1. real estate

VOL 11 | ISSUE 3 | APR 2015 | perenews.com
FOR THE WORLD’S PRIVATE REAL ESTATE MARKETS
BEST FOOT FORWARD
How Related Companies has gone from pure developer to fund manager
SUN, SEA, AND SCRUTINY
I WANNA BE A CONTENDER
LET’S BE BUDDIES
THE $1 BILLION-PLUS SALE
A report from the beachside at the
MIPIM trade show in Cannes
The current state of the operating
partner model
Cordea Savills looks
to the big time
Harvard’s plan to
sell secondaries
EDITOR’S LETTER
ISSN 1558-7177
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®
Where there is talent,
there is war
New York’s NorthStar Realty Finance is
playing a cameo role in a long-running
play being shown all over Europe.
The central plot is that universal capital is descending on the region, which
was a main talking point at MIPIM last
month (see p.28). And NorthStar is an
example of that. Not only is the publiclytraded property company spinning out
a European entity and buying portfolios
on the Continent, but also it has just completed a deal to buy a 15
percent stake in European fund manager, Aerium Group.
So much for the main plot, but as with all plays there is a subplot
that NorthStar’s role highlights. It is one that is focused upon in
this issue of PERE. The avalanche of money towards Europe has
brought its own challenges, one of them being how to retain and
indeed hire the best talent. European managers are calling this the
‘battle for talent’ and it is preoccupying some minds. As Mikkel
Bulow-Lensby, chief executive of Nordic Real Estate Partners says
in our European Roundtable on p.52, this is what “keeps me up at
night”.
Keeping an incentivized team together on the ground in their
respective markets is a challenge when there are so many capital sources looking for operating expertize. Start-ups and new
opportunities are being created, offering present day real estate
professionals some choices. Indeed we are at that point of the cycle,
post-beta plays, where the need for talent is keener than ever. It is a
pertinent point for fund managers given how a lot of institutional
investors are keener to work directly with the operating partners
these days, and you can read an account of the stronger hand now
held by operating partners in a special report beginning on p.38.
How does NorthStar fit into this subplot? Well, while it was
looking for a European platform to gain access to assets, Aerium
Group was looking for a US partner to open up new relationships
with North American capital. The firm has been on a recruitment
drive and the money from NorthStar has helped pay for a stellar cast of professionals. And so the cycle repeats, and we love
watching.
Enjoy the issue,
Managing Director – Asia
Chris Petersen
[email protected]
Co-founders
David Hawkins
[email protected]
Richard O’Donohoe
[email protected]
MIX
Paper from
responsible sources
FSC® C020438
Robin Marriott
Editor
APR 2015 | PERE
1
INDEX
4 The News in Numbers
25 Europe News
6Data
8Deconstructed
28 MIPIM coverage
10 Special report
The chief executive officer of Cordea
Savills believes the acquisition of
Germany’s SEB Asset Management puts
the firm in striking distance of private
real estate’s first-tier managers.
By Jonathan Brasse
12 Hot story
Harvard Management Company is
seeking to sell a large proportion of
its real estate fund interests on the
secondary market.
Evelyn Lee investigates
14 Stateside
Lone Star’s potential ‘one and done’ fund
close shows the imbalance between the
‘haves’ and ‘have nots’ of private equity
real estate perhaps has never been more
apparent. By Evelyn Lee
16 Americas news
Facing the unions
Alternative assets, operating know-how
Andrew Chung’s start-up
Battle of two mall heavyweights
European core pricing is reaching
boiling point due to the demand for
yield far outstripping the availability
of income-generating assets. Investors
will need to take more risk to get their
expected returns so some are heading for
alternatives. By Thomas Duffell
Talk on the Cote D’Azur at property’s
annual MIPIM event largely centered on
whether or not the flood of global capital
into the real estate marketplace could be
sensibly deployed. By Thomas Duffell
32 Asiaview
Hong Kong’s proposed state fund for
long-term investments is welcome news
but only if the government chooses to be
bold in its investment philosophy.
By Arshiya Khullar
28
33 Asia News
PERE Asia Summit 2015: call for change
Andie Kang leaves NPS for a manager
Why ANREV thinks India is a flying
elephant
38 Special feature
The current state of the operating
partner model. By Robin Marriott
44 Operating outside the box
24 Eurozone
AXA’s development play
M7 brings op partners in-house
Tristan Capital argues back
44
Few real estate managers are quite like
Related Companies – and that’s helped
drive the growth of its fund management
business. Evelyn Lee interviews the
New York-based firm in this month’s
Blueprint.
C
M
52 More money, more problems
This year’s PERE Europe roundtable
shows the battle for talent is among
the challenges presented by the ‘wall of
money’ that has entered the region.
By Thomas Duffell
60 Capital Watch
Y
CM
MY
52
CY
CMY
K
IN THIS ISSUE
Aerium 25
AEW Europe 24, 29
Allianz Real Estate 29
Angelo, Gordon & Co 42
APG 36
Apollo Global Management 8
Artemis Real Estate Partners 20,
40, 41
AXA Real Estate Investment
Managers 26
Cover Image
Outside of the Guggenheim
Museum, Bilbao
2
PERE | APR 2015
Beacon Capital Partners 12
BlackRock Real Estate 42
The Blackstone Group 4, 9, 14, 18
Brookfield Asset Management 56
The California State Teachers’
Retirement System 16
Canada Pension Plan Investment
Board 24, 36
The Carlyle Group 16, 25, 35
CarVal Investors 4
CBRE Capital Advisors 34
CBRE Global Investors 25, 54, 55
China Investment Corporation 32
Clarion Partners 42
CLSA 33, 34
Cordea Savills 4, 10
Deutsche Bank 18
Fortress Investment Group 16
Gaw Capital Partners 33, 35
Generali Real Estate 4
GIC Private 4, 32, 33, 34, 36
Global Logistic Properties 33, 34
Goldman Sachs 9, 55
Goodman Group 8
Government Pension Fund Global 4
Greenfield Partners 42
Harvard Management Company
12, 16
IGIS Asset Management 4
Invesco Real Estate 35
JP Morgan Investment Management
Investing 42
Kuwait Investment Authority 49
Laurasia Capital Management 33, 34
Lone Star Funds 4, 14, 18
Lubert Adler 12
M7 Real Estate 9, 25
Macquarie Capital 54
Madison International 4
M&G Real Estate 25
Mirus Resort Capital 9
Morgan Stanley Real Estate Investing
35, 42
National Pension Service of Korea
4, 35, 56
Nordic Real Estate Partners 54, 55
Norges Bank Investment
Management 20, 38
Oregon Public Employees Retirement
Fund 14
Oxford Properties Group 50
Patrizia Immobilien 24
Pramerica Real Estate Investors 33, 35
Prism Capital Partners 9, 42
Prudential Real Estate Investors 20
Qatar Investment Authority 56
Related Companies 9, 25, 41, 46
Rockspring Property Investment
Managers 29, 35, 54, 55
SC Capital Partners 33
SEB Asset Management 4, 10
Siguler Guff 49
S. Norwalk 42
Starwood Capital Group 4
Teachers’ Retirement System of
Louisiana 48
Texas County & District Retirement
System 48
Tishman Speyer 41
The Townsend Group 35
TPG Capital 8
Tristan Capital Partners 27
USAA Real Estate Company 20
THE NEWS IN NUMBERS
The size London-based Cordea
Savills will grow to in terms of
assets under management
after buying Germany’s SEB
Asset Management
1
The number of closes The Lone
Star Funds is considering for its
current global offering, the $5
billion Lone Real Estate Fund IV
$5.6 billion
2
The number of big stories
that broke during the MIPIM
jamboree where 21,000 people
gathered for the event in the
south of France
10
The number of years Andie Kang spent at
Korea’s $430 billion National Pension Service
before quitting last month to join IGIS Asset
Management as co-chief executive
The number of protests to have taken place so far
this year outside the New York global headquarters
of The Blackstone Group over rental increase and
home repossession claims in Spain
15 percent
€300 million
The allocation Italy’s Generali Real Estate wants
to make to Asia property, with a focus being on
China and Indonesia
4
The equity haul for CarVal Investors’ first
investment vehicle dedicated exclusively to
European real estate
0
The number of press releases
from the MIPIM trade show
from firms trumpeting real
estate capital markets data
The equity target Madison
International has set itself for
its latest fund, which would be
$125 million larger than its
current vehicle
€350 million
The largest fund to date for Starwood
Capital Group as it closes its tenth
opportunistic property vehicle, Starwood
Global Opportunity Fund X
8
$905
million
PERE | APR 2015
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DATA
Mega-fund, little-dip
Though some $56.4 billion was raised in 2014 for funds in the $1 billion-bracket, that
was a decline on 2013 levels, writes Kevon Davis, research analyst at PERE’s Research
& Analytics division
With the recent close of the opportunistic property fund Starwood
Global Opportunity Fund X at $5.6
billion, PERE Research & Analytics
decided to take a further look
into total capital raised for megafunds, which are considered funds
that raised $1 billion or more, and
how they compared year to year.
Between 2008 and the end of 2014,
a total of $322.2 billion was raised between 146 mega-funds.
This represented 46 percent of the all capital raised during
the time period ($698.6 billion) but only nine percent of all
funds that closed (1719). The largest fund to close for the time
period was the Blackstone Real Estate Partners VII which
raised $13.3 billion in 2012.
Mega-funds have regained some traction since the financial crisis of 2008, with 2014 seeing some $56.4 billion
collected in 25 vehicles. However, the strong recovery from
its lowest point in 2011 couldn’t be matched in 2014. In 2013,
a total of $66 billion was raised from 33 funds. This represents a decrease of 15 percent and 24 percent in total capital
raised and number of mega-funds closed respectively.
That said, the average fund in 2014 raised more capital than
in 2013, with 2014’s average fund reaching $2.3 billion compared to 2013’s $2 billion. With the decrease in mega-fund
Mega fundraising
Mega-funds have grown steadily post-crisis,
though dipped in 2014 by fifteen percent
Source: PERE Research & Analytics
6
PERE | APR 2015
closings in 2014 compared to 2013, this may indicate a shift
in investor preference. It could indicate limited partners are
favoring smaller commitments through separate accounts
and joint ventures and less traditional fundraising vehicles.
In terms of geography, a majority of capital raised for the
time period came from funds that had a global approach,
representing 42 percent of all capital raised.
However, in 2014, it was mega-funds focused on Europe
that led fundraising, raising a total of $18.5 billion or 33 percent for the year. Europe had shown a significant uptick in
total capital raised from the prior year. In fact, it is the only
region that showed a growth in fundraising from the year
before. In 2014, nine mega-funds closed for Europe, raising an aggregate of $18.5 billion or a growth of 29 percent
from the $14.3 billion in 2013. The largest European fund
to close was the Blackstone Real Estate Partners Europe IV
which raised $8.7 billion between two tranches. Coming in
at second are global funds, which raised an aggregate of $17.1
billion for the year.
Of all the strategies, global mega-funds showed the largest
decrease in capital raised from the prior year. Global megafunds raised a post-crisis high of $28.7 billion in 2013 while
2014 saw a total of $17.1 billion, a decrease of 40 percent.
Strategy-wise, opportunistic mega-fundraising led all
other types for the time period, raising a total of $147.8 billion or 46 percent of total capital. Opportunistic fundraising
has grown fairly consistently since the strategy’s
lowest point in 2010, where it raised $5.2 billion
from three funds. This represents a growth of: 16
percent in 2011, 249 percent in 2012, 463 percent
in 2013 and 252 percent in 2014 where the strategy
raised $18.3 billion. Despite strong growth post-crisis, the strategy in 2014 did not reach similar levels
in 2013, dipping by 38 percent. While opportunistic
funds overall raised a majority of capital in 2014, it
was debt related funds that led mega-fundraising
for the year with an aggregate size of $22.1 billion
from eight funds. Debt mega-funds, much like
opportunity, have shown a steady increase in total
capital raised in the post crisis years, with a modest
increase of two percent in 2014 compared to 2013.
The Lone Star Fund IX was the largest debt megafund to close in 2014, raising a total of $7.4 billion
in August.
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DECONSTRUCTED
Fail Caesar
Caesars Entertainment, backed by TPG Capital and Apollo Global Management, took a hit
recently when it lost an appeal to stop it being sued. But trouble has followed this company
since it was acquired for $30 billion back in 2008
For many, Caesar’s Palace conjures images of boxing’s glorious
has also changed its debt agreements in order to provide itself
past. But in recent times it’s been the casino’s owners who have
with additional breathing room. Then last year both TPG and
been involved in some well publicized fights.
Apollo invested $250 million each into a growth-oriented
Private equity heavyweights Apollo Global Management
venture called Caesars Growth Partners intended to help the
and TPG Capital took control of the casino’s parent company
parent company pursue growth opportunities and improve the
Caesars Entertainment Corporation, which was known as
balance sheet.
Harrah’s Entertainment until 2010, back in
After shuffling the debt around Apollo
January 2008 with a leveraged buyout deal
and TPG are now looking to create two new
worth some $30 billion.
companies, one a real estate investment trust
The pair were caught square on the chin
(REIT) to own the property assets and the
however as the global financial crisis followed
other to run as the casino operator. Caesars
shortly after. Caesars experienced slumping
already has an operating company but that
revenues as consumer spending went down
business is currently in Chapter 11 bankand the already heavily leveraged company
ruptcy protection.
was not aided by the new capital structure
The problem for TPG and Apollo is that
which saw Apollo and TPG load the balance
while the deal looks good for senior debt
Caesars Palace: Apollo and TPG have
been taking a hit
sheet with even more debt.
holders those holding junior notes will sufSo with Caesars against the ropes TPG
fer a body blow as they would effectively be
and Apollo took the company public in 2012, albeit with a
swapping $5.2 billion of debt for just 30 percent of the REIT.
limited float and 70 per cent of the equity still in their hands.
To counterattack, the junior debt holders are in the process of
In September 2013 Caesars again tried to stabilize itself finansuing Apollo and TPG for what they allege is asset stripping.
cially, when the group attempted to raise around $4.4 billion
Round one went to the junior debt holders as a judge refused
to refinance its commercial mortgage-backed securities as
Caesars appeal to dismiss or halt the suit last month. But it is
well as a $450 million senior secured credit facility. Caesars
still anyone’s guess who will land the knockout blow.
Shed heaven
Once again the brave (or foolish, depending on your aversion to exercise) raced to the top of
the world’s biggest shed, Goodman Interlink, in the name of charity
As charity fun runs go the Goodman Interlink Magic Mile
raised by the Goodman Interlink Magic Mile were donated to
is one of the more unique. Hosted by Sydney-based logistics
Feeding Hong Kong. Feeding Hong Kong is the first food bank
developer-cum-fund manager the Goodman Group, the charin Hong Kong, dedicated to collecting and redistributing surity event sees Goodman’s business partners,
plus food to people in need.
staff and their families and friends make
“Feeding Hong Kong is a charity we
their way up the 15-floor cargo ramp of the
believe our fundraising efforts can make a
Goodman Interlink at Hong Kong’s Tsing Yi
significant difference to, and we fully support district.
port the organization in the terrific work
Many of the 346 runners wear fancy dress
they do,” said Philip Pearce, managing
costumes for the climb to the summit of the
director, Greater China for Goodman.
Race start at the Goodman Interlink,
world’s largest shed, with prizes going to
Goodman managed to meet its target and
Hong Kong: ready, steady go!
the best dressed team/individual. This year
raised a record HK$1 million for the charity
the fancy dressers were given breakfast and
to purchase a ten-ton truck and cover its onhealthy eating as a theme.
road cost for two years. The truck will then be used to deliver
The theme was all important for this year’s race as all funds
surplus food to more schools and families across Hong Kong.
8
PERE | APR 2015
The excel files
A Blackstone alumni bemoans the inadequacy of private real estate software…and raises
$18.3 million for his start-up for investors to ‘cherry pick’ deals rather than be in funds or REITs
From time to time, private equity real estate professionals do
connect via phone calls and e-mail.”
allow a little humility to creep into conversation. One does
It sounds like his idea to modernize is catching on.
hear, “I am just a simple real estate guy” in a modest nod
According to the report, his 10-person firm counts among
to the sophisticated mainstream private equity industry,
its angels Michael Fascitelli, former chief executive officer of
though oftentimes this is only half-sincere as the industry
Vornado Realty Trust, Jon Winkelried, former co-president
can be just as sophisticated as the leveraged
of Goldman Sachs, and Andrew Farkas, the
buyout brethren. That said, it seems that
former chairman and chief executive officer
there is one area where private equity real
of Insignia Financial Group which merged
estate can be labelled ‘simple’ and that is in
with CB Richard Ellis to form super adviser,
software being used by firms. Don’t take our
CBRE. SL Green invested in the funding
word for it, though, just ask Ryan Williams.
round too.
Williams is an alumni of Goldman Sachs
As intriguing as it might be, Williams has
and The Blackstone Group who has just
not given away much yet about the model.
raised $18.3 million for a start-up real estate
However, he did say: “At a high level, it’s a
Ninja software: we don’t know what it
software company called Cadre. Speaking
technology-driven framework for investis, but it could be dangerous
to TechCrunch Daily, he said he was
ing in real estate. It’s a newly enhanced way
shocked that billions of capital was being
to connect institutional capital with real
managed in mere Excel files. “The real estate industry is one
estate opportunities.” According to him, investors can take a
of those last frontiers where the way people conduct business
crack at specific deals rather than put their money into funds
today is how they’ve been doing it for decades - especially
or real estate investment trusts, which don’t allow them to
on the capital raising side,” Williams said. “A lot still hap“cherry-pick transactions”. At PERE, we don’t know whether
pens offline. People connect offline. Investors and operators
to be worried or to applaud.
Quotable
“I preach risk diversification in the
acquisition of assets, and it would seem
silly to ignore that as a strategy for our
own business.”
Richard Croft, chief executive officer of European multi-let
specialist, M7, on the reason why it has so many country partners
that are now being brought in-house
“The one thing about cold-weather resorts
here is a fascination, like, ‘God, it must just
be outstanding to run a ski area and I wish
I could be a part of that.’”
Michael Krongel of Mirus Resort Capital talking about a potential
sell-off of 16 assets by US REIT, CNL Lifestyle Properties
“When the market’s not as perfect, and
it’s harder to find opportunities, sometimes
being smaller and nimbler is better, and
that’s the path we’ve chosen to take.”
Justin Metz, managing principal of Related Companies’ fund
management arm on how the company chooses the size of the
funds it raises
“Negotiations with Deutsche Bank had
really gotten nowhere for the last few
years.”
Jim Baker, spokesman for the US union UNITE on how workers
at The Cosmopolitan in Las Vegas felt the former owner had not
come to the table to meet staff requests
“We’ve had a debate about this. Jon’s
got a gift. Obviously an MBA wouldn’t
have improved it too much.”
The Blackstone Group’s chairman and chief executive officer
Stephen Schwarzman talking about global head of real estate Jon
Gray at a Wall Street Journal leadership event
“One of the problems operating
partners face with opportunity funds is
you are subject to the vicissitude of the
performance of the funds.”
Eugene Diaz, founder of New Jersey-based operating partner,
Prism Capital Partners, on the challenge with partnering with
money capital
APR 2015 | PERE
9
SPECIAL REPORT | M&A
Savills’ quantum leap
The chief executive officer of Cordea Savills believes the acquisition of Germany’s SEB
Asset Management puts the firm in striking distance of private real estate’s first-tier
managers, and there could be more to come. By Jonathan Brasse
J
ustin O’Connor, the chief executive officer of Cordea
Beyond personnel synergies
We’re getting ahead of ourselves. O’Connor’s primary concern
Savills, the real estate investment management business
is integrating the two offices, Frankfurt and Singapore, of SEB,
of London-listed property services group Savills, has
with the 12 offices of Cordea.
plenty to say.
The conjoined business will have approximately 280 staff
Thankfully, with gagging restrictions lifted following the
after the 148 from SEB bolster Cordea’s 135, and, though the
release of Savills’ full-year results last month, in which the £1
vast majority of SEB’s assets and staff are in Europe, O’Connor
billion (€1.4 billion; $1.48 billion) market cap firm announced
insists there is minimal overlap between the two businesses.
it was buying investment management rival SEB Asset
As such, he expects personnel ‘synergies’ only likely to be
Management, he is now free to speak about it.
found in areas such as IT, marketing and research.
That comes as a relief as talk of the transaction, which will
Nonetheless, he admits staff assessments are required
transform Cordea into one of the world’s biggest real estate
between now and when the deal completes: “We’re very much
investment management businesses with more than €17 bilat the stage of understanding what everyone is doing. But on
lion of assets under management across Europe and Asia, has
the face of it, there doesn’t look like any real overlap.”
done the rounds on Europe’s real estate rumor mill for almost
Less certain is what the senior management structure will
half a year. News of the deal surfaced at the EXPO Real conlook like when the ink on the deal is dry. “I remain
ference in Munich last October, but because of
as CEO,” confirms O’Connor. Accordingly, SEB’s
listed company reporting restrictions, O’Connor
current chief executive officer, Barbara Knoflach,
had to keep schtum about it.
will leave in the course of the transaction. She
Now, with shackles off, he talks excitedly to
has already lined up the global head of investPERE about what the €21.5 million acquisition
ment management role at BNP Paribas Real
means for Cordea. In one fell swoop, the firm
Estate Investment Management, another real
has more than doubled its AUM, has doubled its
estate investment management business owned
headcount and has become a meaningful chalby a property a property services business.
lenger for business in Asia, the world’s growth
But the other key roles are yet to be determined.
region, to boot.
For instance, O’Connor would not confirm there
He has multiple messages for the market,
O’Connor: not done
would be heads of Europe or Asia roles. “In terms
perhaps the most salient being that Cordea, or
growing the business
of the management structure, we’ll be announcSavills Investment Management as the business
ing that following completion,” he said. “At the
will be known once the transaction completes by
moment we need to be making sure we’re putting together the
the third quarter this year, is by no means done growing. “I’d
right integration plan, the right organizational structure for
like to say that in the next five years we’d be over €20 billion of
the combined business.”
assets under management,” he declares.
One senior man that O’Connor wants to stay is Chua ChoyPerhaps he’s talking off-script, but it isn’t long before the
Soon, the ex-GIC Private executive currently in charge of
missing, and biggest, piece of the jigsaw, the United States,
SEB’s 9-staff, €2 billion AUM Asia business. “I hope so. He’s a
figures in the conversation. “Absolutely, we have a longer term
really good guy. Our intention is to retain people.”
strategy to be in the US, both in terms of raising and deployChua’s Asia platform actually was an important compoing capital. Raising capital from the US will happen before we
nent of Cordea’s decision to pursue SEB. Though dwarfed
make inroads. We’ll purse that in the shorter term. In terms
in scale by its European business, O’Connor regards SEB’s
of deploying capital, it depends on the success of integrating
Singapore presence as the ideal stepping stone to growing a
SEB and then the actual opportunities available for entering
business that can challenge the existing pan-Asia competithe US market.”
tion. Cordea’s building in Asia actually started prior to the
But he confirms: “We’re monitoring what is available in the
SEB deal. In 2013, it acquired a small Japanese property fund
US. We need to because good opportunities don’t come along
manager called Merchant Capital and last October, Cordea
often.”
10
PERE | APR 2015
opened an office in Hong Kong.
“We’re really building out our coverage in Asia,” notes
O’Connor. “I like Asia as it offers many different markets with
many different characteristics. It is less homogenous than
Europe and Europe is not exactly homogenous. So there’s lots
of different investment profiles for investors.” He adds: “Also,
we’re going to see over the next few years a number of those
markets will become more institutionalized and that will
increase the investment universe for investors.”
O’Connor harbors ambitions for Cordea to have “in the
region of €4 billion or €5 billion” of assets over the next “few
years” in Asia. By his reckoning, that would see the firm
reside among the top 10 or so real estate investment managers in the region.
Then comes the US. Says O’Connor: “My hope is we’ll be
there in three years. But that will be dictated in terms of how
fast we move in Asia to an extent and the actual opportunities in the US.”
