution and a differentiated ability to unlock value through active asset management.

Your team has never owned an asset in Belgium.

At 12:43, you send the updated IC deck.

The file is called:

Project Atlas_Final IC Update_FINAL_v8_CLEAN.pdf

At 12:47, the VP replies.

Great work. One very small thing. Can we bring the returns section forward and move the market section to the appendix?

You move nineteen slides.

Every page number changes.

Every cross-reference breaks.

At 1:17, you finish.

At 1:25, you leave the office.

The fund pays for a car after 10:00 p.m.

Marylebone is twelve minutes away on foot.

You take the car.

The driver turns onto Oxford Street, gets stuck behind roadworks and takes seventeen minutes.

You pass people drinking and partying. Through one window, you recognise your friends.

They do not see you.

At 1:44, you reach your building.

The concierge gives you three packages.

One contains a new quarter-zip.

One contains magnesium supplements.

One contains a coffee-table book about the architecture of European hotels.

You have underwritten seventeen hotels.

You have stayed in none of them.

Inside the flat, the thermostat is set to twenty-three degrees because heat is included in the service charge and you consider unused heat a lost benefit.

The restaurant’s extractor fans hum outside the bedroom.

You pour a glass of water and open your laptop again.

The VP has sent another message.

Sorry, last one. Can we show the tenant-break case assuming twelve months of void rather than six, but also include the solar income?

You run the case.

The IRR falls to 17.7%.

You add a lease-extension probability weighting.

The IRR returns to 18.0%.

At 2:06, you open WSO.

A thread is titled:

London MF REPE: comp and lifestyle?

The first reply says:

Hours are deal dependent.

The second says:

REPE is more interesting than corporate PE because you’re investing in tangible assets.

The third says:

At senior levels, the job becomes much more relationship driven.

You close the browser.

Your total compensation is higher than anyone in your family has ever earned.

After tax, rent, service charge, Equinox, the cleaner, two destination weddings, a ski trip attended entirely from your laptop and the Marylebone premium you pay to avoid commuting, you save less than your university friends assume.

You have carry.

The carry relates to a €12bn fund, vests over seven years and pays only after an 8% hurdle, full return of capital and several provisions nobody has explained to you.

You model its expected value in a spreadsheet.

You use the upside case.

At 2:14, your VP messages:

Thanks. Tomorrow should be quieter.

You set your alarm for 6:00.

In four years, you will become a VP.

You will move into a two-bedroom flat in Marylebone. The second bedroom will be called a guest room, although no guest will ever stay there because it contains two monitors, a printer and a stack of old IC decks.

You will tell new Associates that REPE is a long-term business and that no single transaction is worth burning out over.

At 9:43 p.m. on a Saturday, you will send them:

Sorry to ruin the weekend, but a few quick sensitivities for Monday.

You will add 73 comments to their deck.

You will tell them not to over-engineer the model after requesting a separate waterfall for every asset.

You will ask why the returns have changed without opening the model.

You will request a wider downside and then ask whether it can remain above 15%.

You will learn to say “basis,” “optionality,” “institutional quality” and “downside protection” without specifying what any of them mean.

You will describe a warehouse beside a motorway as a mission-critical urban logistics asset.

You will describe a serviced-office building as a hospitality-led repositioning opportunity.

You will describe a partially vacant shopping centre as mixed-use optionality.

You will describe a car park near a substation as a data-centre platform.

You will attend site visits in a gilet and leave before the roof inspection.

You will tell the team to stay disciplined and approve another £20m because the seller “clearly wants to transact with us.”

One evening, you will leave the office at 8:50 and call it an early night.

You will walk home through Marylebone.

The restaurants will be full. The bakeries will be closed. The people at the outdoor tables will appear relaxed in a way you find suspicious.

Your phone will vibrate before you reach your building.

The MD will ask whether the Belgian warehouse could support a data centre.

You will open Google Maps.

You will find a power line two kilometres away.

You will add a sentence about long-term digital-infrastructure optionality.

The exit value will increase by £28m.

The IRR will rise by 20 bps.

And as you cross Marylebone High Street carrying a laptop containing £1.75bn of warehouses you have never seen, you will finally understand.

London MF REPE is paradise.