He is confident, however, that when the time does come to
expand stateside, there will be both resources and strategic
support from parent company Savills, which itself expanded
to the US last May with the acquisition of Studley, the leading
US independent commercial real estate services firm in a deal
valued at as much as $260 million.
It is unlikely the acquisition of a real estate investment
management business in the US would command such a fee.
O’Connor admits the cost would unlikely even rival the €21.5
million Savills is paying for SEB. But he says: “We have good
backing from the PLC in terms of how and when we do it.”
Catalysts and reactions
Cordea’s agreement to buy SEB was the result of a sales
process run by financial advisory firm Lazard and SEB’s own
SEB Corporate Finance division. As far as O’Connor is concerned, SEB was keen to streamline its business activities to
its core Nordics markets, across business lines. In its official
communique, Fredrik Boheman, head of SEB’s German business, describes the offload as “a fundamental repositioning in
response to market developments.”
One unnamed European capital advisor says SEB became
less enamored with the real estate investment management
business after its German open-ended fund business, which
today controls €6 billion of its €10 billion of assets, became
subject to a BaFin-controlled formal liquidation, expected to
complete by the end of 2017. “That meant fee-take was falling
way rapidly,” he said.
“For Savills, it gives them depth in the German market and,
as a sideshow, Savills can help with sales from the open-ended
funds,” he added.
A European real estate fund manager, also talking on condition of anonymity, was also concerned about the platform’s
income. He says: “The key about the price is the real AUM,
how sticky is it and what is the fee schedule attached to that
AUM.”
Another European manager adds: “For them, strategically
it’s quite an interesting move. Having said that, it’s also quite
challenging as you have a lot of liquidating funds and assets.”
But he says, scaling up via acquisitions like this is one of few
options for investment managers in the small to middle tier of
managers in the market. “You either bulk up or you become
an also-ran. Savills have a decent platform around the continent. What they haven’t got is scale so this will give them that.”
O’Connor retorts: “I think we’re leaving the squeezed middle
and are now in striking distance of the top tier.”
Apples for apples
Cordea Savills’ purchase of SEB Asset Management has put it in touching distance of the third
largest real estate investment management business owned by a property services firm.
Property
services firm
CBRE
JLL
BNP Paribas
Savills*
DTZ
Knight Frank
Investment management
business
CBRE Global Investment
LaSalle Investment Management
BNP Paribas real estate investment
management
Savills Investment Management
DTZ Investment Managers
Knight Frank Investment
Management
Geographic
Headquarters Headcount spread
Los Angeles
1000
US, Europe, Asia
Chicago
700
US, Europe, Asia
Paris
300
Europe
Assets under
management
($bn)
$90.6bn
$55.3bn
$21.7bn
London
London
London
$18bn
$10 billion
$1.4 billion
280
100
13
Europe, Asia
Europe
UK, Ireland
*Numbers assume SEB Asset Management acquisition completes
Source: PERE
APR 2015 | PERE
11
SPECIAL REPORT | SECONDARIES
The smart guy in the room
Harvard’s massive sale offering shows how much the real estate secondary market has
changed in five years. By Evelyn Lee
V
isit the headquarters of Harvard Management
Partners, which have both raised significant amounts of capital
Company (HMC) in Boston and one quickly gets the
through dedicated secondaries funds in the past year.
impression it is protected by top security. Sharing 600
Also expected to be in the running are new, nontraditional
Atlantic Avenue as it does with The Federal Reserve Bank of
buyers, most notably NorthStar Realty Finance. The publiclyBoston, which is part of the nation’s central bank, it is little
traded commercial real estate company has become one of
wonder that visitors are faced with airport-style X-ray security.
dominant investors in the real estate secondary market since
Guests must run their possessions through imaging machines
striking a pair of large portfolio deals two years ago: the purand step through a full body scanner before progressing to the
chase of a 51 percent ownership stake in a portfolio of 45 real
elevators to get up to the 14th floor.
estate fund interests from TIAA-CREF in February 2013 for
The physical aspects add particular intrigue to HMC but
$390 million, followed by the acquisition of 25 fund interests
even more so at present because of what it happening behind
with a net asset value of $925 million from the New Jersey
closed doors. For as PERE reported last month, HMC is curDivision of Investment at roughly par four months later.
rently shopping the largest ever portfolio of fund interests on
But at $1.3 billion, the HMC portfolio also could attract
the real estate secondary market.
interest from private equity secondary firms that previously
The secret process is shrouded in client conhaven’t invested in real estate but are drawn to
fidentiality and non-disclosure agreements
the vast size of the transaction, such as Pantheon,
making the sale opaque and details hard to come
Lexington Partners and Coller Capital.
by. However, even though the process only began
Meanwhile, sovereign wealth funds – several of
in February, already it is anticipated to have a
which have recently built teams dedicated to secdramatically different outcome from the endowondary investments – also are being seen as likely
ment’s previous real estate secondaries sale five
bidders, given the huge amounts of capital that
years ago, according to people PERE has spoken
those institutions have to deploy in real estate.
with.
Going back to 2010
It is understood that HMC is intending to sell
Current market conditions stand in stark conup to $1.3 billion-worth of partnership interests
trast to the environment that the endowment
in approximately 35 real estate funds. The offer600 Atlantic Avenue,
faced when it last was selling a pool of property
ing would be equal to more than 40 percent of its
Boston: HMC’s HQ where
the $1.3 billion sale of fund
fund stakes. In late 2009, HMC put up to $500
real estate fund investments, and nearly 27 perinterests is shrouded in
million in existing and planned real estate fund
cent of its total property holdings, which stood at
secrecy
investments on the market, in a transaction said
$4.8 billion as of last June. According to PERE’s
to be known as Project Bluefish. The portfolio
sister publication Secondaries Investor, Dallasreportedly comprised more than 30 real estate fund interests
headquartered advisory firm Cogent Partners is handling the
that ranged from $50 million to $500 million in size and
sale, about which the endowment has declined to comment
included commitments to private equity real estate firms such
publicly.
as Beacon Capital Partners and Lubert Adler. Funds by those
HMC’s offering is believed to be the largest ever made in
two managers also are believed to be in HMC’s current real
real estate secondary market, and likewise would be the largest
estate secondaries portfolio.
transaction in the space if it were to close. “This will be one
HMC ultimately sold hundreds of millions of dollars’ worth
of the most widely-distributed real estate secondaries transacof interests in a number of its funds to buyers that were said
tions ever,” said one secondaries investor.
to include traditional real estate secondaries firms, as well as
Indeed, the potential pool of buyers for the HMC portfolio
institutional investors that were acquiring stakes in specific
is anticipated to be wider and deeper than any previous real
funds. However, the endowment received some criticism for
estate secondaries offering. For one thing, Cogent is said to
not divesting as many property stakes as some prospective
have approached at least 20 different groups with the HMC
buyers had anticipated, in part because of the pricing that was
portfolio. Obvious candidates would be traditional real estate
being offered for partnership interests back then.
secondaries buyers such as Partners Group and Landmark
12
PERE | APR 2015
“Generally during the financial crisis and into 2010, there
was a lot of downside risk within real estate funds and therefore
large discounts were quite common,” noted Peter McGrath,
managing director at Setter Capital, a Toronto-based advisory
firm that currently is working on 10 real estate secondaries
deals. At the time, a real estate secondaries portfolio typically
sold at a 20 percent to 40 percent discount on the aggregate net
asset value (NAV) of the fund interests, he said.
“Today, the market is completely different,” said McGrath.
“Many funds have worked through their issues and buyers are
much more optimistic about their prospects. Downside risk
appears to be in check.” Portfolios now commonly trade for 85
percent to 100 percent of NAV, with individual funds sometimes going above NAV, he said.
Real estate secondary transaction volume has been on an
upswing in recent years, increasing from $5.1 billion to $6.8
billion in 2014, and is anticipated to rise further to $7.7 billion
this year, according to a recent report from Setter Capital. Most
of the volume today is in earlier vintages, largely 2004 to 2007
– that have been known to be among the worst-performing for
real estate funds in recent years.
Market timing
Given current pricing for real estate fund stakes, many market participants believe that the endowment will be much
more successful at selling its fund stakes than it did in 2010.
“Harvard is actually timing the market really well,” said one
secondaries investor. “The secondaries market is frothy. There’s
a buyer base that has increased significantly, at a time when
discounts are at their thinnest.”
Despite some of the criticism it faced for its 2010 sale,
“Harvard was one of the smart guys in the room” in terms of
how it handled the transaction, the investor said. “It makes
sense that they were testing pricing, because no one knew what
the pricing was at that time,” he said. And while it was not willing to sell many of its fund interests at a significant discount,
HMC was able to redeploy the proceeds of what it did sell into
investments that now are generating higher returns than what
its original fund interests likely would be yielding today.
Meanwhile, it is widely believed that HMC will be able to
sell most, if not all, of the new portfolio that it has put up for
sale. However, the general consensus is that no single buyer
would be able to take over the entire portfolio, and therefore
the sale would involve multiple buyers and multiple types of
buyers. According to one estimate, about 60 percent of the fund
interests likely would be sold in bulk to a club of three to five
buyers that could include a firm like Northstar as well as a few
traditional secondaries buyers. An additional 30 percent could
be traded to directly to limited partners that would want to buy
interests in specific funds, particularly those of elite managers,
and be willing to pay top dollar for those stakes. Meanwhile,
approximately 10 percent to 20 percent may be sold in a
subportfolio in what is known as a general partner-directed
secondary transaction, where the general partner of the fund
that HMC is wishing to exit has discretion over which buyer
could acquire HMC’s stake in the vehicle.
“It’s not that Harvard’s position on its portfolio has changed,
it’s the market that has changed,” said one source familiar
with the deal. “The market undervalued its portfolio in 2010,
now the market may be overvaluing it, if pricing today is any
indication.”
Different motivations
The endowment is understood to have different motivations for
selling its real estate fund interests now than it did five years
ago. In 2010, HMC’s real estate secondaries sale was largely
driven by liquidity issues in the aftermath of the global financial crisis. At the time, market conditions were unfavorable for
selling assets, which left many fund managers unable to return
capital to their limited partners.
Meanwhile, HMC, which had a high allocation to alternatives, had committed to property funds with money that it
didn’t actually have – the distributions that it had expected to
receive back from its managers but did not. Many of the partnership interests that the endowment was trying to sell in 2010,
therefore, were unfunded interests.
The main purpose of the new sale offering, however, is to
rebalance Harvard’s real estate portfolio and redeploy capital
in other areas where it believes it can generate better returns.
For this reason, the endowment is expected to be selling 100
percent interests in its real estate fund stakes, since it no longer
wants to be investing in these vehicles. By contrast, HMC was
selling partial stakes in its 2010 offering because it still wanted
to hold onto some of its interests in those funds.
Meanwhile, HMC has given clear indications where it wants
to invest the future proceeds from its latest real estate secondaries sale. According to the endowment’s annual report last
September, HMC’s direct real estate investments generated
a total return of 20.4 percent in fiscal year 2014, compared
with a 7.8 percent for its legacy fund investments, and against
a benchmark of 12 percent. Direct investments now account
for approximately one-third of HMC’s property holdings, even
though the endowment only began investing in the strategy in
2010 as it sought to reposition its real estate portfolio.
In private equity real estate, HMC has been viewed as a
leader among endowments and foundations, both because of
its size and the sophistication of its real estate team. As it prepares to sell off a sizable portion of its property portfolio, the
endowment appears intent to continue to make real estate bets
that will keep it at the head of the class.
APR 2015 | PERE
13
NEWS ANALYSIS | STATESIDE
One and done
The imbalance between the ‘haves’ and ‘have nots’ of private equity real estate has
never been more apparent than it is right now. By Evelyn Lee
It’s the ultimate version of fund
envy: the two largest real estate
funds in market not only are having
no trouble raising money, but stand
to haul in all of their billions in one
shot.
It really isn’t fair, is it? How, or
why, is it possible that Lone Star
Funds, which just began marketing its latest property fund, Lone
Real Estate Fund IV, during the fourth quarter, is expected
to hold a first and final close on the vehicle in mid-April?
This deadline apparently even required one of their largest
investors, the Oregon Public Employees Retirement Fund,
to change their regular investment protocol in order to get
its $300 million commitment into the fund, which has a $5
billion hard cap, on time.
Even more unjust is The Blackstone Group’s Blackstone
Real Estate Partners VIII, which has a $15 billion hard cap.
As PERE has previously reported, the New York-based private equity and real estate giant also launched its fund during
the fourth quarter, and initially was anticipated to attract a
record $10 billion in its first close. As PERE was scheduled to
go to press, we were hearing that the close, which was imminent, also was looking like a first and final.
To be sure, neither Blackstone nor Lone Star are said to
have mandated a single close for their funds. Rather, PERE
understands that both firms are anticipated to receive
enough first close commitments to hit their caps, and set
their close dates after consulting their limited partners.
Raising an entire target or cap – especially when it’s in the
billions of dollars – in a single close is extremely rare. At the
time of this writing, Blackstone had yet to raise a ‘one and
done’ property fund – a vehicle that raises its entire target
or cap in a single close – and Lone Star has managed it only
once prior, with its Lone Star Residential Mortgage Fund I,
which collected all $1.3 billion of capital last December.
‘One and dones’ have been, and remain, extremely difficult to pull off because various conditions need to be met all
at the same. For one thing, the close has to consist primarily,
if not entirely, of existing investors. Unlike new investors,
existing LPs don’t need to conduct lengthy due diligence on
the fund manager or the fund, nor do they have to underwrite a whole new team. For the most part, they already are
14
PERE | APR 2015
up to speed on the general partner, and any due diligence
that they do conduct is likely to be more confirmatory than
fact-finding.
Additionally, the fund manager must have a solid track
record, strong platform and what one consultant calls a
‘good story’ – something that sets it apart from the rest of
the fundraising pack. All three criteria give an investment
board the comfort and confidence to approve an investment.
In the case of Blackstone, it has one of the best track records
in the industry and also is the world’s largest private equity
real estate firms, enabling it to bid on deals that few others
can. Lone Star, meanwhile, also has generated robust returns
for most of its funds and has made a name for itself by specializing in highly complex distressed investments.
It also doesn’t hurt that Blackstone and Lone Star have
both employed the still-unconventional method of group
due diligence sessions for their new funds, which enables
them to significantly reduce the amount of time they would
have otherwise spent in due diligence meetings with new and
existing investors. Of course, only managers with the aforementioned criteria can command a big and loyal enough
investor base to even make group sessions possible. And as
always, favorable economic terms for first close participants,
which both funds are offering, help to steer as much capital
as possible into the first, and possibly only, close.
In some ways, current investment conditions may be helping to facilitate ‘one and done’ funds. Generally speaking,
firms are taking less time to raise capital, thanks to rising
confidence in the real estate market and growing interest from institutions globally to invest in the asset class.
Meanwhile, many investors have been limiting the number
of their investment managers over the past few years. As long
as it happy with an existing manager’s performance, an LP
will most likely re-up with that general partner rather than
do the additional work of underwriting a new firm.
On the flip side, it might have become more challenging
for some well-performing managers to raise a fund from
mostly existing LPs – and through no fault of their own. As
many investors have become more focused on going direct
in real estate over the past few years, some institutions that
previously committed to a manager’s commingled funds
may no longer plan to do so going forward. That’s extremely
unfortunate for said fund sponsor, but no one ever said the
fundraising world was fair.
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NEWS ANALYSIS | AMERICAS
EMERGING MANAGERS
Most read on
PERENews.com [Americas]
last month
1
HARVARD’S FUND INTEREST SALE
Harvard Management Company (HMC)
put at least $1 billion-worth of real estate fund
interests up for sale as it continued to push into
direct real estate investing and wind down its
legacy portfolio.
2
MID-MARKET SQUEEZE
“With the amount of global capital
looking for real estate, mid-market funds
must be wondering why they cannot seem
to get a break,” said advisor EY in a report.
The fundraising environment has remained
challenging for many funds in this segment of
the market, which typically raises funds in the
$250 million to $500 million range.
3
FORTRESS’ CMBS OPPORTUNITY
Fortress Investment Group said it was
eyeing a ‘second wave’ of opportunity in the US
resulting from fractured CMBS transactions
originally structured before the global financial
crisis. Specifically, Fortress is eyeing $1.2 trillion
in maturing US commercial real estate loans
through 2018 with much of the debt issued precrisis with high loan-to-value ratios.
4
BROKER UP FOR SALE
Cushman & Wakefield, the global
property services firm, has put itself up for sale
for £1.3 billion (€1.8 billion; $2 billion). EXOR,
the investment arm of the Agnelli family, owns
81 percent of Cushman and is said to have
approved management’s hiring of Goldman
Sachs and Morgan Stanley to help look for a
buyer.
5
CALSTRS’ $1.25 BILLION CHECK
The California State Teachers’ Retirement
System (CalSTRS) has designated $1.25 billion
in its latest round of commitments to real estate.
The $186.4 billion pension plan will deploy
most of the capital in non-core commingled
funds, according to its investment report for the
quarter ended December 31.
16
PERE | APR 2015
New York state of mind
In setting up his own shop, the former Carlyle
veteran is sticking to the market that he knows best
As one of the top US real estate investment professionals at The Carlyle
Group, Andrew Chung was a key dealmaker in New York City for the
Washington, DC-based private equity firm. Now, the real estate executive is
using that same market expertise to start up his own business.
Chung was one of 80 investment professionals that made up Carlyle’s US
real estate funds group, which is led by managing director Robert Stuckey.
After 14 years at the firm, however, he left earlier this year to launch Innovo
Property Group, a New York-based real estate investment shop. “Rob Stuckey
has created a great real estate investing platform at Carlyle, and it was an
extremely hard decision for me to leave,” said Chung, in an interview with
PERE. “However, I wanted to pursue an entrepreneurial venture.”
Despite the current competitiveness of the New York market, he said he
still saw some value “on a long term basis in investing in the office, retail and
residential sectors in New York.” He added: “I believe there’s an availability
of capital, in terms of both debt and equity.”
Chung, who was raised in New York, took the
decision to target property sectors based on current
demographic trends in the city and the fact that he
had focused on those same property types while he
was at Carlyle. As for Innovo’s New York focus, “my
local market knowledge and broker network is extensive, based on my tenure at Carlyle,” Chung added. “I
grew up here, I know the streets, I know where there’s
Chung: hometown
boy
mispricing in neighborhoods where there’s long-term
value.”
Innovo initially will invest primarily on behalf of high-net-worth individuals, and also is looking to partner with institutional capital. It has the
capability to deploy capital across different risk and return profiles, from
core to opportunistic. However, Chung anticipates that the opportunity will
lie predominantly in core and core-plus real estate over the coming year. The
firm will target deals in the $25 million to $100 million range, where there
typically are more off-market opportunities, and expects to close on its first
investment sometime this year. Innovo also recently recruited its second
employee, a senior associate.
At Carlyle, Chung was involved in the acquisition, financing, management
and disposition of more than $8 billion of US real estate investments. Notable
deals included the development of Orion, a 60-story residential building in
New York; Riverside Center, a residential complex in Manhattan’s Upper
West Side; and 650 Madison Avenue, an office and retail tower in New York
that was sold to Crown Acquisitions and Highgate Holdings for $1.3 billion
in 2013.
Prior to working on equity investments at Carlyle, Chung was part of the
real estate finance and securitization group at CIBC World Markets. “This is
a natural progression in terms of doing deals on my own,” he said.
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NEWS ANALYSIS | AMERICAS
UNIONS
Facing the unions
UNITE, the union for employees in the catering trade, has published a list of fund
managers that it deems ‘irresponsible’. By Robin Marriott
When The Blackstone Group’s Jonathan Gray and Peter Rose
flew down to Las Vegas a few weeks ago it was not to have a
good time at the roulette wheels. The global head of real estate
and global head of public affairs went to The Cosmopolitan
Hotel to meet employees in the heavily unionized catering
trade to talk about contracts and working conditions following Blackstone’s acquisition of the hotel from Deutsche Bank
for $1.73 billion last year. There was a champagne toast but on
business matters, as the two men met with union people, they
reassured staff they were not to be made redundant or be forced
to re-apply for their jobs.
Unions and employees are one of the trickier aspects to
buying assets for which wages are a significant proportion of
overall operating costs. Managing such assets require expertise in operating know-how, and it seems that not all owners of
properties are in the good books of the unions.
Certainly, it is possible for a private equity real estate firm
to attract negative publicity by having protests outside an asset
by employees or indeed winding up on a publicly-available list
naming and shaming them as ‘irresponsible’ owners. Indeed,
that is precisely what has happened to 15 managers (see table).
UNITE, which looks after the interests of hospitality employees throughout the US and Canada, published a list a few weeks
Named or shamed
UNITE, the union for US employees in the
catering trade, published the following list,
alleging some property owners had been
irresponsible
RESPONSIBLE
Rockpoint Group; Angelo, Gordon & Co; The Blackstone Group; CIM Group; Apollo Global Management;
TPG Capital; Stockbridge Capital; AFL-CIO BIT/ HIT; HEI
Hotels & Resorts
IRRESPONSIBLE
Walton Street Capital; Ares Management; Lone Star
Funds; Carlyle Group; Prudential Real Estate Investors;
KSL Capital; Lowe Enterprises; UBS Realty; Garrison Investment Group; Olympus Partners; Crow Holdings;
Cornerstone RE Advisors; Northwood Investors; Clarion Partners; Dune Capital
18
PERE | APR 2015
Cosmopolitan hotel, Las Vegas: Blackstone met workers here
ago alleging that while some managers such as Blackstone had
demonstrated responsibility, others had not.
The Cosmopolitan itself has been at the center of a dispute
involving workers. Previous owner Deutsche Bank appeared
to go cold on negotiating with employees over terms and
conditions for two years before it sold the hotel to Blackstone.
Disgruntlement led to protests. In late March 2014, for example,
thousands of members of the Culinary Union Local 226 from
the Cosmopolitan and other unionizes hotels picketed outside
the hotel demanding better pay and benefits. That was just one
of many pickets that took place at the hotel during preceding
weeks and months.
Jim Baker, spokesman for UNITE, said: “Blackstone set a
new tone. Negotiations with Deutsche Bank had really gotten
nowhere for the last few years.” Baker said the firm had said it
wanted the workers to feel good about being there and talked
about fair wages and work load. One worker at the hotel that
local union, Culinary Union Local 226 put PERE in touch with
said she was now “hopeful.”
Talking about the ‘irresponsible’ list, Baker said a firm
would be named if there was an active, unresolved dispute
with the owner. Lone Star Funds, for example, acquired the
Hotel Burnham in Chicago in early 2014 for $35.3 million. On
November 18 last year workers filed charges with the regional
office of the National Labor Relations Board, alleging intimidation and threats from hotel management. According to Baker,
the employees were told by management that Lone Star was the
one that “called the shots”. “In so far as we have tried to reach
out to Lone Star, maybe 10 or 15 times so far, they have been
entirely unresponsive,” he said.
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acquisitions and developments in the Nordic region, of which 49 have been exited. NREP currently has total assets under management of €2.2 billion, employs
more than 50 professionals across three offices in Copenhagen, Stockholm and Helsinki and is fully owned by its partners.
* Gross asset level internal rate of return excluding management fees and carried interest
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NEWS ANALYSIS | AMERICAS
OPERATING PARTNERS
Alternative assets, operating know-how
In the hot US core market, capital sources are looking more to alternative asset classes
such as student accommodation and healthcare properties, and that can mean deals
with niche experts. By Robin Marriott
Investcorp, the Bahrainian alternative investment group,
struck a $300 million deal last month underlining global
demand is growing for high-quality alternative US assets and
for relevant US operating partners at the same time.
The investment manager with a total of $11 billion of
assets under management of which $1.5 billion is in real
estate, agreed to buy a portfolio of residential properties
in Washington D.C., Orlando in Florida, San Diego, and
Baltimore with its usual model. It maintains a controlling interest in the investments made alongside national or
regional real estate companies, in this latest case being with
four undisclosed operating partners.
The deals give Investcorp exposure to properties totaling
more than 2.1 million square feet comprising 1,900 multifamily and student housing units, such as Orion, a 624-student
property located close to University of Central Florida.
All are described as being “high-quality assets” at what the
firm believes are “attractive yields that demonstrate upside
potential,” according to Brian Kelley, principal in the firm’s
real estate group, which is no stranger to US property having
invested here since 1996 in deals totaling $11 billion. In the
last twelve months it has put $850 million to work.
Perhaps more significantly still, it was one of three examples
during the past few weeks where capital sources have invested
alongside operating partners of varying expertise and guises.
Just two weeks ago – in fact, in the same week as Investcorp
announced its deal – USAA Real Estate Company revealed
the formation of a joint venture in the health care sector with
localized operating partner, Brackett Flagship Properties, to
1
2
acquire, develop, manage and lease properties like medical
offices and critical health outpatient facilities throughout the
south east part of the US. In this case, the initial assets inserted
into the joint venture comprised 315,000 square feet of property including Costwold Medical Plaza II in North Carolina.
USAA said the strategic partnership focused on a sector with
“significant growth potential” based in part on demographic
analysis. The interest in healthcare is fuelled by the aging baby
boomer population - the most significant demographic transition in US history. Len O’Donnell, USAA’s president and
chief executive officer, added the model could be replicated
in other regions throughout the US, implying more operating
partnerships in the future.
These deals come as experts in operating partnerships suggested a shift towards more activity in alternatives. Deborah
Harmon, co-founder and chief executive officer at Washington
D.C.-based Artemis Real Estate Partners, which has a total of
44 operating partners, said that while its first fund, Artemis
Fund I, was overweight in multifamily property, in the followup the firm had been more active in self-storage, healthcare
and student housing markets. Harmon further observed that
given declining yields for core property, operating partners
were particularly interested in core-plus capital.
The third deal to occur in recent weeks was closer to a core
property deal. Norges Bank Investment Management (NBIM)
has acquired a 45 percent interest in 11 Times Square for
$401.9 million. In this instance, the owner is Prudential Real
Estate Investors and the operating partner is SJP Properties,
which stays in as asset manager.
3
(1) Orion, a 624-bed student housing property in Orlando, Florida; (2) Cotswold Medical Plaza II, Charlotte, North Carolina; (3) Eleven Times Square, New York
20
PERE | APR 2015
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GUEST COMMENTARY | THE ANALYST’S PERSPECTIVE
Battle of two mall heavyweights
A $23 billion hostile bid by Simon Property Group for Macerich has gripped the public
REIT sector. Jim Sullivan, veteran analyst at Green Street Advisors who heads up the
firm’s North American REIT research team, explains the key to the deal
‘Bigger’ is not always ‘better’ in the
real estate business. However, in the
mall sector, size matters because of
the way that large retailers make
leasing decisions. The importance
of scale is what makes the recent
offer by Simon Property Group
(SPG) to acquire Macerich (MAC)
so intriguing. While lower-quality
malls continue to face an uncertain
future, high-quality malls continue to represent one of the
most appealing forms of real estate an investor can own.
Simon is the largest global owner of retail real estate with
over $90 billion of assets. Macerich is the third largest mall
owner in the US with roughly $20 billion worth of properties.
The recent offer followed months of M&A speculation after
Simon revealed in November 2014 that it had taken a 3.6 percent equity stake in its target.
A combination of the two giant mall companies makes
abundant strategic sense. Our database shows that Simon and
Macerich own many of the ‘best’ malls in the country. However,
the overall geographic footprint of Macerich differs meaningfully from Simon, so a combination would allow Simon to offer
retailers an even broader array of location choices. In addition
to high-quality malls and an appealing geographic footprint,
Macerich also has a burgeoning outlet business that is certainly
of interest to Simon, a leader in this rapidly expanding part of
the retail real estate world.
The strategic merits of a merger are numerous, but the
financial merits will depend on the deal structure ultimately
negotiated. At press time its latest offer was rejected, but it is
worth noting Simon’s initial offer came at a premium to the
market value of Macerich’s properties. Consequently, the bid
likely relies on significant cost savings (i.e., synergies) to make
the deal pencil.
In general, REITs do not usually deserve the benefit of the
doubt when acquiring other REITs, particularly where large
premiums must be supported by synergies. In a review of REIT
M&A over the past 20 years, we found that REITs systematically overpay for synergies.
Simon has bucked this trend and has been much more successful on the M&A front than most other REITs. Hence, the
behemoth deserves the benefit of the doubt for the time being.
However, if Simon is forced to pay even more than its initial
22
PERE | APR 2015
$91 per share bid, its underwriting of potential synergies will
certainly come under the microscope.
As of press time, Simon had offered to pay $91 a share or $23
billion, representing a 30 percent premium to the share price
prior to Simon disclosing its 3.6 percent ownership interest last
November. The offer is comprised of 50 percent cash and 50
percent Simon stock. As part of the deal, Simon disclosed an
agreement to sell some malls to General Growth (GGP), the
second largest US mall REIT. Asset sales will be an important
financing component to the deal, while also allaying anti-trust
concerns likely to be raised by retailers in certain markets.
Tangible synergies must offset the takeover premium plus
transaction costs to make a merger deal work. Some synergies, such as general and administrative expense savings and
reduced debt costs, are easily quantifiable. However, the most
important synergy – the synergies emanating from improved
operations – is unfortunately the most difficult to value.
There are three important synergies available in a combination. First, much of Macerich’s $65 million in annual overhead
expense appears likely to be eliminated. Second, Macerich has
primarily used secured, non-recourse financing, which has
recently been more expensive than unsecured debt. Simon has
long enjoyed a cost of debt advantage, with ample access to the
secured and unsecured debt markets. Thirdly, Macerich is an
excellent operator, yet Simon is the best in the business and can
likely achieve additional efficiencies.
An important potential offset to these synergies is the potential property tax hit. In California, Prop 13 limits annual tax
increases to no more than 2 percent. As a result, properties
that have been held for years by the current owner can enjoy
relatively small tax bills despite massive value appreciation. A sale, however, causes the property’s assessed value to
be marked to market. Roughly 30 percent of Macerich’s net
operating income is in California, and Green Street estimates
that increased property taxes could reduce the overall portfolio
value by 3 percent to 5 percent, thereby mitigating much of the
synergy value.
Mall ownership in the US is highly concentrated among the
publicly traded REITs, and opportunities are rare to acquire
a sizeable portfolio of high-quality centers. Simon has a stellar capital allocation track record with a history of executing
deals that have created substantial value for its shareholders.
Nevertheless, the prospect of other bidders showing up could
make for a compelling drama over the next several weeks.
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NEWS ANALYSIS | EUROZONE
Too hot to handle
European core pricing is reaching boiling point due to the demand for yield far
outstripping the availability of income-generating assets. Investors will need to take more
risk to get their expected returns so some are heading for alternatives.
By Thomas Duffell
Yields of under 4 percent and under
and more heavily oriented towards value added-style risks
3.5 percent are expected for office
and returns. Yet, he adds that such an outflow of capital from
and retail real estate respectively,
core real estate in both the office and retail segments is not
says Marcus Cieleback, group head
to be expected.
of research at Hamburg-based real
Of course some will certainly be adjusting their strategies
estate investment company Patrizia
to avoid the low return environment of European core, says
Immobilien. He puts this down in
the CBRE survey. The survey says the attractiveness of value
part to the European Central Bank’s
add and opportunistic real estate among investors has risen
(ECB) plan to acquire government
10 percent since last year and investors are constantly having
bonds which he says will drive the
to evolve their investment strategies.
price level of commercial real estate up as well as increasing
The danger of this of course is that when a fund manager
demand, which in turn will cause these record low yields.
moves up the risk spectrum in order to meet investors’
Cieleback is not alone in expecting pricing of core
expected returns it may be to a level which the investor has
European real estate to skyrocket and for returns to be
not agreed to, or will mean a divergence from the planned
diminished. In fact, fund managers speaking to PERE at real
investment strategy.
estate conference MIPIM (see pages 27 onwards for detailed
Some fund managers tell PERE they expect to see bad
coverage) say they have been in conversation with investors
decisions made as they will not want to be honest with
regarding the return expectations of their core offerings
their investors in explaining why they should expect lower
due to the market’s hot pricing. AEW Europe’s chief execureturns, or simply because they are too impatient to wait for
tive officer Rob Wilkinson for instance, says that the vast
the right core asset to become available.
amount of capital allocated to real estate would cause return
That’s not to say that all opportunities to make good returns
expectations to decline for the most
in Europe are gone; but, rather that
core strategies, but not for more value
the low hanging fruit has already
“For those looking at moving
added or opportunistic strategies.
been plucked. Take for instance
into alternatives, the fund
It is easy to see why pricing is on
the move towards ‘alternatives’.
manager has a word of
such a rise as, besides the ECB’s
Described by one pan-European
warning:
it
is
a
private
equity
intervention, demand for real estate
fund manager as the emerging sector
deal so knowledge of the
increases due to the volatility of equiin Europe alternatives was high on
operating model is imperative.” real estate investors list of key themes
ties and bonds offering very little
yield. The vast amounts of capital
for 2015. In fact, the CBRE survey
looking for a home in core real estate far outstrips the availsays investors will be actively be pursuing opportunities in
able stock. In fact, a recent CBRE survey of 280 real estate
student accommodation (27 percent), leisure/entertainment
investors says that access to competitively priced stock is
and healthcare (both 17 percent) and retirement living (15
the biggest problem today. Nearly all – some 91 percent – of
percent). The trend is already bearing out too, just last month
investors cited one of ‘availability of assets’, ‘asset pricing’ or
the Canada Pension Plan Investment Board (CPPIB) entered
‘competition from other investors’ as the biggest obstacle to
the UK student housing market when it acquired a 100 perinvesting.
cent stake in Liberty Living, for £1.1 billion (€1.52 billion;
It is no wonder then that Patrizia’s Cieleback says that real
$1.67billion). Earlier this year LaSalle too made an £81 milestate investors need to move up the risk spectrum to get
lion UK student housing play.
decent returns. He says the recent trend of rising rents and
But, for those looking at moving into alternatives the fund
vacancy stagnation for office real estate in Europe will conmanager has a word of warning: it is a private equity deal so
tinue and that investment strategies must now be reviewed
knowledge of the operating model is imperative.
24
PERE | APR 2015
NEWS ANALYSIS
OPERATING PARTNERS
Under one roof
Many firms like to keep their overseas operating
partners outsourced, but one group is moving in
the other direction and bringing their operating
capabilities in-house
Fully cross-border operating partners are hard to come by in the real
estate industry. The reason being is that to be an effective operating partner one needs such a detailed knowledge of the local market it is rare to
have such expertise in more than one jurisdiction. In fact, it is often why
operating partners are relatively small businesses.
One group who does not subscribe to the outsourcing model is M7 Real
Estate, the investment manager specialized in high yielding multi-let
properties. The London-based firm, probably best known as the operating
partner in joint ventures with firms such as Starwood Capital Group and
Oaktree Capital Management, has recently changed its internal structure
bringing more operating expertise in-house.
The firm has moved away from its old model,
which saw it use asset management partnerships in
different countries throughout Europe, each with
a country-focused operating platform, by integrating these platforms into the M7 mother ship. It has
done so by exchanging shares in the overseas entities for shares in M7. The executives, who now head
M7’s European offices as managing directors, have
Croft: Taken things
become shareholders in the London-headquartered
in-house
parent company.
“We are conscious that as M7 grows as a business
it is vitally important that each individual country head is not solely concerned with just their own platform and actually takes an active interest
in the bigger picture at M7,” said Richard Croft, M7’s chief executive.
Operating partners, especially those with offices across borders, can
never be completely confident that all geographies or sectors will see
equal action. The concern is that certain geographies or individuals working on certain sectors may lose interest if they are not being kept busy
enough, and without work compensation incentives suffer. Others talking
to PERE have discussed this concern with in house operating partners,
namely that when capital is shifted from one geography to another it
is too difficult to keep every local team invested in the firm as a whole.
Again, M7 has made a move to address concerns that its staff would not be
kept busy enough, say if one of its large joint venture partners decided to
sell everything and it would have too many people on the payroll for the
assets it was managing. M7 is also a fund manager in its own right having
raised its second fund back in December as well as an asset manager with
staff working across business lines and there is plenty of work involved in
being both.
“I preach risk diversification in the acquisition of assets, and it would
seem silly to ignore that as a strategy for our own business,” said Croft.
Most read on
PERENews.com [Europe]
last month
1
CBRE GI EXPANDS
CBRE Global Investors promoted two
senior executives within its separate accounts
business who will lead a newly-created
executive board. The board will oversee an
enhanced separate accounts infrastructure
which will include in-country native-speaking
relationship managers for large separate
accounts teamed up with “country champions”.
2
CARLYLE’S NEW HEAD
The Carlyle Group has hired Peter Stoll, a
former Blackstone senior managing director to
run its European real estate business. The hire
of Stoll follows a recruitment process headed by
head of international real estate Adam Metz.
3
M&G CREATES SOLUTIONS ROLE
M&G Real Estate is creating a new team
to work with large international investors on
separate account strategies, joint ventures and
club deals. Extending its roster of large, thirdparty, international clients has been a goal of
M&G Real Estate’s chief executive Alex Jeffrey
since he took over the business in 2013.
4
NORTHSTAR’S AERIUM BITE
NorthStar Realty Finance Corporation,
a company listed on the New York stock
exchange with $16.4 billion of assets, has agreed
to buy a 15 percent stake in a European fund
manager. NorthStar is taking a bite of Aerium,
which has around €6.1 billion of assets and is
headquartered in Luxembourg.
5
RELATED FORMS UK JV
Related Companies, the developer
and third party fund manager based in New
York, has formed an overseas partnership
with a British equivalent, Argent Group, for a
partnership called Argent Related. Together
they will focus on developing open-market
and affordable housing, offices, retail leisure
and hotels in mixed-use and residential
developments.
APR 2015 | PERE
25
NEWS ANALYSIS | EUROPE
DEVELOPMENT
Core from the ground up
Given the strong pricing of core assets, AXA Real Estate says it is the perfect time to
create your own. By Thomas Duffell
A total of $40.3 billion was raised for private real estate stratehas 80 redevelopment or refurbishment projects across Europe
gies in Europe during 2014, a growth of 82 percent from the
with an end value of €8 billion, added Kavanagh. Another
previous year, according to research from PEI’s Research &
example of the firm’s development push is the Quadrans
Analytics division. And as more buyers enter the continent,
Project. The landmark office complex, the largest current
recent data from property services firm DTZ also suggests
development of its kind in France is located in the south-west
2015 commercial investment volumes are forecast to just stop
of Paris (15th district) directly accessible by car and public
short of the all-time 2007 record at approximately €210 biltransport, with strong visibility from the Paris ring road.
lion, but significantly higher than 2014’s €175 billion.
Kavanagh said that connection to infrastructure was key
The supply and demand dynamic for European real estate
to the development work undertaken. Part of the rationale is
then is skewed heavily in favor of the seller causing prices,
that AXA sees the urbanization trend play out and occupiers
especially of core assets, to skyrocket. One firm that insists
are looking to be in dynamic cities where they can tap into a
it is well-placed to take advantage of such high core pricing is
vibrant and dynamic workforce. “Millennials want to work
AXA Real Estate Investment Managers.
in dynamic environments – London is expanding. Look at
To do so, the Paris-based real estate division of insurance
the growth of tech city and King’s Cross for example, which
company AXA will have a strong focus on development and
demonstrate that a number of companies want to be in CBD
‘alternatives’ in 2015, according
locations with strong infrastructo Anne Kavanagh, global head
ture and diverse amenities to
of asset management and transattract talent.”
actions, who said: “We have the
This year will not just be about
expertise on the ground in Europe
developing for AXA, however, as
with 10 offices operating in 19
the firm is also looking at putting
countries to be competitive in cremore capital to work in the ‘alternaating core.”
tives’ space. “We see opportunities.
One example showcasing AXA’s
In Europe, it is an emerging sector
2015 development theme is the
versus the US. We understand the
firm’s acquisition of 22 Bishopsgate
real estate and the income is attracin London known as the Pinnacle,
tive but you have to understand the
The Pinnacle, London: part of AXA’s development push
which it acquired on behalf of a
operators, to invest well you need
consortium of investors. The origithe sector expertise and private
nal Pinnacle development stalled in early 2012 when finance
equity skills which we have in house,” says Kavanagh, who
for the project ran dry, but it is being resurrected by AXA in
adds that the firm has capital to deploy in healthcare, hospian all-equity transaction, reportedly valued at £220 million
tality, data centers and student accommodation assets.
(€299 million; $338 million). AXA will act as development
But, AXA can expect more competition here than they
and asset manager on behalf of the investors but has retained
might have come up against in the past. A CBRE survey of
Lipton Rogers as its developer. The pair intend to develop a
280 real estate investors say they are planning an increased
new landmark tower, designed by architects PLP.
interest in ‘alternative’ real estate. Real estate debt has seen
Said Kavanagh: “Prior to the crisis in Europe, top quality
the most dramatic increase in activity over the last two years,
core product was not oversupplied and during and after the
from under €10 billion in 2012 to €49 billion in 2014 and is set
crisis there has been very little addition to office supply. A
to remain the preferred alternative choice this year. 32 pernumber of the cranes on the London skyline are for residencent of respondents stated that they will actively be pursuing
tial. If you are an occupier at the moment hunting for office
opportunities in real estate debt in 2015, closely followed by
space in London, and you analyze the demand/supply statisstudent accommodation (27 percent), leisure/entertainment
tics, there are actually very few choices.”
and healthcare (both 17 percent) and retirement living (15
Not that development is new for AXA. The firm currently
percent).
26
PERE | APR 2015
GUEST COMMENTARY | THE RESEARCHER’S PERSPECTIVE
Low cost upside
Low growth expectations in Europe don’t seem to be consistent with low rates, cheap
euros, lower energy costs, and other positive factors that embed an investment
proposition that is already very attractive. By Simon Martin, head of research and
strategy at Tristan Capital Partners
When we visit clients and proplays out. This is because long term rationing has induced
spective investors we try to leave
some permanent changes to industrial capacity that will slow
them with one clear message: In
the pace at which capital can be formed. A major change is
Europe there is still a significant
that the multi-strategy managers will find it hard to reboot
risk-adjusted opportunity to make
back into the space, as they abandoned value-add and fully
money buying assets that need to
re-tooled their businesses to focus on core strategies and debt
be recapitalized, refurbished and
products. At the same time the regulatory environment in
released.
We suggest that this
Europe has significantly increased the operating cost and
opportunity remains cheap because
time investment required to be a new entrant niche GP.
the cost of an impaired asset still
The nature of the opportunity is also governed by the
remains well below the value of a repaired asset. We also
quality and condition of the asset base. As we all know, real
say that there are now modest tailwinds from improveestate needs constant care and attention to preserve its tenant
ments in the European economy that may further support
appeal and long-term value. Capital rationing and seven years
performance.
of slow-low GDP growth have pushed many assets into a cycle
Investors often push back, concerned that capital flows are
of poor leasing velocity and deferred maintenance liability
accelerating and that growth could change the window of
that has become tough to break. This is why non-core prices
opportunity. Inevitably this leads us into a debate centered on
and core prices remain widely diverged and, equally, why
‘the nature and dynamics of the opportunity’ and ‘the degree
breaking this cycle is clearly where the opportunity lies. If
of difficulty associated with successful execution’. We believe
the capacity to break this cycle and close the spread between
this debate is important as it goes to the heart of why Europe
impaired and repaired assets is the nexus of the opportunity,
is an interesting investment opportunity right now.
then the key to understanding the execution risks is cenThe supply of capital is, in of
tered on the GP’s ability to manage
itself, a major driver of the way
the creation of ‘core’. GPs that focus
LPs that are concerned about the
in which any opportunity pans
on manufacturing an asset that fits
window of opportunity closing,
out. The prevalence of creditor
neatly into the institutional definifrequently cite increased capital
control and banking distress
formation as a reason to hold back. tion of core, will be among the most
blew the window of opportusuccessful of this extended vintage.
We think that the space is better
nity wide open for investors,
The final dimension to the noncapitalized, but far from crowded.
but it has been extended for
core opportunity is the debate over
much of the last five years by the
growth. The return dynamics of nonway in which in-bound capital has been carefully rationed.
core investing continue to allow managers to hit their targets
Incoming investors have been relatively cautious and as a
and collect significant leveraged cash flow, without underresult capital has been drip-fed into the small group of ‘nonwriting ‘market improvement’. However, it is very apparent
core’ managers that distinguished themselves as prudent
that when GDP growth does come through in an economy, it
fiduciaries in the last cycle. As a result, the aggregate sums
can provide a dramatic upside boost to returns. This leads us
raised have been far short of the levels required to clear the
to believe that, even if we don’t have to underwrite growth to
capital-intensive opportunities that exist at the value-added
make our returns, growth’s catalyzing effect on values should
and opportunistic end of the market.
be part of the calculation that investors make when allocatLPs that are concerned about the window of opportunity
ing capital. Right now, low growth expectations in Europe
closing, frequently cite increased capital formation as a readon’t seem to be consistent with low rates, cheap euros, lower
son to hold back. We think that the space is better capitalized,
energy costs, more QE and big current account surpluses. In
but far from crowded. In our view, there are persistent barriour view, this embeds a low cost option on the upside into an
ers to entry that will slow the pace at which the opportunity
investment proposition that is already very attractive.
APR 2015 | PERE
27
SPECIAL REPORT | MIPIM
Capital on the coast
Talk on the Cote D’Azur largely centered on whether or not the flood of global
capital into the real estate marketplace could be sensibly deployed.
By Thomas Duffell
Cannes harbour: home to a buoyant MIPIM
T
he atmosphere at MIPIM was described as “buoyant” by more than one of the industry executives who
attended the world’s largest real estate conference on
the sunny shores of Cannes.
The same professionals might then have been surprised
when real estate agent Cushman & Wakefield revealed that
global real estate investment had actually fallen for the first
time in five years by 6.3 percent to $1.21 trillion in 2014. But,
in the analysis behind the numbers it was easy to see why
the chink of champagne glasses could be heard all along the
Boulevard de la Croisette.
Looking back to 2014, the report stated that while excess
capacity in some parts of the property market and previous
policy tightening had a negative impact on Chinese investors
and developers. However, excluding China land sales, global
volumes rose 9 percent. Further, ignoring China, global investment levels are set to rise an additional 11 percent in 2015 to
$1.34 trillion, led by Europe and the US.
“The 2014 pick-up was better than many predicted this time
last year but the 2015 outlook is stronger still, with the brakes
now coming off the market,” said David Hutchings, head of
EMEA investment strategy at Cushman & Wakefield. “Not
only do we have strengthening global liquidity thanks to low
interest rates and an expansion in quantitative easing, we also
28
PERE | APR 2015
have the start of stimulus measures by China, signs of deeper
reform in more markets and an improvement in the fundamentals for the occupier in many areas.”
Yet, in spite of the optimism that was prevalent throughout
the week one common theme that was on everyone’s lips was
whether all of this investment was “sensible”?
“There is a worry that core pricing is becoming too hot.
There is pressure on investors to allocate, and managers to
invest, and this can ultimately lead to bad decisions,” said Will
Rowson, partner at the New York-based capital advisory firm
Hodes Weill & Associates. “There are still real opportunities in
the European market for skilled knowledgeable managers but
the low hanging fruit has definitely gone.” The former CBRE
Global Investors’ chief investment officer for Europe, says that
when the marketplace reaches this temperature it can force
managers up the risk spectrum.
Rowson’s contention that managers might start looking at
more opportunistic and value added strategies bears out in
some research conducted by CBRE that was also released at
MIPIM. The attractiveness of the two strategies has risen 10
percent among real estate investors since last year, according
to the survey.
The survey of 280 real estate investors said that access to
competitively priced stock was the biggest problem for investors
today. Nearly all – some 91 percent of 280 investors - cited one
of ‘availability of assets’, ‘asset pricing’ or ‘competition from
other investors’ as the biggest obstacle to investing.
“Investors are constantly having to evolve their investment
strategies, in their pursuit of yield and returns, as demand for
European commercial real estate shows no sign of abating,”
Jonathan Hull, managing director of EMEA capital markets at
CBRE, said. “This diversification is leading investors into new
markets and sector. However, there is still significant demand
for core locations and assets, particularly from the growing
influx of capital from outside the region.”
One group conscious of not moving up the risk spectrum
in order to maintain deal volume is Rockspring Property
Investment Managers. Flavio Casero, partner at the Londonbased real estate manager, said: “For real estate investment
management firms this is a buoyant environment in which to
operate, given the general and increasing availability of equity
and debt capital. However, as the underlying economy remains
fragile, this comes with the challenge of sieving through a
growing supply of stock which, in good part, will not match
our investment risk-return requirements.”
The firm has had a busy start to 2015. It reached a final close
on its UK core-plus offering, UK Value 2 LP, on £342 million
(€475 million; $503 million) back in February which has made
seven acquisitions, taking the current total aggregate value of
the assets to more than £200 million. “The key will be having
patience, acting quickly when the right deal is identified, and
the ability to keep investors abreast of how the market evolves
over time.”
One outcome of the pressure to invest is that there will be
more package deals, said Olivier Piani, chief executive of
Allianz Real Estate. “Expect to see lots more portfolio deals, €1
billion-plus, which will be driven by funds and provide a good
way of getting the necessary volume of capital to work.” Piani
adds that while there is a lot of money looking for deals he still
expects his firm to hit its target of deploying €2 billion in 2015.
“We invested €2.5 billion last year with a €2 billion target, this
year should be no different.”
Some of the portfolio deals that Piani is expecting may hit
the market from AEW Europe, the Paris-based real estate
investment management firm. Russell Jewell, head of private
equity funds for AEW Europe says that the firm’s exit strategy
for its value-added and opportunistic funds is building portfolios of assets with stable cash flow to sell to institutions.
“We are developing logistics assets rather than buying
highly competitive portfolios. We are trying to get at core
real estate but with better pricing,” adds AEW chief executive
Rob Wilkinson, whose firm has been busy on the fundraising
trail reaching a €235 million second close on its Europe Value
Investors Fund in last month and closing on €820 million for its
Caffe Roma: barometer of vibrant market
core industrial and warehouse platform, logistics in December.
In fact, when quizzed as to whether or not the vast amount of
capital allocated to real estate would cause return expectations
to go down (as pricing gets higher), Wilkinson says this is only
the case for the most core strategies.
Not everyone at MIPIM agreed with Wilkinson that core
return expectations should be lowered, and this say others
is where the “stupid behavior” may start. The driving force
behind this is obvious: managers have a fixed period to make
investments and right now the markets are getting hot as
more and more equity is available for deployment, causing
prices to rise as demand outstrips supply. The fear then is that
in order to meet investors’ expected returns fund managers
will be required to either move up the risk spectrum – to a
level which the investor has not agreed to – or to diverge from
the planned investment strategy while on the hunt for attractively priced assets.
One pan-European fund manager said that the chances of
investors being burnt on real estate again is high, but for a different reason. He says that when there are good times in the real
estate industry investors are blind to past failings. Managers
that he says should have been killed off for poor performance
during the last downturn have been able to sit on the side lines
and bide their time before making a re-emergence on the fundraising trail, and they are able to collect capital.
Yet, while equities remain volatile and bonds offer little
yield, demand for real estate looks set to increase in 2015 which
only increases the pressure on managers to deploy and come
back to market with new offerings.
How wisely will the fund managers be in deploying this
capital? Well according to at least one source, not very. “There
is no memory on the fund side. Pressures mean they have no
choice but to invest and take more risks,” said one global secondaries player. “It’s human nature, ego, testosterone – people
will take risks.”
APR 2015 | PERE
29
SPECIAL REPORT | MIPIM
Sun and palm trees: welcome to Cannes
My first MIPIM
Experiencing the weird yet wonderful MIPIM conference for the first time was a real eyeopener for PERE’s newest European reporter. Writes Thomas Duffell
Unfamiliar with Cannes, and the real estate industry, one when it was full of under 30s brokers then the market is
can easily be led astray and spend hours wandering Bou- hot. With this as the barometer the temperature in real
levard de la Croisette or stuck in the
estate is certainly rising.
rather aptly nicknamed ‘bunker’ that
The importance of getting invited
host the largest global real estate conto the right MIPIM parties was also,
ference – MIPIM.
thankfully, something this reporter
However, PERE would never let a
did not need to learn the hard way.
reporter go in unprepared and the inWith around 25,000 real estate produstry was quick to provide help when
fessionals in attendance targeted
needed. “The white sausages of the
networking is not made easy without
Munich stand are to be avoided at all
knowing where the great and good of
costs, especially on a hangover,” was
private equity real estate are spending
just one (unheeded) piece of sage-like
their evenings.
advice that this PERE reporter picked
But, despite being a fun and genup within hours of landing on the Cote
erally quite a boozy affair MIPIM is
D’Azur.
certainly not frivolous. The real esAnother tip, and one that many of
White sausage: do you dare? tate executives are there to work and
the industry professionals PERE spoke
work hard. Diaries are full and always
to, was take note of who is propping up the bar of the changing, and if you are not careful you can get far less
Martinez Hotel in the early hours. Many suggested that face time with the people you really need to see.
30
PERE | APR 2015
Piani says Allianz is targeting €2 billion of
deals in 2015, although he says he would not
be surprised if they surpassed that number as
they did in 2014.
13:00 - Miramar Plage – Ric Lewis –
Tristan Capital Partners
A diet coke with Tristan’s chief executive
officer to discuss his firm’s now legendary
MIPIM party as well as the opportunity in
Germany. Tristan is set to make five investments in Germany for more than €450 million
in the country.
15:30 - Villa Bernard Building - Pieter
Hendrikse and Pieter Roozenboom –
CBRE Global Investors
MIPIM Meetings
As a first-timer in Cannes, this PERE reporter had to make sure the diary was
packed full of meetings with the great and good of real estate. It is not merely
enough to prop up the bar at the Majestic Barriere or grab lunch at the Miramar
Plage, one must also make time for some boat parties.
Day One – Monday – 3/9/2015
14:00 – Heathrow Terminal 2
Flight cancelled! MIPIM got off to the worst
possible start for this PERE reporter who then
spent the remainder of Monday working out of
the nearby Ibis Hotel.
CBRE Global Investors’ EMEA chief
executive, Hendrikse, explained the reasons
behind the firm’s fundraising success and
we discussed the impact of political risks
in Europe and how they might impact on
real estate investing. Roozenboom, who has
just taken on the newly-created role of head
of global separate accounts, described the
rationale behind the firm’s enhanced separate
accounts infrastructure.
We talked about how you can meet many
global real estate players in a week, whereas
usually it would take you a month or two to do
so from London.
17:00 – LaSalle’s boat – LaSalle
18:30 – Plage Royale Beach Restaurant FTI Consulting
Day Two – Tuesday – 3/10/2015
06:00 - Heathrow Terminal 2
And PERE is off. An early start to the day but
PERE heads to Nice, via Brussels, after having
to cancel all of its Tuesday morning meetings.
Apologies to Valad Europe, Cornerstone,
Colliers and APAM.
15:00 – The Munich stand – Will
Rowson, Hodes Weill & Associates
Meeting Will Rowson after a well-meaning
(or practical joke) suggestion from a colleague
that the Munich stand is a good place to meet
for a quick chat. We discuss his recent move
to Hodes, the capital raising market and the
pressure to allocate capital to real estate.
17:15 - Grand Hotel – Flavio Casero
– Rockspring Property Investment
Management
A coffee with Casero during which we
discussed, among other things, how MIPIM is
logistically great for groups like Rockspring.
Drinks with the team at FTI Consulting.
Managed to meet a wide variety of real estate
professionals including Claire Freeland from
UK-based development company Landid
who has been working on the Thames Valley
portfolio with Brockton Capital.
Day Three – Wednesday
– 3/11/2015
08:15 - Majestic Barriere – CBRE
An early start for CBRE’s annual Global
Investment Forum. Standing room only at the
breakfast briefing which saw the firm release
its EMEA investor intentions survey. Key findings of the survey revealed that investors are
looking at moving up the risk curve in order to
meet return expectations.
10:30 - Allianz Lounge, 2, rue Bivouac
Napoléon – Olivier Piani – Allianz Real
Estate
PERE caught up with Allianz’s chief executive
to discuss the firm’s 2015 investment strategy.
Drinks on the good ship LaSalle where PERE
managed to grab five minutes with Jon Zehner,
global head of the firm’s client capital group.
Mostly discussed the excellent food that
LaSalle had put on for guests!
Day Four – Thursday
– 3/12/2015
10:00 - Majestic Barriere – Christian
Delaire – Generali Real Estate
After 12 months as chief executive of one of
the largest European real estate investors,
Delaire discussed the move from AEW
Europe, as well as outlining his intentions
for the Generali’s real estate strategy going
forward. Expect a more direct approach.
11:30 – AEW Europe’s boat – Rob
Wilkinson, Russell Jewell and Schalk
Visser – AEW Europe
The Paris-based firm has had an incredibly
busy start to 2015 and just after holding a
€235 million closing on its latest value add
fund it revealed to PERE that the firm had
hired Alexander Strassburger and Nikolas
Koulouras, and set up a €150m German retail
platform.
APR 2015 | PERE
31
NEWS ANALYSIS | ASIAVIEW
About time
Hong Kong’s proposed state fund for long-term investments is welcome news only if the
government chooses to be bold in its investment philosophy. By Arshiya Khullar
When Hong Kong’s financial secretary announced plans to create
a ‘Future Fund’ during his budget
address in early March, everyone
in the industry had the same initial
reaction: finally!
It is not difficult to understand
why. While state investment and
pension funds across Asia have been
gradually moving towards a more
diversified asset policy mix and ramping up allocations to
alternatives, the Hong Kong government has been far too cautious in investing its fiscal reserves.
The Hong Kong Monetary Authority (HKMA), the city’s
de-facto central bank tasked with making investments, has
mostly stuck to bonds and public equities, with the objective
of “maintaining liquidity even if the returns are lower,” as a
university professor part of the government-appointed committee responsible for drafting recommendations for the fund
recently remarked in a radio interview. Whatever little private
equity and real estate investments that have happened have
been ad-hoc and sporadic.
That could now change with the new state investment fund,
targeted to have a more aggressive investment approach to
seek higher returns through long-term investments, as per the
recommendations released by the five-member committee.
The fund will have an initial corpus of HK$220 billion (€26.53
billion; $28.35 billion), which is the government’s land fund
created from sales between 1986 and 1996. A designated portion from future budget surpluses will be added periodically. A
lock-up period of at least ten years has been proposed.
But of most salience for PERE was that the committee has
asked for 50 percent of the fund to be invested in alternative
classes such as private equity and real estate.
Reluctant Risk-Taker
HKMA manages close to HK$3 trillion in the Exchange Fund,
of which almost HK$2 trillion is held in debt securities. In
2013, the fund managed an investment return rate of 2.7 percent, even lower than the 4.3 percent consumer inflation rate
during the same period. In real terms, that meant the fund
generated negative returns.
A small part of this fund has been set aside into something
called the ‘Long Term Growth Portfolio’, which has close to
HK$89 billion in assets, three quarters of which is comprised
32
PERE | APR 2015
of private equity investments. Real estate investments take up
the remaining one fourth.
HKMA’s overall reluctance to diversify could be because of
Hong Kong’s culture. Given the island-city’s economic dependence on the real estate industry, it would be understandable
if the government authority had been looking to move away
from real estate, from its short and sometimes volatile cycles
and focus instead on fixed-income securities.
A wide array of investments across international, private
property markets would be a defense against volatility too. GIC
Private, Singapore’s sovereign wealth fund, has proved that
over decades. There is probably no coincidence that, when its
real estate arm was launched in 1999, a decision was made not
to invest in local properties.
So far, HKMA’s communications regarding the launch the
Future Fund have been low on details, leaving key points to
the imagination. There was no breakdown of asset classes, no
guidelines for the deployment of the fund and questions still
linger about how it will be managed.
The fund size, however, is similar to that of China’s sovereign
wealth fund, China Investment Corporation, when it was first
launched in 2007. It is worth mentioning that CIC’s initial allocation to real estate was around 1 percent to 2 percent.
The industry expects the proposed fund’s capital to be
deployed first in trophy assets in established real estate markets
with a long-term hold objective; investments in regional markets in the hunt for higher yields are unlikely therefore.
As far as the management of the fund goes, the committee,
which consists mostly of academics and civil servants and
hardly any fund managers and investment professionals, has
suggested that the HKMA be placed in charge, for now at least.
Whether a new team will be set up to manage the fund’s
investments or whether the management will be outsourced
in the future remains unclear. Historically, sovereign wealth
funds have hired external investment advisers to manage their
portfolio, but in a recent trend, many have developed their own
in-house management teams.
If Hong Kong were to follow this model, the HKMA would
also have to decentralize the management team. It might even
set up foreign offices in targeted markets, an approach that was
never adopted with the Exchange Fund.
It remains to be seen whether Hong Kong, in its attempt at
creating a thriving sovereign wealth fund, will draw on its own
uninspiring historical performance, or emulate the successful
models adopted by other funds in its new peer group.
PERE ASIA SUMMIT 2015
Call for Change
Last month’s PERE Asia Summit saw real estate professionals from around the world
discuss the pros and cons of investing in Asia in the changing environment
PERE Asia Summit: approximately 400 delegates attended the two-day event which was chaired by Gaw Capital’s Goodwin Gaw (inset).
The annual PERE Asia Summit was held over two days in
Hong Kong in early March. Now in its eighth year, the conference was attended by close to 400 delegates from 21 countries,
with some of the world’s leading real estate professionals
gathering together to deconstruct the Asian property market.
With economic uncertainty and subdued demand stalling growth in thriving property markets such as China and
Japan, the panellists discussed how the investment thesis was
changing for these markets. At the same time, there was also
talk about investment picking up pace in some emerging
Asian economies, buoyed by changing demographics and in
some instances, new pro-growth governments in places like
Indonesia and India.
An intentions survey conducted by CBRE, which was
released during the conference, suggested that 43 percent of
investors are willing to invest in core real estate in the region.
But with the gradual emergence of a parity between the
returns generated in Asia, and those in the US and European
markets, speakers cautioned that investors would need to
reassess their expectations for the region. Indeed, in a panel
on core opportunities, Benett Theseira, Pramerica Real Estate
Investors’ new head of Asia, said that investors would now
find it harder to demand a risk premium while investing in
core real estate in Asia. His view was echoed by co-panellist
Suchad Chiaranussati, the managing director of SC Capital
Partners, who was voted by the audience as the top speaker
at PERE Asia 2015.
On China, there was a mix of views. Goodwin Gaw, the
chairman of the Hong Kong-based firm Gaw Capital Partners,
who was also chairing the conference, gave a striking opening address in which he told delegates that China’s ‘golden
days’ were probably over. More specifically, he said, over was
the long-held practice of using Guanxi or relationships, to
get lucrative deals done in the country, thanks largely to the
ongoing anti-corruption crackdown by the Chinese government. However, that was cited as a factor dissuading investors
from deploying capital in the country. John Pattar, who
leads CLSA’s private real estate investment business, said in
a panel that investors would prefer to hold through the current period in China for at least twelve months more. CBRE’s
Nick Crockett, however, said that the country, despite its
uncertainty, remains the number one destination for making
investments in Asia Pacific.
Dr Seek Ngee Huat, chairman of Singapore-based Global
Logistic Properties, was interviewed onstage by PERE’s
senior editor, Jonathan Brasse, on his pioneering work with
Singapore state fund GIC Private and his visions for new
company Global Logistic Properties.
Elsewhere on the bill, sessions on investing in niche markets, and in secondaries real estate, were newly chosen for
this year’s event. That the US and Europe have more active
secondaries real estate markets is well-known, but speakers
suggested that Asia will begin to see an increase in secondaries real estate volumes , especially as some of the pre-2008
funds struggle to execute deals.
Another first this time was the quiz conducted on the opening day of the conference, which saw CBRE’s Nick Crockett,
CLSA’s John Pattar and Laurasia Capital Management’s
chairman, Robert Zulkoski battle it out to answer questions on some of the most-read stories to have appeared on
PERENews.com over the last decade. Crockett, who could
barely keep his hands off the buzzer, won by a high margin.
APR 2015 | PERE
33
PERE ASIA SUMMIT 2015
Visit from the doctor
Dr Seek Ngee Huat, who led the real
estate investing business of Singaporean sovereign wealth fund, GIC Private
for 15 years, brought the Summit’s audience into the corridors of the state
investor with rare insights into its evolution. He also forecast certain strategic objectives of his new employer,
Global Logistic Properties, including
its expansion to Europe.
Have I got PERENews for you
(L-R) CBRE Capital Advisors executive director Nick Crockett, Laurasia chairman Rob Zulkoski and CLSA managing director John
Pattar had their sector history tested in a special quiz. The questions were based on the most read news stories from Asia on
PERENews.com over the last decade (listed below).
QUESTIONS
ANSWERS
1. In 2010, which US investment bank was forced to compensate a pool of 25 institutional LPs for actions
considered ‘non-fiduciary’?
BofA Merrill Lynch
2. How much did the GP pay to settle with the LPs (above news)?
$650 million
3. Blackstone has just broken the fundraising record for a private real estate investment vehicle in Asia.
Which firm previously held that record?
MGPA for its Asia Fund III
4. What year did MGPA III close?
2008
5. Who were five of the top GPs in Asian real estate in 2007 that no longer exist today in their previous form?
AIG
Citi
Merrill Lynch
MGPA
Secured Capital
6. Who now owns which platform?
Invesco owns AIG
Apollo owns Citi
Blackstone owns Merrill Lynch
Blackrock owns MGPA
PAG owns Secured Capital
7. Name two of the three largest (greater than $1 billion at their valuation peak) Seoul and Tokyo office assets
which traded three times over the past 10 years?
Seoul Square, Seoul
Shiba Park, Tokyo
PCP, Tokyo
8. What GP paid a record price for land in Singapore which caused its fund to be overweight to one deal?
MGPA
9. Staying with Singapore, what GP just invested heavily in the country at the end of 2014?
Blackstone
10. In 2013, there was a $1 billion China fund which went through a restructure with LPs agreeing to the
write-off of 60 percent of the fund’s initial capital raise. Which?
Trophy
34
PERE | APR 2015
NEWS ANALYSIS
PEOPLE
Leaving on a high
Andie Kang’s time as global real estate head at
Korea’s NPS was transformational for the state
investor. New employer IGIS will be hoping for some
of the same
Andie Kang leaves Korea’s preeminent state investor, the National Pension
Service (NPS) of Korea on April 6. He does so safe in the knowledge he has
led the $430 billion institution into becoming one of the world’s most active
private real estate investors since the global financial crisis.
Indeed, with Kang as global head of real estate, NPS has grown an international real estate portfolio valued today at $11 billion, the vast majority of
the assets of which were acquired in the last five years.
Kang will be remembered most for his work during that time in which he
led a number of high profile direct investments. These included 8 Canada
Square in London’s Canary Wharf which NPS acquired for £772.5 million
(€1.049 billion; $1.15 billion) in 2009 when global markets where on their
knees and sold at the end of last year for more than £1.1 billion.
That deal proved onlookers that presumed Asian state investors would not
trade core assets once purchased wrong.
Other examples of notable direct investments during Kang’s tenure include: the $480 million purchase
of BG Group Place in April 2013 and the €570 million
capture of the Sony Center in Berlin in May 2010.
Under Kang’s watch, NPS also was among the first
state investors to seek assets at the higher end of the risk
and return spectrum when in 2010 it awarded more
than $1.2 billion of indirect investment mandates to
investment managers worldwide for value-added and
opportunistic strategies. Firms to have benefited from
Kang: led the growth
of an $11 billion interthis then-contrarian strategy were Pramerica Real
national real estate
portfolio
Estate Investors, Rockspring Property Investment
Managers, The Carlyle Group, Invesco Real Estate.
Advisory firm The Townsend Group also was heavily backed.
A replacement global head is expected to be determined by NPS after
Kang’s departure. Although no decision has been officially made, there
was mounting speculation that the hire would be internal and from NPS’
10-strong real estate team. One of Kang’s lieutenants, Scott Kim, has been
mooted as a candidate for the role.
NPS’ loss will be Seoul-based real estate investment manager IGIS Asset
Management’s gain as Kang joins the firm on April 20 as co-chief executive
officer. Replacing outgoing co-CEO Dai Young Kim, Kang will jointly lead
IGIS with the firm’s other co-CEO Kab Joo Cho. He will chiefly be responsible for expanding the firm’s global exposure, something he has ample
experience doing thanks to his time with NPS.
At IGIS, Kang will also seek to grow the firm’s exposure to international
investors, introducing them to deals in Korea. The majority of the firm’s $6.2
billion of assets under management are in Korea.
Most read on
PERENews.com [Asia]
last month
1
NPS’ KANG’S NEW ROLE
Andy Kang, the former global head of real
estate at Korea’s $430 billion National Pension
Service, will become the co-chief executive
officer at IGIS Asset Management, Korea’s
biggest real estate investment management
business.
2
MSREI DEPARTURES
Two senior executives in Morgan Stanley
Real Estate Investing’s Asia team, Noah
Wangh, an executive director responsible for
investments in Hong Kong and Vietnam, and
Denise Lau, a managing director responsible
for working with Chinese institutional clients,
are set to leave the firm. Wangh’s departure is to
do with the firm’s lack of activity in Hong Kong
while Lau is leaving for personal reasons.
3
HONG KONG’S NEW SWF
The Hong Kong government announced
the creation of a ‘Future Fund’ for making
long-term investments. The fund is to have an
initial corpus of HK$220 billion and subsequent
additions will be made from the annual budget
surplus.
4
NPS TO HIRE FOREIGNERS
The National Pension Service of Korea
has announced plans to hire foreign nationals
for the first time for its global investment teams.
As many as four foreign fund managers are
expected to be added in the first quarter of this
year.
5
CHINA GOLDEN DAYS ‘OVER’
Goodwin Gaw, the chairman at Gaw
Capital Partners, remarked at the PERE Asia
Summit held in Hong Kong that the ‘golden
days’ for China were probably over. In the
opening session of the two-day summit, Gaw
also said the long-held practice of Chinese
developers and real estate owners using Guanxi,
to get properties that make “obscene amounts of
profit” is no longer as effective.
APR 2015 | PERE
35
GUEST COMMENTARY | THE TRADE ASSOCIATION’S PERSPECTIVE
I see an elephant fly
ANREV’s chief executive officer Alan Dalgleish is convinced Indian private real estate is
in on a more fruitful trajectory than before after the association held its first event in the
country
At the end of February, ANREV
held its inaugural event in India, a
half-day seminar in Mumbai.
The Asian association for
Investors in Non-listed Real Estate
Vehicles’ (ANREV) India Working
Group had felt for some time that
it should make its presence felt in
India so with the change of government in 2014 bringing real prospect
of positive market-driven change, we put our plans in place.
It was timely that in the week of our event The Economist
published its lead article on India. In it, the magazine said
India’s economy was ready to fly. “India has a rare opportunity to become the world’s most dynamic economy,” it said.
In true Economist style, the article was accompanied by a
lovely cartoon of an Indian elephant, complete with mahout,
the elephant was wearing flying goggles and two large jet
engines strapped to its sides. Ready to fly indeed or as the
magazine put it: “A jumbo on the runway”.
Witticisms aside, what struck me most that day was the
extent to which the positive story about India emerged
from the event’s presentations and discussions. The keynote
speech by Shilpa Kumar, chief economist at ICICI Bank,
set the tone by delivering an upbeat message about India’s
growth prospects. I was particularly struck by some of her
team’s research which ranked sixteen global emerging markets in terms of six key economic measures. India ranked in
top place with China in sixth and Brazil and Russia in 14th
place and 15th place respectively.
Recognizing that the construction sector has high interlinkages with other sectors, it was clear to me that the real
estate sector will be a good economic growth driver where
government policy initiatives can have a direct impact:
relaxation of norms for foreign direct investment in construction, tax incentives on home loans and budget focus on
development of smart cities and rural housing.
Indeed, there has been much talk about improving the system of requisition of land for infrastructure, updating labor
laws and dealing with power shortages.
Much remains to be done but there was a real sense that
these issues are being tackled and the short-term outlook
is positive with reforms crucial to taking India to a higher
growth trajectory in the longer term.
36
PERE | APR 2015
Turning to the real estate market, and specifically to private
real estate investment - our segment of it - it is noteworthy
that several of the ANREV Management Board members,
including the likes of APG, CPPIB and GIC – are today so
actively investing in India, and in a meaningful way too.
APG, for example, has invested in hotel business Lemon
Tree Hotels to build mid-market hotels and has created a
residential development platform with Mumbai developer
Godrej Properties.
The government’s previous attempt to open up the real
estate sector ended with some players making some serious
losses. As one panelist at our event said: “no-one knew what
they were doing”.
So why is India back? Well for one reason, the fact liquidity
dried up as a result of previous problems created an attractive vintage.
Also, from my perspective, it feels like the on-the-ground
reality is better than the bad news might suggest – filtering
that out seems key.
But what seems very apparent too is that partner selection
remains the key. The partner returns the alpha, not the market, after all. Alignment between investor and manager is
vital, bringing with it a commitment to be engaged and thorough and to take the time to really understand the market.
It seems clear that investors are establishing partnerships
that will bear fruit over the longer term as India develops. So
these are not just transactional relationships, it is all about
adding value over time.
There was discussion about being realistic about risks and
challenges: no emerging market is without its risks. But, to
some degree, deal structures can mitigate these along with
proper understanding of the specific dynamics around locations and assets.
In our own ANREV Investment Intentions survey, India
lies just behind the key markets of Japan, Australia and
China.
Coming to the end of our inaugural seminar, I came away
with the impression that India is on a growth path which
will lead to lasting, positive change in the country and that
opportunities for domestic and international investors in the
country’s private markets will see their efforts today bear
fruit tomorrow.
And so I agree with the Economist’s arty depiction of
India’s prospect and expect this elephant to take off.
FAMILY OFFICE & PRIVATE
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President & CEO,
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Partner,
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Management,
Singapore
Florian Schmied
Shareholder,
Tucher & Smith
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OPERATING PARTNERS | SPECIAL FEATURE
Have I got a deal for you!
The current state of the operating partner model. By Robin Marriott
“H
ave I got a deal for you!”
Boiled down, that is essentially the starting
point of every conversation for an operating
partner that approaches a potential capital source.
Then the merry dance begins. The opportunity, the stage
of the purchase agreement, the timeframe for exit are all
unfolded in the opening discussion. For his part, the pitched
capital source will then ask about realized track record,
team stability, challenge various assumptions, and provide
a verdict on whether it fits the stated strategy of the fund or
separate account.
Hundreds if not thousands of such discussions take place
on a daily basis around the world, and unsurprisingly, only a
few actually make it through to the next stage – drawing up
the agreement. Which is where the real fun starts.
The model
The model of private equity real estate firms using operating
partners to help populate their funds with deals is as old as
the hills, of course. It has never really fallen out of favor for
very long either, and for good reason. No matter how large and
sophisticated a real estate investment manager might be, can
its team really know how to gain a zoning variance from the
relevant local authority, where the next local tenant is coming from and what contractors to use, and for how much? The
answer to that is invariably, ‘no’. And so, the legions of specialist real estate operators that possess that ‘unique’ know-how
to find a deal, create some value and manage that asset find
themselves in demand. At the same time, many of these operators are desirous of capital, which is where the private equity
real estate firm or institutional investor comes in.
As James Broderick, chairman of Goodwin Procter’s real
estate investment management practice in Boston explains,
the real estate joint venture market can be roughly separated
into two groups, both defined by numbers. Firstly, there is
the prevalent 90:10 joint venture model between the “money
partner” and the operating partner. If the private equity firm
likes the deal, it will put up around 90 percent of the equity.
Secondly, there is the 50:50 joint venture between roughly
equal partners, a structure far less common and trickier to
agree terms over. The split may not be exactly 50:50 but the
point is that the two parties are more equal in terms of capital and clout.
Foreign capital is a perfect example of the latter. Numerous
joint ventures have been struck up in the past few months
38
PERE | APR 2015
601 Lexington Avenue, New York: Norway’s sovereign wealth fund
teamed up with operating partner Boston Properties to acquire the office
block
and years between sovereign wealth funds or pension funds
and a US real estate operator. An example would be Norges
Bank Investment Management on behalf of the Norwegian
Government Pension Fund Global that last October agreed
to a joint venture with Boston Properties to acquire a 45 percent stake in three prime offices for $1.5 billion, the assets
in question being 601 Lexington Avenue in New York and
the Atlantic Wharf Office Building and 100 Federal Street
in Boston.
Goodwin Procter’s Broderick explains that under The
Foreign Investment in Real Property Tax Act of 1980
(FIRPTA), for many foreign investors it is beneficial to invest
in US real estate through a joint venture in which the foreign investor owns less than a 50 percent interest and the
remaining interests are owned by US entities that are domesto restructure a loan with a lender, or perhaps to even hand
tically controlled. The result has been a surge in the number
back the keys, private equity firms found that the operating
of new joint venture relationships between major investors
partner with just 10 percent of the equity or even less had
and operators in the marketplace.
approval rights over any deal to be cut with the lender. The
Unlike a 90:10 joint venture, the conventional rules of
operating partner might have been primarily concerned
the road for establishing the rights and obligations of the
about his exposure on a completion guaranty or a “bad boy”
parties in a 50:50 split are not so obvious. After all, this is
guaranty, whereas the private equity real estate firm not on
essentially a marriage of equals. If both sides must agree
the hook for these guarantees had other priorities. Interests
upon everything, how does anything actually get done? And
were not aligned, and deadlock often ensued.
what about the inevitable major decision deadlock between
As a result, terms in operating agreements today often look
the two parties? Common suggestions for resolving issues
a bit different. Many private equity firms are negotiating for
are arbitration or the trigger of exit rights, but those are not
unilateral governance rights in certain circumstances. The
perfect either as deadlock can arise again.
traditional 90:10 model passed unilateral governance rights
The list of major decisions that require joint approval
to the investor partner only upon an “event of default” under
can be as long as one’s arm, but the most significant always
the joint venture agreement. More frequently today, private
include exit rights, financing (including maximum loan to
equity firms are pushing for either unilateral control over
value, term and the extent of guarantee obligations that are
all decisions from day one, with a revocable delegation of
acceptable and who puts them up), capital call
administrative duties to the operating partner,
obligations, approval of annual operating budor unilateral control over at least some decisions
gets and approval of major leases. The foreign
in the event of deadlock – financing is a cominvestor/domestic operator model also raises
mon example. These are obviously protection
a number of unique challenges for the parties
mechanisms and a response to the financial
to resolve, such as how to deal with ongoing
crisis. Related, and from the perspective of the
transfer rights of the parties given the foreign
operating partner, recently there has also been
investor needs the joint venture to remain
much more negotiation about who puts up
domestically controlled. Also, the foreign invesguarantees to the lender, the terms of the same,
tor often needs the joint venture to hold each
and indemnification obligations between the
asset in a separate “baby REIT”, and sell shares
parties if the guarantees are called.
Broderick: witnessed opin the REIT rather than the asset itself at the
These are the ways in which the structuring
erating partner agreements
sorely tested in the global
time of exit. That leads to a negotiation between
of operating partner agreements has evolved.
financial crisis
the parties over whether one party or the other
Indeed, Andrew Levy at law firm DLA Piper
takes the risk that the sale price for the REIT
in New York explains that times have dramatishares is less than a possible sale price for the asset itself.
cally changed since the global financial crisis leading to other
The scenario that private equity real estate fund managdifferences, particularly in the US major markets (most notaers are more used to, however, is the 90:10 equity split. In a
bly, New York). For one thing, there is less distress, resulting,
90:10 equity split or a close variation between a private equity
not surprisingly, in a lot more capital sources.
firm and an operating partner, the private equity real estate
What this means is capital sources in theory do not posfirm expects a commensurate large degree of control. Not
sess such an advantage making deals and getting terms and
much can be done by the operator without prior approval of
having de facto controls they want. For example, an operator
the money partner. In a sense, this uneven match of capital
often has his pick of many potential capital sources, and if
power makes for a more straight-forward relationship. “The
things go badly enough, then the operator can trigger a buymoney talks,” says Broderick. .
sell arrangement and replace capital source ‘A’ with capital
This is not to say that in a typical 90:10 private equity real
source ‘B’.
estate operating agreement there are never any problems. Far
Says Levy: “It is comparable in a way to the debt market - in
from it.
times of high interest rates and not much liquidity, an invesUnfortunately, these arrangements were sorely tested
tor often has to scurry around and find a lender providing an
in the most recent financial crisis of 2008. Many private
acceptable loan. But when times are flush, lenders are chopequity firms found it difficult to get control of ventures
ping their margins and the competition for money becomes
when the wheels came off. For example, when attempting
much more favorable to the borrowers and not to the lenders,
APR 2015 | PERE
39
SPECIAL FEATURE | OPERATING PARTNERS
and the operators and not the equity capital providers”. For
com is quite revealing here. Written by someone called
Levy, “The key thing for equity capital sources is to find an
“Pinkpoloshorts”, the writer says he works for an operatoperating partner that is reliable and will do business with
ing partner specializing in joint venture land developments
you, hopefully on a repeat basis, and ideally in many cases
with private equity firms. After a year of working on the job,
with a platform”.
Pinkpoloshorts said: “You spend a lot of your time attemptThat may be easier said than done. One only has to conduct
ing to convince capital partners to do deals with you. We
a search of ‘real estate operating partners’ in the US on Google
spend a considerable amount of time walking our potential
to realize how many firms describe themselves as operating
partners through the model and explaining and defendpartners. They range from the large and sophisticated to the
ing our assumptions. You deal with a lot of rejection. Once
very small localized brothers in business together. Indeed,
we he have our heads around the deal we take it to capital
virtually anyone bringing a deal to a capital source can be
providers. We try to take each deal to partners whose risk
an operating partner. What operating partners
profiles and areas of expertise match the deal.
seem to have in common, however, is that they
However it’s very difficult to get a partner for
claim to be experts in something, perhaps a
the deal, especially if the deal is a little hairy.
very particular geography or an asset type or
We often hear ‘it’s interesting but…’ or that it
strategy.
doesn’t quite fit the firm’s mandate. If the deal
It is possible to argue that the current marisn’t in a prime market and has some issues
ket dynamics play a little bit into the hands of
with it (for example the sale of an entity versus
operating partners because so much capital
an asset sale), it can be hard to capitalize. Even
including international money wants real estate.
for more straightforward deals I’ve found that it
This could potentially exaggerate the
takes several no’s to get a yes.”
inequilibrium of the operating partner model.
He also adds: “Sometimes the operating partLevy: has seen dramatic
Specifically, it is well understood that operating
ner
doesn’t get to operate the deal. Once we’ve
changes in the operating
partner arena given the
partners put up a small percentage of capital for
got the deal capitalized and we’ve closed on the
heavy demand for real estate
deals, but in today’s market they might put up
property, you’d think that the hard work is over
even less. Say one capital source is willing to
and now we get to do what we do best which is
put up 95 percent of the equity. Another source
develop and sell the land. This is not always the
could easily come along willing to stump up
case. Despite having the expertise, the capital
98 percent. In addition to the unequal capital
provider brings the money and they often have
injection, there is also the disproportionate
their own ideas about how to execute the deal.
level of promote the operating partner can earn.
They may want to bulk sale land raw while we
The promote is of course where the operating
want to develop it out. The best deals come out
partner makes it big money and it can represent
of constant communication between the capital
tremendous yield given the tiny capital it may
provider and the operator so that everyone is on
have put in originally in comparison to the
the same page. If you don’t have the same vision
Harmon: operating partners
are looking for managers to
capital partner.
for the property as your capital provider, that
be a “one-stop shop”
All that said, finding capital partners today
can lead to deals not performing.”
may not be the walk in the park some might have
Finally, he does confirm what everyone knew:
you believe. Deborah Harmon, co-founder and chief execu“You don’t get paid until the end, but your return on equity
tive officer at Artemis Real Estate Partners, the Washington,
can be huge. Land deals normally work like a J-curve. You
D.C.-based firm, agrees operating partners might be in a
have the initial outflow of capital, then in a few years you
stronger position than in the immediate aftermath of the
(hopefully) achieve break even and then it’s all profit after
financial crisis, but she points out the number of first time
that. As an operator we get paid a promote out of the proffunds raised declined 30 percent from 130 in 2013 to 100
its that increases after certain hurdle rates. We may not see
in 2014. “There is a consolidation occurring and the largest
significant profits (outside of management fees) for several
funds are teaming up with the largest operating partners.
years. However our profits may be huge multiples of our relaThere remains a deep pool of smaller operating partners
tively small co-investment if the deal ends up performing.”
where capital is not as aggressively flowing.”
For the record, his firm would agree the first hurdle generA post in December 2013 on the website Wallstreetoasis.
ally in the low-mid teens. “You get 15-20 percent after that,
40
PERE | APR 2015
then it’s maybe an 18 percent and a 1.7 or 1.75 and you take
provider from core and core-plus to value add and opportu20-25 percent after that, then maybe 30 percent after a 25
nistic.” More than half of Atermis’ operating partners have
IRR.”
executed transactions with Artemis across the spectrum.
Clearly, an operator would claim there is plenty of ‘sweat
She also observes that in this market, with declining yields,
equity’ the capital source does not possess. This justifies the
operating partners are particularly interested in core-plus
beneficial profit-split.
capital. From a product perspective, Artemis Fund II, a 2014
A high promote notwithstanding, from the perspective of
vintage fund, has been more active in industrial and retail,
the private equity firm or investor, the operator arrangement
whereas Artemis Fund I was overweight in the multifamily
must be worthwhile otherwise they would not enter into
space. Further, Artemis has been more active with operating
them. Yet finding an operating company is not at all easy.
partners in the self-storage, healthcare, and student housing
You are looking for a firm that knows the nuts and bolts of
markets.
running a real estate business, dealing with tenants, contracArtemis invests with both established and emerging
tors, knowing which direction the market is going in, how to
operators. Harmon says emerging operating partners are
deal with local planning authorities, real estate taxes, repairinterested not only in dollars but for other transaction and
ing a building and so on. The capital provider is unlikely to
infrastructure contribution including the provision of a credit
be able to deal with all of that, hence the model of operating
facility so that they can close on deals all-cash. Interestingly,
partners is alive and kicking.
she observed that in her experience it is possible “to do a bad
‘The market is telling us it is worth it, otherwise the capital
deal with a good partner and still end up with a good result”.
allocators would not do it,” says DLA Pipers’ Levy. “Sure the
That is, if the operating partner has a lot of expertise to work
operating partner needs to
out a problem and the comget permission from the
mitment to a long-term
capital source for a big decisuccessful relationship.
sion, but the capital partner
But one area Harmon
is relying on the operator’s
is very cautious about is
knowledge of the market.”
where an operating partner
Experts said that the huradvocates for strategy shift,
dle rate to earn promotes
for example, a long-time
has lowered in recent times
Danger sign: If an operator goes from investing in Florida multi-family assets
Florida multi-family operato New York hotels it would concern Artemis’ Harmon
because of the changing
tor attempting to enter
market. This phenomenon
the New York City hotel
is to do with lower interest rates and a general belief that
market.
profits from deals will not yield as much as in the past few
The longer term trend in the industry that has already
years.
been witnessed is some operating partners becoming fund
Whereas the carry may have started at a 10 percent hurdle
managers. Tishman Speyer would be a classic example from
in the past, it could be closer to 8 or even 6 percent today.
years and years ago, and Related Companies would be a more
There is nothing inherently wrong with this, so long as the
contemporary one. (see page 41). They have to weigh up the
private equity real estate fund – and ultimately limited partadvantages to having capital always on hand with the extra
ners – are comfortably with the promote being earned at
uncertainty raising a fund brings and with the increased
a lower gate. That said, it could be the same for the private
regulatory and fiduciary responsibilities that go with being
equity real estate fund manager and the fund it is deploying.
a fund manager.
Artemis Real Estate Partners employs an operating partThe downside is also that the return in a fund format is
ner model. It began investing its first fund in June 2011 and
blended, so a bad deal can ruin a whole fund and therefore
has completed close to $2 billion of deals, nearly all of them
the promote. In contrast, joint ventures with various capital
being with operating partners. Indeed, it has 44 operating
sources are ring fenced, so that’s different.
partners, a majority of which have done multiple deals with
But so long as it remains so difficult for a first-time manArtemis.
ager to raise a fund and while they can get capital sources
According to co-founder Harmon, one of the key trends
sometimes even willing to put up 99 percent of the equity
for operating partners is the ability to access capital across
and agreeing a very beneficial promote, operating partners
the risk spectrum, in other words, “a one-stop shop capital
will continue to exist in their droves.
APR 2015 | PERE
41
OPERATING PARTNERS: INTERVIEW | PRISM CAPITAL PARTNERS
Toss and turn
Why it isn’t always comfortable being in bed with an opportunity fund. In an interview,
Eugene Diaz, founder of operating partner, Prism Capital Partners, explains
E
ugene Diaz founded Prism Capital Partners in 2002
their investors said to them on the fourth or fifth fund, ‘if
after a successful career working at developer Gale
you are real estate experts, how come you do all your busi& Wentworth that had formed partnerships with
ness in joint ventures with operating partners that do all the
Morgan Stanley Real Estate Funds and JP Morgan Investment
real estate work?’ A partner came to us and said we cannot
Management Investing in the 1990s across the US.
do deals anymore because we have to get rid of the double
Nowadays, he and his colleagues can be found scouring the
promote to keep our investors happy.” In this case, the firm
Tri-State area of New Jersey, New York and Connecticut for
offered not to pay a promote but much more in fees.
residential, office and industrial deals.
Diaz makes another point that turns that tables on some
His firm has struck investment ventures with several
critics of operating partners stemming from deadlock on
opportunity fund managers and investment advisors such as
projects during the global financial crisis when there was
S. Norwalk, Connecticut-based Greenfield Partners, Clarion
over-leverage. “As an operating partner, how you ended up
Partners, BlackRock Real Estate, and Angelo, Gordon & Co,
doing coming out of the recession may have depended more
among others.
on the partner that you picked than on the deal that you
In an interview, Diaz explains that one of the issues with the
bought,” says Diaz. “You might have found that the fund had
larger institutional investment advisors is that many of them
no more capital to put into your deal because the fund made
do not like to deal with ‘new’ operating partners
losses on deals somewhere else or otherwise was
notwithstanding the fact that principals may
choking on guarantees at the fund level. The
possess a long track record of significant returns.
ability of your capital partner to have managed
One firm once said to him: “It is so difficult to
the fund well may have been more important to
get our portfolio managers to get comfortable
the success of your deal as an operating partner
and resolved on a new partnership relationship.
than how your deal was.”
We generally don’t like new partnerships even
He further explains that his firm has five
though you are not an unknown team to us.”
transit related development sites under contract
Diaz agrees that many capital partners want
in New Jersey alone. But rather than go to an
mostly opportunistic with some core-plus deals
opportunistic fund manager or an institutional
given the market. “It is understandable. I get calls
investor, Prism has structured a fund capitalized
Diaz: operators are subject
constantly from would-be capital sources who
by high net worths to sponsor these deals. The
to vicissitudes of a fund’s
performance
need to deploy capital through operating parthope is that this will dispel another challenge of
ners. Our track record is 24 percent-plus IRRs
partnering a fund.
on $500 million in equity, but investment funds understand
“One of the problems operating partners face with opporthat it is really hard to make a 20-percent return. Core-plus
tunity funds is you are subject to the vicissitude of the
returns are easier to achieve given borrowing rates. But then
performance of the funds. Suddenly, they can get cold feet
again, there are not that many core-plus advisors and a lot
and liquidate or they have a time clock of a certain number of
more opportunistic money,” he says.
years. If it is just not the right time to sell, you as the operating
He also points out core-plus deals tend to require less
partner that has put co-investment in can get hurt.”
expertise and proprietary knowledge and can be done by the
In other words, Diaz explains the performance a deal may
fund manager itself. Indeed, sometimes the operating partbe tied to the longevity and life cycle of a fund. And poor
ner finds himself competing with funds.
outcomes can hurt the local operator more than a portfolio
He observes another challenge for operating partners.
manager or fund.
Some investors have put their opportunity fund managers
“If the fund messes up on one deal it doesn’t necessarunder pressure because of the ‘double promote’, one to the
ily reflect badly on the fund in that market. But operating
fund manager and the other to operating partner, thus dilutpartners tend to be locals whose reputation is tied to every
ing the return to the limited partners. “In one instance we
deal he does.”
had a partner we did several deals with successfully. Some of
It is a salutary point.
42
PERE | APR 2015
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BLUEPRINT | RELATED COMPANIES
Operating outside the box
Few real estate managers are quite like Related – and that’s
helped drive the growth of its fund management business.
By Evelyn Lee
Photography by Jonathan Smith
BLUEPRINT | RELATED COMPANIES
Metz: helping to build a business
R
elated Companies isn’t like most operators in private
equity real estate. The New York-based firm, which
has been in business for more than four decades,
is known as one of the top developers in the US, and is the
name behind some of the most high profile, large-scale projects in the US. Famed for bringing the Time Warner Center
to New York City in the early 2000s, Related continues to
make headlines as the developer of the city’s Hudson Yards,
the biggest real estate development in US history. At present, it owns and operates a $20 billion property portfolio that
includes multifamily, retail, office and affordable housing,
and employs more than 2,700 people across the globe.
Yet as a fund manager, Related is a relative newbie, essentially the David to its Goliath-like development business. Its
US-focused funds management platform is just five years old,
has a 40-person team and approximately $3 billion in assets
under management. Like other operators, the firm keeps
all of its development and construction, property management and leasing, sales and marketing operations in-house,
although few other operators have the national presence that
Related does, with eight US offices in New York, Boston,
Chicago, Los Angeles, Miami, San Francisco, Dallas and
Aspen, Colorado.
That dichotomy has become a major differentiator for
46
PERE | APR 2015
Related. Most other national real estate managers are allocator funds, which typically work with local operating partners
to source and execute on deals in markets or property types
where they have less expertise. Limited partners in those
funds, however, are required to pay a promote to both the
fund manager and its operating partner. A growing sensitivity among investors to fees in recent years, however, has led
to an increasing interest in operator funds.
“I think our pitch is: you know us, you know who’s going
to do the work, and you only pay for it one time,” said Justin
Metz, managing principal of Related Fund Management.
“And then you get the entire scale of our company.”
Starting small
Although the two businesses work together, the main distinction between Related’s fund management and development
platforms is that the former does virtually no ground-up
development. Additionally, while the company’s development projects tend to be multi-billion dollar endeavors, its
fund investments are much more modest in size, typically in
the $30 million to $60 million range.
Related launched its fund management business during
the global financial crisis, as the company began to encounter a number of distressed investment opportunities. Shortly
after hiring Metz, previously the global head of real estate
alternatives at Goldman Sachs, to head up the new business
in 2009, the company made its first foray into real estate
funds through a rather ingenious move.
The initial venture was Related UBC Opportunity Fund,
a construction loan fund that was backed by a $100 million
commitment from the United Brotherhood of Carpenters –
many of whose members then were out of work because of
project cancellations or delays during the global financial
crisis. The vehicle originated approximately $250 million
in loans for projects across the US, with one restriction: all
developments that received financing from the fund had to
use Carpenters labor.
“At that time in the market, it was very difficult to get
construction financing,” said Metz. “Banks were scarred,
ending up with projects that they never intended to own.
They weren’t making loans, so we saw an opportunity and
went into the construction lending business.”
Related followed up the construction loan fund with the
purchase of a 25 percent stake in
a real estate-owned apartment
portfolio from Fannie Mae. The
company funded the acquisition
with $500 million in commitments from private investors.
Road to Recovery
Related’s flagship fund, however, was the Related Real Estate
Recovery Fund. In 2008 and
2009, the firm was getting many
calls from banks that were saddled with troubled construction loans on developments that were left half-built as a result
of the downturn.
“We thought there was a business there around accessing
these deals, where somebody controls real estate but doesn’t
have the operating, construction or development ability to
access the value of the asset for themselves,” Metz explained.
“What we found ourselves doing when we started the funds
business was partnering with those banks on those failed
development deals.”
Related’s strategy for the aborted developments was to
gain control of the unfinished real estate assets, and using its
real estate and development expertise, complete the stalled
projects and business plans. The firm would not only invest
in non-performing and sub-performing loans held by lenders, but also buy distressed assets directly from sellers at a
substantial discount to replacement costs.
To be able to execute on those deals, however, Related
needed a different source of capital than its development
business, which capitalized projects over a three- or fouryear process. The company historically would acquire land
on its balance sheet, and after making improvements on
the land, would bring in a development partner when it was
ready to build on the site.
“The difference is that the types of deals that we were looking at in 2009 and 2010, we needed capital immediately,”
said Metz. “Banks needed to trade quickly, quietly and with
certainty. We needed a different source of capital, one that we
could draw down in effectively 10 days’ notice. So that’s how
we migrated toward this model.”
Raising capital for the Recovery Fund, however, wasn’t
easy. The firm launched the vehicle, originally called Related
Distressed Opportunity Fund I, in 2009, according to filings from the US Securities and Exchange Commission
(SEC). Related held a first close
of $170 million for the fund in
January 2011, and by the following September, had raised
$410.6 million, according to
the SEC documents. The firm
ultimately closed the fund on
commitments of $825 million, exceeding an equity goal
of $750 million, in late 2011.
Limited partners included The
University of Michigan Regents
and multimanager Siguler Guff,
according to documents from
Carpenters: how it all began
those institutions.
“From my perspective, to
launch a fund business from scratch is very difficult,” said
Metz. “There was a lot of start-up work at first, and I think
having relationships with large key investors, both my own
personal relationships and the company’s relationships, certainly helped to get us started.”
While the company’s decades-long track record helped to
get investors on board, so did its previous experience serving as a fiduciary to institutional capital. Beginning in the
1990s, Related managed capital on behalf of several large
institutions, including the State Teachers Retirement System
of Ohio, GM Pension Fund, MEPT and CalPERS, CreditRE
and CertRE via separate accounts. The company also has
formed ventures with Credit-Suisse and Zurich Financial.
New strategies
Related has continued to attract capital for various strategies since the final close of the Recovery Fund. In 2013,
APR 2015 | PERE
47
BLUEPRINT | RELATED COMPANIES
the company launched a new real estate credit investment
platform, forming a joint venture with Highbridge Principal
Strategies to jointly invest $800 million in first lien mortgages, mezzanine loans and preferred equity positions
in transactions involving land deals and non-stabilized
assets in gateway cities such as New York, Boston, Chicago,
Washington DC, Los Angeles, San Francisco, Miami and
select secondary markets. The venture has invested approximately two-thirds of its capital to date.
Also in 2013, the company established a separate account
with the five New York City pension funds, to invest in real
estate in areas affected by Superstorm Sandy. The pension
plans committed $300 million to their investment program
with Related, which has focused on acquiring workforce
housing properties in the Bronx.
Metz has declined to comment on fundraising, but public documents show that the company currently is raising
capital for two new funds.
One offering is the Related
Energy Focused Real Estate
Fund, which will target
property investments in US
shale oil markets. Through
the vehicle, which has a
$300 million equity goal, the
company is said to be planning to buy and build up to
6,000 multifamily properties, primarily in North
Dakota’s Bakken Shale and
Texas’ Permian Basin and
Eagle Ford Shale. According
to people familiar with the
fund, investments would involve a mix of acquisitions and
upgrades of existing multifamily properties and new development. Related collected $108.07 million during the fund’s
first close last August, according to SEC filings.
One potential challenge with an energy-related strategy,
however, is the sharp drop in oil prices that occurred during
the second half of 2014 and has continued into 2015. “I think
there will be some negative effects in the energy markets,”
said Metz. “There has to be when you have job loss, but they
haven’t shown up as of yet,” since real estate demand generally lags any changes in the economy.
One major energy-related deal that the company struck
last year was the acquisition of a portfolio of 21 multifamily properties totaling 3,000 units in Midland and Odessa,
Texas, on behalf of the Recovery Fund. Overall, however,
Related to date has only invested a small amount of capital in
energy-related real estate. “We haven’t been investing capital,
48
PERE | APR 2015
because we’re not really sure where the bottom is,” he said.
“There’s a huge correlation between the price of the commodity and the success of the real estate strategy. They’re
very coupled together, and so until we feel comfortable with
the pricing of that commodity and the stabilization of that
price and maybe even the upward trend of that price, we’re
just going to watch and monitor.”
Follow up to Recovery
The other new strategy is the successor to the Recovery Fund,
Related Real Estate Fund II. According to documents from
the Teachers’ Retirement System of Louisiana, the fund,
which has an $850 million target, will be similar in strategy
to its predecessor in that it will focus on underperforming
assets in need of operational or development improvement;
recapitalizations of assets or real estate; foreclosed residential assets and special situations such as corporate and
entity-level investments.
The firm has been marketing Fund II since at least
last June and raised $127.15
million during the initial
closing in December, according to the Louisiana Teachers
documents and SEC filings.
Among the limited partners
are the Texas County &
District Retirement System,
which earmarked $40 million to the fund in December,
and Louisiana Teachers,
111 Wacker: before and after Related
which committed $35 million in January, according to
documents from those investors.
In its presentation to Louisiana Teachers’ investment committee, real estate consultant Hamilton Lane noted that one
of main reasons for committing to the fund was the strong
performance of Related’s fund management platform, both
for Fund I and pre-Fund I. The firm was generating a gross
internal rate of return (IRR) of 48 percent on realized preFund I investments as of last January, and 26.2 percent on
realized Fund I investments as of last June, the presentation
said. Moreover, Fund I was yielding a net IRR of 20.7 percent, with $337.4 million in distributed capital.
One of the biggest contributors to the fund’s returns thus
far has been 111 West Wacker in Chicago. Originally planned
as a 90-story hotel and condominium tower, the project
stalled in 2008, after 26 stories had been built. Through the
fund, Related partnered with several trade contractors that
had filed $90 million in liens against the project and took
joint ownership of the asset in 2011. The venture went on to
change the business plan to build a 50-story, 504-unit apartment building, which had a cost basis of $180 million and
required an equity commitment of $30.9 million from the
fund. In January, Related sold the property, now known as
OneEleven, for a record $328 million – the highest amount
ever paid for an apartment building in Chicago.
‘Very innovative’
Indeed, the firm’s ability and capacity to take on complex
deals involving distressed real estate assets such as 111
Wacker has been a strong selling point for Related’s fund
management business. “What they did in Fund I, none of
it was easy,” said Jim Corl, head of real estate investments at
Siguler Guff, which committed a total of $140 million to the
vehicle in September 2011. Deals such as 111 Wacker “were a
degree of difficulty that was 9.5 on a scale of 10.”
Related’s expertise as a ground-up developer has been a
major asset in tackling “busted development deals” on behalf
of its funds, he added. Calling the firm “very innovative,” he
said that very few firms would be able to take on such complicated transactions. “Their skillset enables them to look at
something that other people would walk away from,” Corl
added. “They can see value creation opportunities that others wouldn’t see or mitigate risks that others wouldn’t be able
to mitigate.”
Related also has found other ways to leverage its development business to its advantage in fund management. Take
the company’s relationship with the Kuwait Investment
Authority (KIA), which began in 2009 when the sovereign
wealth fund acquired a minority stake in the company
through a number of equity and debt investments. “The
whole purpose was to get access to projects and to be preferred partners for projects they’re going to do,” explained
Farouk Bastaki, executive director of the alternative investment sector at KIA.
Activist deal
While Related typically takes on complex deals on behalf
of its fund management platform, the company deviated
from its usual investment strategy of private market, asset-level investments with its activist deal regarding CommonWealth REIT, an office real estate investment trust.
On February 26, 2013, Related and New York-based hedge
fund Corvex Management announced that they had jointly acquired 9.8 percent of the REIT’s outstanding common
shares.
In a letter to CommonWealth’s board of trustees, the two
parties stated that they had assessed, through a propertyby property valuation analysis, the net asset value of CommonWealth was significantly higher than what was then
the current per share price of $15.85. “We believe the company’s real estate assets are significantly undervalued due
to the misalignment of incentives between the company
and its externally advised management structure, and
track record of underperformance,” they wrote. The external manager skewed incentives and reduced the REIT’s
cash flow through excessive fees, ultimately hampering
CommonWealth’s valuation as a company, they said.
Over an 18-month court and arbitration process, Related and Corvex were able to gather enough shareholder
votes to remove the contract that the external manager
had with CommonWealth and replace the REIT’s entire
board of directors. As nominated by Related and Corvex,
the new board – led by chairman Sam Zell – was elected
by approximately 85 percent of the outstanding shareholders on May 2014. The REIT, which was renamed Equity
Commonwealth, was trading at $25.68 as of press time.
“We would never do it again,” said Metz of the transaction, with a laugh. Normally, Related has control over what
occurs between the time it acquires an asset and the time
it realizes the value on that investment. With CommonWealth, however, the company was subject to litigation by
the previous board and also had to get the approval of the
other shareholders to remove the existing board. “There
were just a lot of difficulties and roadblocks that made it
beyond our control,” he said. “And so while we knew we
would ultimately get there, the process to getting there is
not one that I ever want to go through again.”
Although the fund management business primarily is
focused on private markets opportunities, the company
pursued the Commonwealth deal because “we thought
we were buying something at what we thought was a 60
percent discount, and that’s what got us excited,” Metz
said. “Even though private markets are inefficient, you
generally can’t buy at that big of a discount. This happened to be a unique situation.”
The deal “represented some very outside-the-box
thinking,” according to Siguler Guff’s Corl, who also was
elected to the REIT’s new board. Related “demonstrated
that they were able to leverage their skillset into a new and
different way to realize value.”
APR 2015 | PERE
49
BLUEPRINT | RELATED COMPANIES
While KIA has traditionally made core property investments on its own, the sovereign wealth fund has partnered
with real estate managers on value-add strategies. “There
are some special situations that require certain types of
work that you wouldn’t have expertise to do overseas,” said
Bastaki. “So you need a partner or fund manager to do that.
We thought Related had that expertise.”
The sovereign wealth fund then became part of a group
of institutional investors that helped Related and its partner,
Oxford Properties Group, to fund the first two buildings at
Hudson Yards – the South Tower, a 1.7 million-square-foot
office tower that will serve as the new headquarters of Coach,
as well as a residential high-rise building, both of which are
anticipated to be completed within the year.
As an operator, Related stood out for its wide-ranging
capabilities. “There are a lot of developers who can do development, but they need someone to find tenants and rent the
building,” said Bastaki. “It’s difficult to find someone like
Related who can do everything.”
In 2011, KIA added a third prong to its investment approach
with Related: investing $75 million in the Recovery Fund,
largely because of the company’s strength as a developer. “We
didn’t know how they would do in the fund business,” said
Bastaki. “But we knew they were very capable as developer,
and they could use their development knowledge to help the
fund and provide opportunities for the fund, especially with
a lot of distressed situations.”
The sovereign wealth fund is now considering a follow-on
investment with Fund II, partly because of the predecessor
fund’s strong performance, delivering both a high IRR and a
high multiple on investments. But there’s also another significant reason: “It’s a great opportunity to invest with someone
that you know and that you trust,” said Bastaki.
Hands-on approach
Institutions like KIA see a place in their property portfolios
for both operator and allocator funds. Indeed, Metz himself
acknowledges the advantages and disadvantages of both. He
noted that allocators often are able to draw from a larger pool
of operators and in theory, should see more deal flow from
those partners. “The downside is, they don’t necessarily have
control over those deals,” he said. “It’s a local operator who
really has control, who really knows what’s going on. I would
say we know exactly what’s going on with all of our deals at
all times because we’re doing it. Having that said, we probably have a smaller universe of opportunities to look at.”
On the flip side, the biggest challenge for operators overall
is scale, he said. Particularly for operators that are focused
on one market and one property type outside of New York
City, “the challenge for them is scaling their business,” he
50
PERE | APR 2015
Related Companies
HQ: New York
Number of offices: 11
Chairman and founder: Stephen Ross
Chief executive officer: Jeff Blau
Head of fund management: Justin Metz
Total number of employees: 3,000
Number of fund management employees: 40
Total assets under management: $23 billion
Total third-party AUM: $3 billion
said. “You have to do a lot of $40 million deals to have an
institutional-type fund. I think that’s the struggle that a lot
of local operators have. And that’s why a lot of them aren’t
in the fund business.” Most operators would rather receive
capital from an allocator fund than spend 18 months raising
a fund, Metz added. He estimated that there were only 10
funds in market sponsored by national operators that invest
across multiple property types.
While Metz said that Related’s main competitors are other
operators, the company’s national footprint gives it a competitive edge over many such firms. “The advantage brought
by a national firm is the ability to see different markets and
emphasize the markets with promise while deemphasizing
the markets with less promise,” observed John Haggerty,
director of private markets investments at Meketa Investment
Group, a Westwood, Massachusetts-based investment consulting and advisory firm. A national operator would be able
to avoid investing in a market that has become overpriced,
unlike a local firm that is focused only on that one particular
market, he said.
But despite its broader geographic reach, the company
has maintained a very hands-on approach to its fund investments, he added. “Related gets very involved with their
properties,” Haggerty said.
International expansion
Unlike its development business, Related’s fund management platform has focused exclusively on the US to date.
That could change, however, in the next few years.
In Metz’s view, the company is best off establishing a
presence in another market before making any investments
through its fund management business. Currently, Related
has overseas offices in the Middle East, China and London
and has invested capital in other markets such as Brazil. But
he anticipates that Related Fund Management will make its
first international investment in the next three years.
The key is finding the right deal to be the platform’s debut
overseas investment. “We want to be really successful on the
first one we do, and the deals that we’ve looked at so far, it’s
not clear to me that we’ve been the first call,” he said. “We’ll
wait until we’re more established in those markets, and we’re
seeing the opportunity first. I think that’s when it’s priced
best.”
The most likely location for the fund management business’ overseas expansion is London, where Related already
has been active for more than a year on the development
side. Last month, Related announced a joint venture with UK
developer Argent to develop large-scale projects in London
and other UK markets. “If we were to be presented an opportunity there that we felt really good about, that’s where we’d
go,” said Metz.
Staying small
A potential international expansion aside, however, Related
isn’t actively pursuing the growth of its fund management
business. Metz is confident that three years from now, the
platform, whether in terms of staff or AUM, won’t be double
the size of what it is today. In fact, the company prefers to
remain small enough to be able to continue to execute on
deals that are in the $30 million to $60 million equity range
– too small for larger institutional investors and too large for
the local entrepreneurial firms.
Deals such as 111 Wacker “are really, really hard to do, so if
we have the right amount of capital to do 20 or 25 deals over
three to four years, that’s exactly the size that we want to be,”
said Metz. “We may have to raise capital more frequently,
because we raise smaller funds, but it gets easier to raise that
capital if you’ve done what you said you were going to do.”
Also, given the fact that the company, as an operator, is
highly detail-oriented and does everything in-house, it
doesn’t necessarily make sense for Related to significantly
grow its fund management business. “People assume bigger
is better, but it’s only better when the market’s perfect,” he
added. “When the market’s not as perfect, and it’s harder to
find opportunities, sometimes being smaller and nimbler is
better, and that’s the path we’ve chosen to take.”
Likewise, Related wants to manage the growth of its fund
management team. “We’re only as good as our people, so
we don’t want to make any hiring mistakes,” he said. “One
bad deal could sink your entire fund.” The firm has been
very careful about who they’ve hired, and typically have
recruited people with whom they’ve had a relationship for
an extended period of time. A potential danger for a fund
manager is a need to staff up quickly, Metz observed. “When
you’re in growth mode and you need people and you need
bodies, sometimes if you’re hiring 10 people, you may get one
wrong,” he said. “We may hire two people a year. We can’t
afford to be wrong.”
Team effort: Metz with his Related Fund Management colleagues
APR 2015 | PERE
51
ROUNDTABLE | EUROPE
More money, more problems
The battle for talent is just one of the challenges presented by the ‘wall of
money’ that has entered Europe over the past 12 months.
By Thomas Duffell
Photography by James Clarke
(L to R) Paul Hampton of Rockspring Property Investment Managers, Jonathan Harris of Macquarie Capital,
Mikkel Bulow Lensby of Nordic Real Esate Partners, and Mike Clarke of CBRE Global Investors
Sponsors:
CBRE Global Investors
Macquarie Capital
Nordic Real Estate Partners
Rockspring Property Investment Managers
ROUNDTABLE | EUROPE
The roundtable debates how wisely managers are investing
P
articipants in PERE’s annual European roundtable
gathered on a rare sunny Friday afternoon in London,
made only seasonal by the bitter winds that swept
through the capital. The weather in fact proved to be the perfect
analogy for the participants’ current outlook on European real
estate – plenty to be positive about but beware the risks ahead.
The common theme that ran throughout the roundtable discussion was the so-called ‘wall of money’ that has flooded the
region over the past year or two.
Europe dominated private real estate fundraising for 2014,
raising a total of $40.3 billion, which represents a growth of 82
percent from 2013, according to research from PERE’s Research
& Analytics division. While Europe showed a growth in fundraising from the previous year, nearly every other region faced
a decrease in capital. North America which is typically the
more dominate regions saw a decline of 19 percent while and
Asia-Pacific saw a 27 percent drop respectively.
So, great news for those out on the fundraising trail and
looking to exit legacy assets as more buyers enter the continent.
Recent data from property services firm DTZ suggest that the
2015 commercial investment volumes are forecast to stop short
of the all-time 2007 record at approximately €210 billion, but
significantly higher than 2014’s €175 billion.
The four roundtable participants in the PERE European
54
PERE | APR 2015
roundtable: Mikkel Bulow-Lensby, chief executive of
Denmark-based fund manager Nordic Real Estate Partners
(NREP); Mike Clarke, head of investor services EMEA for Los
Angeles-based real estate investment management firm CBRE
Global Investors; Paul Hampton, partner at London-based real
estate manager Rockspring Property Investment Managers;
and Jonathan Harris, senior managing director and head of
advisory for the EMEA region at Macquarie Capital, say the
surge of capital would cause problems for some, and in unexpected ways.
“What keeps me up at night?” says NREP’s Bulow-Lensby.
“How to attract and retain the best talent.”
The sentiment was echoed by Harris who says that the
biggest challenge is that as businesses grow, maintaining the
quality of the people is getting tougher. “It is a high touch
business and having the right people with the right skill sets is
hard and has got harder, no question,” he says. “We don’t hire
too many people that are say in the second half of their career.
We tend to grow our own and there is a battle for talent from
graduate level up.”
Hampton then took the point a step further and singled out
executives who focus on asset management, and the need to
keep them incentivized. “When you have on the ground teams
who know their local markets, speak the local language and
understand how to deliver a business plan – and it’s
those guys who are so important in helping to differentiate us from our peer group – retaining that talent
is naturally a key objective for our business.”
Somewhat mischievously, Harris says that some
fund managers who have been dormant and unable to
raise capital through the downturn are now back and
looking to hoover up talent in order to deploy their
newly-raised capital. CBRE GI’s Clarke agrees with
Harris and adds that a lot of American managers are
coming into Europe trying to recruit talent. “You get
waves like the last cycle where people enter markets
and try and build up their teams.”
Hampton has a warning though for anyone who
truly thinks the grass is always greener. “It is easy to
forget that teams were hired and fired in a short space
of time, particularly the non-European groups were
guilty of that. I hope our staff and respective organizations remember that.”
“It is pretty universal what makes people stay or
not. Do they feel that they can grow and make a difference and are they fairly treated?” adds Bulow-Lensby.
Opportunity knocks
The large amounts of equity looking to be deployed
in the European private real estate markets also
raise questions about investment strategy among the
roundtable participants. In terms of strategy, opportunistic was the most popular for European fundraising
in 2014, raising $11.3 billion. Debt and value-add
funds came in second ($10 billion) and third ($8.4
billion) respectively, according to PERE’s Research
& Analytics division. Geographically, Europe raised
the most capital for opportunistic funds, with an
aggregate size of $11.5 billion. This is a substantial
boost from the previous year, when European opportunistic funds raised $5.4 billion, an increase of 113
percent. The largest opportunistic fund to close was
the Blackstone Real Estate Partners Europe IV which
raised $8.7 billion between two tranches.
But, when questioned about whether or not too
much capital had been raised for value-add and
opportunistic funds the participants take exception
to the categorization of those strategies.
“People used to really just think about core and
opportunistic when boxing real estate. Value add was
everything else and people didn’t really know what it
meant. What we try to do is value add, and for me that
is just intuitively the most interesting space to be in
because value add to me just means buying cash flow
Participants:
Mikkel Bulow Lensby
Chief executive officer
Nordic Real Estate Partners
Mikkel Bulow-Lensby is the founder and chief
executive of Nordic Real Estate Partners, a
Denmark-based private equity real estate fund
manager. Bulow-Lensby has previous experience with investment banking and corporate strategy at Goldman Sachs, FXLine,
and Egmont Group.
Mike Clarke
Head of investor services EMEA
CBRE Global Investors
Clarke is responsible for investor relations, equity raising, targeting of new investors and
supporting in the EMEA region for the Los
Angeles-based real estate investment management giant, CBRE
Global Investors. Clarke has 26 years’ experience in global real
estate having previously worked at Mesirow Financial, and at
Schroders where he was instrumental in growing assets under
management from £160 million to over £8 billion through the
development of a multi-product real estate strategy.
Paul Hampton
Partner
Rockspring Property Investment Managers
Paul joined Rockspring in 1998 and has been
a Partner at the firm since 2006. He is responsible for fund management with a particular
focus on Rockspring’s European Funds. He was
instrumental in the launch of Rockspring’s German Retail Box
Fund in 2005 and has been involved in all five of Rockspring’s
successful TransEuropean funds, most recently TransEuropean V
which raised €350 million ($515 million; €484 million) in 2012.
Jonathan Harris
Senior managing director
Macquarie Capital
Based in London, Harris leads the European
arm of a global real estate advisory team that
has raised $40 billion in equity commitments
for a range of real estate transactions and funds since 2003. Having joined Macquarie Capital in 1996, he has led mergers and acquisitions, restructurings and capital raising assignments valued
at more than £14 billion ($20.6 billion; €19.4 billion) across public
and private markets in Europe and Australia.
APR 2015 | PERE
55
ROUNDTABLE | EUROPE
that you can improve. Core means you are buying cash flow
you can’t do much about, opportunistic means you are buying
problems you are trying to fix,” says Bulow-Lensby.
Rockspring’s Hampton agrees and says that he hates the idea
of trying to categorize value add.
“Strategy categorization is a dangerous game. It is entirely
possible to have two similar returning ‘value add’ funds pursuing completely different strategies and taking on completely
different types of risk. I think for this reason, increasingly
investors are placing far more importance on the underlying
activities of the funds they consider, the investment guidelines
and how value will actually be generated. The crisis period we
have been through of course means there is naturally more
focus on historic performance, on what that manager has actually done and how they have tried to extract value and deliver
the strategy that they have been employed to execute.”
And because of the diversity in regards to strategy,
Macquarie’s Harris does not believe that the opportunistic and
value add sectors are too hot. But just because there are a wide
range of strategies that fall under the value add and opportunistic umbrellas that does not mean that investors are letting
their fund managers be indiscriminate.
“We are not seeing a huge amount of extra leeway being
given by investors. A lot of investors have got longer memories
this time round than they did the last time and remember regulations have tightened up a lot and the investors are working
within a box,” says CBRE GI’s Clarke. “Whether it be Solvency
II for insurers or regulations at the country level for pension
funds they are constrained more than they have been historically so that has created some discipline. There is still a desire
from a majority of investors to have a degree of control.”
“A lot of investors are placing a lot more importance on the
strategies, the investment guidelines and how they want value
delivered,” adds Hampton. “The crisis periods we have been
through over the past few year’s means there is more focus
on the manager, what that manager is actually doing and how
they are trying to extract value and deliver the strategy they are
being employed to execute.”
London calling
According to the roundtable the UK capital is still firmly on the Qatar Investment Authority (QIA) as another example.
the radar of the biggest pools of capital
“For me those transactions are interesting because the
Over the past 12 months the European real estate sector investor felt that London is a market that represented
has been awash with large and interesting deals, but the liquidity, not just in terms of exit but in terms of the ocroundtable participants all picked London-based transac- cupier base and as an attraction for them to put their
tions as their most salient investments of 2014.
money to work.”
“The Gherkin was absolutely fascinating
The roundtable also mentioned Tobecause of the nature of the capital that
ronto and New York-based asset manager
came in, Brazilian, at £1,300 per foot ($1,900;
Brookfield Asset Management and Qatar’s
€1,800 per foot) so it was a big price. That
sovereign wealth fund, Qatar Investment
took a number of people by surprise and
Authority (QIA), which together are taking
Brazilian private capital at that price as very
over Canary Wharf’s owner, London-listed
notable,” says CBRE GI’s Clarke.
property developer Songbird Estates, after
He says that deals, like the Brazilian conSongbird’s board recommended its minorglomerate Safra Group’s acquisition of 30 St
ity shareholders accept an improved £2.6
Mary Axe, known colloquially as the Gherkin,
billion (€3.5 billion; $4 billion) offer.
for a sum reported to be more than £700 mil“I think that a lot of the headlines when
Canary Wharf, London: hot
lion, are becoming more likely as there is a
we had more activity from the sovereign
market
large number of big global sources of capital
wealth end of the market in the UK in the afout there at the moment. That is because they are looking termath of 2008 was that these guys are going to be buyfor uber prime or iconic buildings and not necessarily for ing up the best real estate they can and never selling, and
getting the best risk-adjusted returns in the market.
that is a huge issue in terms of future liquidity in the core
Hampton agrees and adds that deals such as this are a market,” says Hampton. “I think that perception was unreaffirmation of the enduring appeal of London, despite it derstandable, and I do think most sovereign wealth funds
looking like a very expensive city to invest. He pointed to have that mentality, but I also think that it illustrates that
the National Pension Service of Korea’s (NPS), Korea’s pre- you shouldn’t tar everyone with the same brush, different
eminent state investor, sale of the HSBC Tower in London to people have different outlooks.”
56
PERE | APR 2015
Spotlight on the Nordics
The big debate centered on the vast amounts of available capital fund managers have
at their disposal in 2015, and NREP’s Bulow-Lensby explains how it impacts region specific
investment managers
The Nordic region saw $27.2 billion of real estate transacFor Bulow-Lensby and his firm, which closed on its hard
tions last year, a 13 percent increase from 2013. And with cap of €400 million for its value-added NREP Nordic Strateeven more fund managers in the market country and re- gies Fund having only launched it last year with an initial
gionally focused have a reason to be nervous, explains target of €325 million, the fear can also come from outside
Bulow-Lensby.
the more traditional real estate investors.
“When you have the people on the
He says that hedge funds have invested in
ground that actually understands a particuDenmark because they think the currency is
lar segment you are focusing on and you
going to increase, and think real estate is the
feel you have an edge compared to the rest
best way to get access to the opportunity.
of the market. But, the worry I have is that
“We have the luxury to not consider whethcapital which is much more financially orier or not we think it is attractive to invest in
Copenhagen, Denmark:
entated will come to the market and even
the Nordics, we only have to consider how
Nordics saw deal volume up
13
percent
in
2014
though we feel we have an edge they can
to make the best possible investments in the
go in and just pay something that we can’t.
Nordics,” he adds.
Even though we feel we can get more value from the prop“Even with that luxury we still have to consider that
erty. The combination of the debt and equity markets can there will be all this money coming into Denmark because
create a fear for us.”
of the currency situation.”
Risky business
But before the capital allocators start to put their cash to work
there are a myriad of geopolitical issues that the continent
faces, and fund managers must address. Though these risk factors cannot always be planned for, the participants say.
Clarke says that he was surprised that in the immediate
aftermath of the Charlie Hebdo event in Paris, after a number
of CBRE GI’s investor services professionals from around the
world got together, Clarke’s US colleagues already had a number of investors concerned about whether or not it was right to
go and do due diligence in Europe. “We must all be aware of the
impact of news headlines, it’s a CNN factor. We were all horrified by the Paris terrorist attacks. While it had limited impact
on local investors, some investors from further afield expressed
concerns and whether it should impact their investment intentions for the region,” says Clarke.
More predictable events such as the upcoming general
elections in the UK and Spain also represent risks, but the
participants say that these events should not move the needle
significantly for fund managers.
“I think that the overall political headwinds in Europe from
east to west are pretty significant at present and together they
represent probably the single biggest threat to market confidence across Europe right now,” says Hampton.
Political change here in Europe is a significant factor and the
roundtablers think that in the run up to elections a number of
people do ‘press pause’, but then in the aftermath they press
play again. “For what its worth although there is obviously
a risk of change in Spain and the UK I think that respective
of change the markets will continue to pick up pace after the
elections.”
“London is a big international market and so although people who are close to getting deals done may pause immediately
before the election it will not impact pricing,” adds Clarke.
Although of concern for Hampton is the amalgamation
more across continental Europe and the radicalization of
governments, or at least radical political groups gaining in
popularity.
For Harris the big thing is tax. “We all know it, property is
a sitting duck in a world of fiscal headwinds for governments,
whether it is very visible or less so, taxes are going to go up.”
“It doesn’t matter whether it is residential or commercial, it
feel like it is only going one way. How much will it erode returns
I don’t know, but directionally it is only going up.”
Big deal
Yet, in spite of the political and tax uncertainty, especially in
some of the major European economies, the roundtable says
that it expects much of the same in terms of which jurisdictions
the money flows to.
APR 2015 | PERE
57
ROUNDTABLE | EUROPE
Recent figures from research firm Real Capital Analytics say
that €273 billion of transactions in Europe occurred in 2014.
€88 billion was transacted in the UK, €57 billion in Germany,
€33 billion in France, €27 billion in the Nordics, €15 billion in
the Benelux region, €15 billion in Central and Eastern Europe
(CEE) and the rest was notably smaller.
“In the next 12 months I would expect to see more capital
targeting peripheral Europe as some of the higher returning
strategies are forced to take on greater risk to hit their returns,”
opines Hampton.
“I think there are still a lot of folk who will be happy with
the 4 to 6 percent net return from real estate and if they can get
that from say the UK or Germany, then I think we will continue to see capital target those markets. Equally, we are seeing
demand from investors looking to complement their core and
opportunistic investments with a more core plus or value added
approach – especially where performance is derived primarily
from income based active management strategies.”
Hampton adds: “We may well be looking back on increased
investment volumes this time next year, but I think it will be
interesting to consider the types of deals that have been done
and whether or not managers have indeed been forced to take
excessive risk in order to get capital deployed. I also think that
whilst equity interest in Europe has been stealing the headlines
over the last year or so, it will also be interesting to look back on
how the banking markets have evolved – leverage is attractive
in Europe right now compared with say the US and there is
certainly an improved appetite from banks to do business with
trusted clients.”
CBRE GI’s Clarke agrees that opportunistic fund money will
be put to work in “the peripheries” but the core money will continue to focus on the main western markets. However, Clarke
adds that CEE will see a slight increase in capital, but will not
see larger investments being made until there is some resolution on the ongoing crisis political instability in the Ukraine.
“I suspect there will be a reluctance for a large proportion of
capital to go there. There may be higher returns to be made
there but it is more the perception of the financial and regulatory risks that is causing people to avoid the region.”
But, that is not the whole story as it is a lack of available
investable assets outside the three major European economies
causing the dearth of transactions in the peripheral regions,
as opposed to overlying risk factors, says Harris. “The volume
in the periphery of Europe where the opportunistic funds are
focusing, is likely to remain small relative to the core of Europe.
To be fair to them they are looking at hundreds of deals but
they might only do three. They are kicking the tires but actually
the interesting and investable part of these countries is relatively modest.”
While there is a lack of opportunities for real estate fund
managers working at the upper echelons of the risk curve the
roundtable participants agreed that Europe would be home to
some very big deals in 2015.
“We will be looking back on these large transactions, as
more equity needs to be put to work in the next few years and
the dearth of opportunities available will mean it will have to
go in fairly large lumps.” says Harris. “The pressure on
managers to deploy multiple capital will be intense and
Heading to London
I think we will see a lot of portfolio transactions, multi
This chart shows how Asian investors dominate
sector, ABC grade, locations and countries.”
their own markets and went to gateway cities
Obviously these bigger ticket purchases will come
including London which attracted more
with their own inherent hazards and when asked what
investment from foreign actors than its own
PERE’s roundtable discussion will be about next year
domestic market
the participants all responded with one word, risk.
Domestic
Foreign
“We may well be discussing more deals next year
Central London
but
with regards to the risk and whether or not firms
Manhattan (NY)
have
taken excessive risk to get that capital deployed,”
Los Angeles
says Hampton. “I think some managers will be under
Singapore
24% of global
pressure to put capital to work and in turn investors are
San Francisco
investment
getting more anxious about the investment guidelines
volumes
Toyko CBD
are and what the restrictions are, so it will be about how
Hong Kong
the capital is deployed over the year and whether or
 Europe
Paris CBD
 US
not that looks sensible or whether they are pushing the
Frankfurt
 Asia Pacific
leveraging. Equity has been stealing the headlines over
0
25
50
100
125
150
the last year but slowly but surely the leverage markets
are really starting to gather more momentum.”
*investment volumes exclude land, residential and hotel transactions
European fund managers have 12 months to show
Source: DTZ
that they are investing wisely.
58
PERE | APR 2015
Co-located on 19 June with:
PERE RESIDENTIAL FORUM
EUROPE 2015
For the world’s private real estate markets
17-18 June |Marriott Grosvenor Square, London
Europe's biggest private real estate conference is back. Join over 300 senior professionals
from across Europe to examine the critical factors, trends and opportunities affecting the
industry. Gain insight from your peers and share experiences of the current market and
the challenges that lie ahead.
Leading speakers include:
Goodwin Gaw,
Founder & Managing
Partner,
Gaw Capital Partners
Audrey Klein,
Senior Managing Director
Head of Fund Raising and
Business Development,
Aerium Finance
Aref Lahham,
Managing Director,
Orion Capital Partners
Anthony Myers,
Senior Managing Director,
Head of Real Estate Europe,
Blackstone
Andrew Rich,
Fund Manager,
TIAA Henderson Real Estate
Rob Wilkinson,
Chief Executive Officer,
AEW Europe
Book your
place today:
Online
www.perenews.com/
europesummit
Lead Sponsors:
Email
[email protected]
Phone
+44 (0)207 566 5445
Co-Sponsors:
Capital Watch
Capital Watch
Each month, PERE publishes Capital Watch, a proprietary list of value-added and opportunistic real estate fundraising activity.
Capital Watch has two sections: funds in the market/coming to market and funds closed in the current year. Where possible, we
have sought to confirm this information with the fund managers themselves. If you would like to contribute to Capital Watch, please
e-mail us at [email protected]. All contributions will be treated in the strictest confidence.
Source: PERE and PERE Research & Analytics
FUNDS IN MARKET/COMING TO MARKET
FIRM
Global funds
Angelo Gordon
Astrum Investment Management
Beacon Capital Partners
The Blackstone Group
Brookfield Asset Management
Century Bridge Capital
DLJ Real Estate Capital Partners
Fortress Investment Group
Greenfield Partners
Meadow Partners
Morgan Stanley Real Estate Investing
Muehler International
Oaktree Capital Management
TPG Capital
Westbrook Partners
Westport Capital Partners
FUND
HEADQUARTERS
STRATEGY
CLOSE
AG Realty Fund IX
Astrum Fund II
Beacon Capital Strategic Partners VII
Blackstone Real Estate Partners VIII
Brookfield Strategic Real Estate Partners 2
Century Bridge China Real Estate Fund II
DLJ Real Estate Capital Partners V
Fortress Real Estate Opportunities Fund II
Greenfield Acquisition Partners VII
Meadow Real Estate Fund III
Morgan Stanley Real Estate Fund VIII Global
Muehler Real Estate Fund I
Oaktree Real Estate Opportunities Fund VII
TPG Real Estate II
Westbrook Real Estate Fund X
WCP Real Estate Fund IV
New York
Los Angeles
Boston
New York
Toronto
Beijing New York
New York
South Norwalk (CT)
New York
New York
Calabasas (CA)
Los Angeles
Fort Worth (TX)
New York
Wilton (CT)
Global diversified
Global sale-leaseback
Global office
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Global diversified
Launched
Launched
Launched
Launched
Launched
Launched
Interim
Interim
Interim
Interim
Interim
Launched
Launched
Launched
Interim
Interim
Global funds subtotal
Notes: (1) Amounts converted from euros, pounds and Australian dollars at latest exchange rates.
(2) Items in bold represent new additions to the list.
Americas funds
Florida Real Estate Value Fund II
5 Stone Green Capital Real Estate Fund
Abacus Multi-family Partners III
Adler Kawa Real Estate Fund III
Miami
New York
New York
Miami Beach
Alcion Ventures
AllianceBernstein
ALTO Real Estate Funds
American Real Estate Partners
Arden Gorup
Alcion Real Estate Fund III
AllianceBernstein U.S. Real Estate Partners II
ALTO Real Estate Investment Fund 2
Strategic Office Fund
Arden Real Estate Partners Fund II
Boston
New York
Tel Aviv
Herndon (VA)
Philadelphia
Ares Management
Argosy Capital
Astrum Investment Management
Ares US Value Enhancement Fund VIII
Argosy Real Estate Partners III
Astrum Fund I
New York
Wayne (PA)
Los Angeles
Avanath Capital Management
Avanti Properties Group
AVP Advisors
Banner Apartments
BAP Capital
BayNorth Capital
Bell Partners
Berkshire Property Advisors
BKM Capital Partners
Blue Vista Capital Management
Blue Vista Capital Management
Boxer Property Management
Bridge Investment Group Partners
Irvine (CA)
Winter Park (FL)
Los Angeles
Northbrook (IL)
Miami
Boston
Greensboro (NC)
Boston
Irvine (CA)
Chicago
Chicago
Houston
Salt Lake City
Bridge Investment Group Partners
Brightside Investment Group
Brilla Capital
Brookwood Financial Partners
Buchanan Street Partners
Cantor Partners
CapRidge Partners
Carroll Organization
CBRE Global Investors
Centennial Holdings
CenterSquare Investment Management
Avanath Affordable Housing II
Avanti Strategic Land Investors VIII
American Value Partners Fund II
Banner Essex Strategic Apartment Fund II
BAP Realty Fund I
BayNorth Capital Appreciation Fund
Bell Institutional Fund V
Berkshire Multifamily Value Fund III
BKM Industrial Value Fund I
Blue Vista Real Estate Partners IV
Blue Vista Student Housing 5
Boxer Property Fund III
ROC Multifamily and Commercial Office
Fund III
ROC Seniors Housing & Medical Properties Fund
Brightside Hotel Fund
Bricapital-IGS Fund
Brookwood U.S. Real Estate Fund
TCW/Buchanan Fund VI
Cantor Real Estate Income & Opportunity Fund II
CapRidge Partners II
Carroll Multifamily Real Estate Fund III
CBRE Strategic Partners US Value VII
Centennial Real Estate Fund IV
CenterSquare Value-Added Fund III
China Orient Asset Management / Great Eagle
CityView
CityView / Lincoln Property
Clarion Partners
Colony Capital
Columbia Pacific Advisors
Continental American Properties
Conundrum Capital
Cornerstone Real Estate Advisors
Covenant Capital Group
Coventry Real Estate Advisors
CrossHarbor Capital Partners
China Orient US Property Fund
CityView Southern California Fund II
N/A
Campus Clarion Student Housing Partners
Colony Realty Partners IV
Columbia Pacific Real Estate Fund 2
ConAm Real Estate Fund I
Q Residential Multi-Family Private Equity Fund IV
Cornerstone Real Estate Fund X
Covenant Apartment Fund VIII
Coventry Real Estate Fund IV
Crossharbor Institutional Partners 2014
PERE | APR 2015
TARGET (M)
$0
$0
$0
$0
$0
$0
$84
$145
$120
$300
$1,000
$0
$0
$0
$693
$250
$1,500
$250
$1,000
$13,000
$7,000
$400
$750
$1,000
$750
$400
$3,000
$500
$3,000
$2,000
$2,000
$500
$2,592
13th Floor Investments
5 Stone Green Capital
Abacus Capital Group
Adler Kawa Real Estate Advisors
60
TOTAL
CLOSED (M)
Salt Lake City
Atlanta
Miami
Beverly (MA)
Newport Beach (CA)
St. Petersburg (FL)
Austin (TX)
Atlanta
Los Angeles
Atlanta
Plymouth Meeting
(PA)
Beijing
Los Angeles
Los Angeles / Dallas
New York
Santa Monica (CA)
Seattle
San Diego
Toronto
Hartford (CT)
Nashville (TN)
New York
Boston
Florida diversified
US diversified
US multifamily
US industrial and
hospitality
US, Canada diversified
US diversified
US retail
US office
US office and
hospitality
US diversified
US diversified
SoCal mixed-use
properties
US multifamily
US diversified
US diversified
US multifamily
Caribbean diversified
US diversified
US multifamily
US multifamily
US industrial
US diversified
US student housing
US office
US multifamily
Launched
Interim
Interim
Launched
$0
$8
$198
$0
$150
$200
$300
$100
Interim
Interim
Interim
Launched
Launched
$269
$60
$33
$0
$0
$600
N/A
$100
$75
$250
Interim
Interim
Interim
$490
$45
$38
$750
$150
$50
Interim
Launched
Launched
Interim
Launched
Launched
Launched
Interim
Launched
Launched
Launched
Launched
Launched
$110
$0
$0
$35
$0
$0
$0
$471
$0
$0
$0
$0
$0
$200
$350
$500
$50
$175
$300
$300
$400
$200
$400
$250
$100
$750
US senior housing
US hotel
Mexico hospitality
US diversified
US diversified
US diversified
US office
US multifamily
US diversified
US residential
US diversified
Interim
Interim
Launched
Interim
Interim
Interim
Launched
Interim
Interim
Interim
Interim
$41
$100
$0
$560
$76
$100
$0
$8
$944
$132
$93
$450
$350
$200
$700
$600
$500
$100
$50
$1,500
$300
$500
US office
California residential
Eastern US multifamily
US student housing
US diversified
US diversified
US multifamily
Canada multifamily
US diversified
US multifamily
US retail
US diversified
Launched
Interim
Launched
Interim
Interim
Interim
Launched
Interim
Interim
Launched
Launched
Interim
$0
$100
$0
$115
$225
$63
$0
C$123
$116
$0
$0
$150
$1,000
$200
$200
$500
$490
$300
$100
C$250
$750
$300
$250
$500
$0
$0
$0
$50
$114
$1,250
$200
$500
$200
$250
Interim
Interim
Launched
Launched
Interim
Interim
Interim
Interim
Launched
Launched
Launched
Launched
Interim
Launched
$62
$325
$0
$0
$83
$216
$43
$140
$0
$0
$0
$0
$20
$0
$125
$300
$125
$300
$200
$550
$250
$500
$750
$350
$300
$200
$100
$250 - 500
Launched
Launched
Launched
Interim
Interim
Launched
Interim
Interim
Interim
Launched
Launched
Interim
Interim
Interim
Interim
Launched
$0
$0
$0
$52
$67
$0
$285
$32
$146
$0
$0
$50
$185
$16
$47
$0
$750
$750
$500
$100
$125
$100
$430
$75
$600
$200
$300
$200
$500
$75
$250
$200
Interim
Interim
Launched
Interim
Launched
Launched
Launched
Launched
Launched
Launched
Interim
$35
$55
$0
$159
$0
$0
$0
$0
$0
$0
$100
$300
$75
$1,000
N/A
$300
$350
$500
$255
$750
$500
$200
Launched
Interim
Interim
Launched
Launched
Launched
Launched
Interim
$0
$316
$49
$0
$154
$0
$0
$25
$75
$500
$300
$100
$179
$700
$250
$50
Interim
Launched
Interim
Interim
$102
$0
$227
$30
$150
$250
$500
$50
Launched
Launched
Launched
Interim
Interim
Interim
Interim
Launched
Interim
Interim
Launched
Interim
$0
$0
$0
$45
$8
$71
$24
$0
$150
$30
$0
$176
$250
$150
$300
$250
$200
$300
$75
$100
$500
$100
$500
$400
Interim
Interim
Launched
Interim
Interim
Interim
Launched
Launched
Interim
Interim
$35
$300
$0
$30
$110
$115
$0
$0
$45
$80
$100
$600
$500
$150
R$2,000
N/A
$300
$250
$150
$600
HEADQUARTERS
STRATEGY
CLOSE
Crow Holdings Capital Partners
Crown Capital
Dalfen America
DVO Real Estate
Easterly Partners
Dallas
St. Louis
Quebec
New York
Washington, DC
Elion Partners
ElmTree Funds
Equity Global Management
Equus Capital Partners
Ethika Investments
Federal Capital Partners
Forge Capital Partners
Gaw Capital Partners
GEM Realty Capital
Gerding Edlen
Gerrity Group
Glenmont Capital
Graycliff Capital Partners
Grosvenor Investment Management
Crow Holdings Realty Partners VII
Crown Capital Opportunities Fund
Dalfen America Opportunity XV
DVO Gap Equity Fund
U.S. Government Properties Income & Growth
Fund II
Elion Real Estate Fund III
ElmTree Net Lease Fund II
EGM Income & Growth Fund V
BPG Investment Partnership X
Ethika Diversified Opportunity Real Estate Fund
FCP Realty Fund III
Forge Real Estate Partners III
Gaw Capital US Fund
GEM Realty Fund V
Gerding Edlen Green Cities III
Gerrity Retail Fund 2
Glenmont Real Estate Partners IV
Graycliff Capital Southeast Apartment Fund
Grosvenor US Multifamily Fund
Aventura (FL)
St. Louis
Chicago
Philadelphia
Los Angeles
Chevy Chase (MD) Tampa
Los Angeles
Chicago
Portland
Solana Beach (CA)
New York
Northbrook (IL)
Philadelphia
GTIS Partners
GTIS Partners
H.I.G. Realty
Hackman Capital
Halstatt Real Estate Partners
Hamilton Point Investments
Hammes Company Health Care
Harbor Group International
Heitman
Henderson Global Investors
Hunt Investment Management
Integrated Capital
Invesco Real Estate
Iron Stone Strategic Capital
Ivy Equities
Jamestown Latin America
GTIS Brazil Real Estate Fund III
GTIS US Residential Strategies Fund II
H.I.G. Realty Partners III
Hackman Capital Real Estate Fund
Halstatt Real Estate Partners Fund II
HPI Real Estate Opportunity Fund IV
Hammes Partners II
HGI Opportunity Select Fund IV
Heitman Value Partners III
Henderson Student Housing Fund
Hunt Value Add Fund IV
Integrated Capital Hospitality Fund II
Invesco US Value-Add Fund IV
Iron Stone Real Estate Fund III
Ivy Real Estate Fund III
Jamestown Latin America Fund
New York
New York
New York
Los Angeles
Naples (FL)
Old Lyme (CT)
Brookfield (WI)
Norfolk (VA)
Chicago
London
Conshohocken (PA)
Los Angeles
Dallas
Philadelphia
Montvale (NJ)
Atlanta
JDM Partners
John Buck Company
Kayne Anderson Capital Advisors
Kennedy Wilson
KHP Capital
Kisco Senior Living
L&L Holding
LandBaron Investment
LaSalle Investment Management
Lazard Freres
LCN Capital Partners
JDM Partners Opportunity Fund II
JBC Fund V
Kayne Anderson Real Estate Partners IV
Kennedy Wilson Real Estate Fund V
KHP Fund 4
Kisco Senior Living Communities Fund I
N/A
Western States Distressed Land Fund
LaSalle Income & Growth Fund VII
Lazard Freres Strategic Realty Investors III
LCN Capital Partners North America SaleLeaseback Fund
Lingerfelt Commonwealth Value Fund II
Lubert-Adler Real Estate Fund VII
Lyrical-Antheus Realty Partners IV
Magellan Industrial Fund II
Magna Hotel Fund V
N/A
Mariner Real Estate Partners IV
MKRO I
Phoenix
Chicago
Los Angeles
Beverly Hills
San Francisco
Carlsbad (CA)
New York
Las Vegas
Chicago
New York
New York
US diversified
US diversified
US, Canada diversified
US multifamily
US government
properties
US diversified
US diversified
US development
US diversified
US hotel
US diversified
US diversified
US office, hospitality
US diversified
US diversified
US retail
US multifamily, hotel
US diversified
US multifamily
development
Brazil diversified
US residential
US diversified
US industrial
US diversified
US diversified
US healthcare
US diversified
US diversified
US student housing
US multifamily, retail
US hospitality
US diversified
US diversified
US diversified
Latin America
diversified
US diversified
US diversified
US diversified
US diversified
US diversified
US senior housing
New York City office
US distressed land
US diversified
US healthcare
US sale-leaseback
properties
US diversified
US diversified
US multifamily
California industrial
US hotel
US distressed
US diversified
New York City
diversified
West Coast office
US diversified
US diversified
Chicago multifamily
Lingerfelt CommonWealth Partners
Lubert-Adler Partners
Lyrical-Antheus Realty Partners
Magellan Group
Magna Hospitality
Marathon Real Estate
Mariner Real Estate Management
Massey Knakal / RiverOak
Menlo Equities
Meridian Group
Mesirow Financial
Michigan Avenue Real Estate Investors
The Milestone Group
Mount Auburn Capital
New Boston Fund
Noble Investment Group
Northland Investment
Oak Street Real Estate Capital
Oakwood Real Estate Partners
Occasio Funds
O'Connor Capital
Origin Capital Partners
Pacific Coast Capital Partners
Paladin Realty Partners
Menlo Realty Partners V
Meridian Realty Partners II
Mesirow Financial Real Estate Value Fund II
Michigan Avenue Investors Real Estate
Opportunity Fund II
Milestone Real Estate Investors IV
Mount Auburn Multifamily Real Estate Fund III
New Boston Real Estate Investment Fund VIII
Noble Hospitality Fund III
Northland Fund V
Oak Street Real Estate Capital Fund III
Oakwood Real Estate Partners Fund I
Occasio Growth Fund I
O'Connor Retail Partners
Origin Capital Fund II
PCCP Equity 7
Paladin Realty Latin American Investors IV
Palatine Capital Partners
Paramount Group
Parmenter Realty Partners
Pathfinder Partners
Pátria Investimentos
Patria Investimentos
Pearlmark Real Estate Partners
Penwood Real Estate Investment Management
Phillips Edison
Praedium Group
Palatine Real Estate Fund II
Paramount Group Real Estate Fund VII
Parmenter Realty Fund V
Pathfinder Partners Opportunity Fund V
Pátria Real Estate III FIP
Patria Brazil Retail Property Fund
Pearlmark Multifamily Partners II
Penwood Select Industrial Partners IV
Phillips Edison Strategic Investment Fund III
Praedium Multifamily Value Fund VIII
Glen Allen (VA)
Philadelphia
Englewood (NJ)
Los Angeles
Warwick (RI)
New York
Leawood (KS)
New York / Stamford
(CT)
Palo Alto (CA)
Bethesda (MD)
Chicago
Northbrook (IL)
New York
Los Angeles
Boston
Atlanta
Newton (MA)
Chicago
Denver
Denver
New York
Chicago
Los Angeles
Los Angeles
New York
New York
Miami
San Diego
São Paulo
São Paulo
Chicago
West Hartford (CT)
Baltimore
New York
US multifamily
US multifamily
US diversified
US diversified
US diversified
US diversified
US diversified
US resort properties
US, Mexico retail
US diversified
US diversified
Latin America
diversified
US multifamily
US office
US diversified
US distressed
Brazil diversified
Brazil retail
US residential
US industrial
US multifamily
US multifamily
APR 2015 | PERE
61
Capital Watch
TARGET (M)
Launched
Launched
Launched
Interim
Interim
FUND
Figures are through 17 March 2015
TOTAL
CLOSED (M)
FIRM
Capital Watch
TOTAL
CLOSED (M)
TARGET (M)
Interim
Interim
Interim
Launched
$100
$302
COP60,000
$0
$300
$500
COP100,000
$200
Launched
Interim
$0
$40
$500
$150
Interim
FIRM
FUND
HEADQUARTERS
STRATEGY
CLOSE
PRP Real Estate Investment
Prudential Real Estate Investors
Quadras
Ram Real Estate
Perseus Realty Partners III
Senior Housing Partners V
Futuro Inmobiliario
Ram Realty Partners IV
US diversified
US senior housing
Colombia residential
US diversified
Ramius Capital Group
Redwood Real Estate
RCG Premier Equity Fund
Redwood-Kairos Real Estate Value Fund IV
US diversified
US diversified
Regional Real Estate Investment
Develop-DC
Related Companies
Related Companies
Ridgewood Real Estate Partners
Rockpoint Group
Rockwood Capital
RSF Partners
Seavest Healthcare Properties
Second City Capital Partners
Sentinel Real Estate
Related Energy-Focused Real Estate Fund
Related Real Estate Recovery Fund II
Ridgewood Real Estate Fund I
Rockpoint Real Estate Fund V
Rockwood Capital Real Estate Partners IX
RSF Partners VI
Seavest Properties Fund IV
Second City Real Estate II
Gotham City Residential Partners II
Washington, DC
Madison (NJ)
Bogota
Palm Beach Gardens
(FL)
New York
Rancho Santa
Margarita (CA)
Plymouth Meeting
(PA)
New York
New York
Florham Park (NJ)
Boston
San Francisco
Dallas
White Plains (NY)
Vancouver
New York
Shorenstein Properties
Singerman Real Estate
Square Mile Capital Management
Stockbridge Capital Partners
Stoltz Real Estate Partners
T2 Capital Management
TerraCap Partners
Thackeray Partners
The Carlyle Group
The Wolff Company
Thor Equities
Shorenstein Realty Investors XI
SRE Opportunity Fund II
Square Mile Partners IV
Stockbridge Value Fund II
Stoltz Real Estate Fund V
T2 Opportunity Fund IV
TerraCap Partners Fund III
Thackeray Partners Realty Fund IV
Carlyle Realty Partners VII
Wolff Real Estate Partners III
Thor Urban Operating Fund IV
San Francisco
Chicago
New York
San Francisco
Bala Cynwyd (PA)
Wheaton (IL)
Bonita Springs (FL)
Dallas
Washington, DC
Scottsdale (AZ)
New York
Timbercreek Asset Management
Timbercreek US Multi-Residential Opportunity
Fund I
True North Real Estate Fund III
Tucker Development & Acquisition Fund II
Turner Real Estate Fund III
Unico Partners I
Velocis Fund II
Vinci Real Estate Fund
Virtú Multifamily Opportunity Fund III
Virtus Real Estate Capital
Waterton Residential Property Venture XII
Waypoint Fund II
Western National Realty Fund III
WHI Real Estate Partners III
White Oak Real Estate Opportunity Fund
True North Management
Tucker Development
Turner Real Estate Investments
Unico Property
Velocis
Vinci Partners
Virtú Investments
Virtus Real Estate Capital
Waterton Associates
Waypoint Real Estate Group
Western National Group
WHI Capital Partners
White Oak Partners
Toronto
Washington, DC
development
US multifamily
US distressed
US residential
US diversified
US diversified
US diversified
US medical office
US diversified
New York City
multifamily
US office
US diversified
US diversified
US diversified
US diversified
US diversified
Florida diversified
US diversified
US diversified
US multifamily
US mixed-use
properties
US multifamily
White Plains (NY)
Highland Park (IL)
Newport Beach (CA)
Seattle
Dallas
Rio de Janeiro
Larkspur (CA)
Austin (TX)
Chicago
Oakland (CA)
Irvine (CA)
Chicago
Westerville (OH)
US diversified
US diversified
US diversified
US office
US diversified
Brazil office, retail
US multifamily
US diversified
US multifamily
US residential
California multifamily
US diversified
US multifamily
$35
$150
Launched
Interim
Launched
Interim
Interim
Interim
Interim
Launched
Launched
$0
$117
$0
$1,400
$515
$50
$16
$0
$0
$300
$750
$150
$2,500
$750
$200
$500
$200
$400
Interim
Launched
Interim
Interim
Interim
Launched
Launched
Launched
Interim
Launched
Launched
$1,200
$0
$255
$184
$55
$0
$0
$0
$2,298
$0
$0
$1,500
$250
N/A
$400
$250
N/A
$250
$250
$4,000
$800
$400
Interim
C$67
C$200
Interim
Interim
Interim
Interim
Launched
Interim
Interim
Launched
Interim
Launched
Launched
Interim
Interim
$70
$25
$30
$100
$0
$225
$17
$0
$250
$0
$0
$123
$35
$650
$250
$52
$300
$300
$650
$50
$500
$500
$500
$300
$250
$200
Americas funds subtotal
Figures are through 17 March 2015
Europe funds
$16,593
AEW Capital Management
Angelo, Gordon & Co
Apache Capital Partners
Arminius Advisors
AXA Real Estate
AXA Real Estate
Benson Elliot Capital Management
BLG Capital
BPT Asset Management
AEW Europe Value Investors Fund
AG Europe Realty Fund
Apache Prime Central London Res. Opp. Fund
Arminius Real Estate Opportunity Fund II
AXA Real Estate Alpha Plus
Pan European Value Added Fund
Benson Elliot Real Estate Partners Fund IV
BLG Turkish Real Estate Fund II
BPT Baltic Opportunity Fund
Boston
New York
London
Luxembourg
Paris
Paris
London
Istanbul
Copenhagen
Bridges Ventures
Brockton Capital
CapMan Real Estate
CarVal Investors
Catalyst Capital
Catella Real Estate / Bank Sarasin
Bridges Property Alternatives Fund
Brockton Capital Fund III
CapMan Nordic Real Estate Fund
CarVal Investors Europe Real Estate Partners
Catalyst European Property Fund II
Sarasin Sustainable Properties - Europe
London
London
Helsinki/Stockholm
Minnetonka (MN)
London
Stockholm / Basel
CBRE Global Investors
Composition Capital Partners
European Shopping Centre Fund
Europe III Sustainable Yield Fund
The Hague
Amsterdam
Cordea Savills
Cordea Savills
Curlew Capital
ECE Real Estate Partners
Cordea Savills Nordic Logistics Fund
Prime London Residential Fund II
Curlew Student Trust
ECE European Prime Shopping Centre Fund II
London
London
London
Hamburg
F&C REIT
Forum Partners Investment Management
Frogmore Property
Genesta Property
Harbert Management
Heitman
Henley Investments
Impax Asset Management
International Campus
Devonshire UK Opportunities Fund
Forum European Realty Income IV
Frogmore Real Estate Partners III
Genesta Nordic Real Estate Fund II
Harbert European Real Estate Fund IV
Heitman European Property Partners V
Henley European Logistics Real Estate Fund
Climate Property Fund II
International Campus Student Housing Fund
London
London
London
Stockholm
Birmingham (AL)
Chicago
Surrey (UK)
London
Munich
Internos Real Investors
Internos Hotel Real Estate Fund
London
62
PERE | APR 2015
Europe office
Europe diversified
London residential
Germany distressed
Europe distressed
Europe diversified
Europe diversified
Turkey diversified
Baltic States
commercial
UK diversified
UK diversified
Nordic diversified
UK, France diversified
Europe diversified
Europe sustainable
properties
German retail
Northwestern Europe
diversified
Nordic Logistics
London multifamily
UK student housing
European shopping
mall
UK diversified
Europe diversified
UK diversified
Nordic diversified
Europe diversified
Europe diversified
Europe logistics
UK diversified
German student
housing
European hotel
Interim
Interim
Launched
Launched
Launched
Launched
Interim
Launched
Launched
€ 235
$52
€0
€0
€0
€0
€ 53
€0
€0
€ 700
$500
€ 75
€ 400
€ 500
€ 1,000
€ 600
€ 200
€100
Interim
Launched
Interim
Interim
Launched
Interim
£120
£0
€ 75
€ 256
€0
€ 114
£200
£500
€ 300
€ 500
€ 150
€ 500
Interim
Launched
€ 231
€0
€ 750
€ 250
Interim
Interim
Interim
Interim
€ 300
£33
£40
€ 500
N/A
£150
£250
€ 750
Launched
Interim
Interim
Launched
Launched
Launched
Launched
Launched
Interim
£0
€ 60
£204
€0
€0
€0
€0
£0
€ 50
£300
€ 350
£350
€ 250
€ 500
€ 500
€ 240
£300
€ 250
Interim
€ 210
€ 300
TARGET (M)
Launched
Launched
Interim
Interim
€0
$0
€ 350
€ 100
€ 400
$150
€ 750
€ 200
Launched
Launched
Launched
Launched
Interim
Launched
Launched
Launched
Interim
£0
€0
€0
€0
€ 40
€0
€0
€0
€ 100
£225
€ 700
€ 300
€ 1,100
€ 300
€ 250
€ 500
€ 500
€ 300
Launched
Launched
Interim
Launched
€0
$0
£135
€0
N/A
$150
£350
€ 1,000
Interim
Interim
Interim
Launched
NOK57
€ 370
£65
€0
NOK1,700
€ 450
£100
€ 250
FUND
HEADQUARTERS
STRATEGY
CLOSE
Invesco Real Estate
Investment Management Group
JPMorgan Asset Management
LCN Capital Partners
European Value Add Fund
Russia Development Fund II
JPMorgan European IP Fund III
LCN Capital Partners Europe Sale-Leaseback
Fund
Mercer Real Estate Partners II
Niam Nordic Fund VI
Optimum Evolution Fund SIF Property 3
Patron Capital V
Peakside Real Estate Fund II
Pradera Turkish Retail Fund
RedTree Capital Fund I
Revetas Fund II
Revetas Capital Recovery Fund I
Dallas
Moscow
New York
New York
London
Leeds (UK)
London
London
Europe diversified
Russia diversified
Europe office
Europe sale-leaseback
properties
UK diversified
Nordic diversified
Germany multifamily
Europe diversified
Europe diversified
Turkey retail
UK, France diversified
Europe diversified
Central / Eastern
Europe diversified
Europe diversified
UK diversified
UK multifamily
Europe diversified
Oslo
London
London
Hamburg
Norway retail, office
Europe diversified
London diversified
Poland, Czech retail
Rockspring Property Investment Managers
ScarWyn Capital
Threadneedle Property Investments
Tristan Capital Partners
UNION Eiendomskapital
Valad Europe
Wainbridge
Warburg/Henderson Global Investors
Rockspring TransEuropean Property VI
Steeland Property Opportunity Fund
Threadneedle Low-Carbon Workplace Trust
European Property Investors Special
Opportunities 4
Union Real Estate Fund
Valad European Diversified Fund
Wainbridge Global Opportunities London
N/A
London
Stockholm
Luxembourg
London
London
London
London
London
London
Europe funds subtotal
Asia / RoW funds
Aetos Capital
AEW Asia
Altis Property Partners
Angelo, Gordon & Co
Arch Capital Management
Ashington Capital
Asia Investment Partners
Asia Pacific Land
ASK Group
Baring Private Equity Asia
BlackRock Real Estate
CBRE Global Investors
China Overseas Land and Investment/Industrial
and Commercial Bank of China
CLSA Capital Partners
Composition Capital Partners
Cordea Savills
Cube Capital
Dewan Housing Finance
Du Val Group
$4,165
Aetos Capital Asia Fund V
AEW Value Investors Asia Fund II
Altis Real Estate Equity Partnership III
AG Asia Realty Fund III
Arch Capital-TRG Asian Partners III
Ashington Development Fund III
AIP Japan Fund V
N/A
ASK India Real Estate Special Opportunities Fund
Baring Asia Real Estate Fund
BlackRock Asia Fund V
CBRE Asia Value Fund
Harmony China Real Estate Fund II
New York
Singapore
Sydney
New York
Hong Kong
Sydney
Tokyo
Hong Kong
Mumbai
Hong Kong
New York
Los Angeles
Hong Kong
Fudo Capital III
Asia III Opportunistic Fund
Cordea Savills Greater Tokyo Office Fund
Cube Asia Frontier Fund
DHFL Venture Capital Fund II
Du Val Opportunity Fund
Hong Kong
Hong Kong
London
London
Mumbai
Auckland (NZ)
Everbright Ashmore China Real Estate Fund II
Forum Asian Realty Income IV
Fusion Africa Real Estate Development Fund
GreenOak Asia II
Heitman Asia-Pacific Property Investors
India Advantage Fund II
Japan Urban Residential Club II
InfraRed NF China Real Estate Fund II
IL&FS India Realty Fund III
IHS Fund II
ICD-Brookfield Dubai Real Estate Fund
NBAD Investment Management
Novare Equity Partners
Orange Grove Capital Management
Orion Partners
Pamfleet Group
Phatisa
PineBridge Investments
Portman Holdings
Prologis
India Real Estate Opportunities Fund II
Jones Lang LaSalle Residential Opportunities
Fund II
JPMorgan India Property Fund II
KaiLongRei Commercial Real Estate USD Fund I
KaiLong Greater China Real Estate Fund
LIDIS Real Estate VI
Long Hills China Retail Real Estate Fund I
Momentum Africa Real Estate Fund
Moonbridge Capital Greater China Development
Fund
Moss Capital Australian Real Estate
Opportunities Fund
N/A
Novare Africa Property Fund II
N/A
Ostara Japan Aged-Care Real Estate Fund 3
Pamfleet Real Estate Fund II
Pan African Housing Fund
PineBridge GCC Real Estate Fund I
Portman India Residential Fund
Prologis Japan Development Fund
Red Fort Capital
Rose Rock Capital
RRJ Capital
Red Fort India Real Estate Fund III
Rose Rock Capital Fund
RRJ China Real Estate Fund
Everbright Ashmore
Forum Partners Investment Management
Fusion Group
GreenOak Real Estate
Heitman
ICICI Venture
IDERA Capital Management
InfraRed Capital Partners
Infrastructure Leasing & Financial Services
International Housing Solutions
Investment Corporation of Dubai / Brookfield
Asset Management
IREO
Jones Lang LaSalle
JPMorgan Asset Management
KaiLongRei Investment
KaiLongRei Investment
LIDIS
Long Hills Capital
Momentum Global Investments
Moonbridge Capital
Moss Capital
Hong Kong
London
Nairobi
New York
Chicago Mumbai
Tokyo
London
Mumbai
Johannesburg
Dubai / Toronto
Asia diversified
Asia diversified
Australia diversified
Asia diversified
Asia diversified
Australia development
Japan senior housing
Tokyo residential
India residential
Asia diversified
Asia diversified
Asia Diversified
China residential
development
Asia diversified
Asia diversified
Japan office
Asia diversified
India residential
New Zealand /
Australia diversified
China diversified
Asia diversified
Africa diversified
Asia diversified
Asia diversified
India residential
Japan residential
China diversified
India diversified
South African housing
Dubai diversified
Launched
Launched
Interim
Launched
Interim
Launched
Launched
Interim
Interim
Interim
Launched
Interim
Interim
$0
$0
A$320
$0
$238
$0
¥0
$70
$50
$250
$0
$261
$230
$1,000
$500
A$300
$625
$500
$160
¥30,000
$140
$200
$500
$1,000
$1,000
$500
Interim
Launched
Launched
Launched
Launched
Launched
$823
$0
$0
$0
$0
$0
$850
$300
$200
$150
$200
$800
Interim
Launched
Launched
Launched
Launched
Launched
Interim
Interim
Launched
Interim
Launched
$100
$0
£0
$0
$0
$0
$40
$250
$0
$170
$0
$300
$500
£100
$500
$500
$200
JPY6000
$500
$750
$360
$1,000
New York
Chicago
India development
India residential
Launched
Launched
INR0
INR0
INR10000
INR3000
New York
Shanghai
Shanghai Sydney
Hong Kong
London
Hong Kong
India residential
China diversified
China diversified
Australia diversified
China diversifed
Africa diversified
China diversified
Interim
Interim
Interim
Launched
Launched
Interim
Launched
$75
$100
$200
$0
$0
$32
$0
$500
$300
$200
$400
$400
$250
$400
Sydney
Australia diversified
Launched
$0
$150
Abu Dhabi
Bellville (South Africa)
Singapore
Hong Kong
Hong Kong
Mauritius
New York
Atlanta
Singapore
Middle East diversified
Africa diversified
Japan diversified
Japan healthcare
Asia diversified
Africa diversified
Middle East diversified
India residential
Japan industrial
development
India diversified
China diversified
China residential
Launched
Interim
Launched
Launched
Interim
Interim
Interim
Launched
Launched
$0
$150
$0
$0
$215
$42
$140
$0
$0
$300
$250
$500-1000
$250
$350
$100
$200
$200
$600
Launched
Launched
Launched
$0
$0
$0
$500
$2,000
$500
New Delhi
New York
Hong Kong
APR 2015 | PERE
63
Figures are through 17 March 2015
Mercer Real Estate Partners
Niam
Optimum Asset Management
Patron Capital
Peakside Capital
Pradera Europe
RedTree Capital
Revetas Capital
Revetas Capital
Capital Watch
TOTAL
CLOSED (M)
FIRM
Capital Watch
FIRM
FUND
HEADQUARTERS
STRATEGY
CLOSE
Saigon Asset Management / RNG Invest
SEB Asset Management
SilkRoad Property Partners
SP-aktif Properties
New Vietnam Smart Money Fund
SEB Asian Property II
SilkRoad Asia Value Partners
Terra Optima One
Ho Chi Minh City
Stockholm
Singapore
Bellville (South Africa)
Launched
Interim
Interim
Launched
STANLIB
STANLIB Africa Direct Property Development
Fund
N/A
Sumitomo Logistics Real Estate Fund
Talana Impact Fund
Redwood China Logistics Fund
Redwood Japan Logistics Fund
Vermilion Opportunity Fund
N/A
Johannesburg
Vietnam diversified
Asia diversified
Asia diversified
Sub-Saharan
commercial land
Africa retail
Interim
Hong Kong
Tokyo
Cape Town
Singapore
Singapore
Tokyo
Perth (AU)
China diversified
Japan logistics
South Africa diversified
China logistics
Japan logistics
Japan office
Australia diversified
Launched
Interim
Launched
Interim
Interim
Launched
Launched
Starcrest Capital Partners
Sumitomo Corporation
Talana Capital Management The Redwood Group
The Redwood Group
Vermilion Capital Management
Warrington Property
TOTAL
CLOSED (M)
TARGET (M)
$0
€ 80
$230
ZAR0
$100
€ 200
$350
ZAR1,000
$50
$150
$0
¥25000
$0
€ 95
$237
¥0
A$0
$300
¥50,000
$200
CNY2,500
$500
¥15,000
A$75
Asia / RoW funds subtotal
Fund of funds/Secondaries
Advanced Capital
Commonfund
FLAG Capital
Franklin Templeton Investments
Hawkeye Partners
Investors Diversifed Realty
IVG Immobilien
Landmark Partners
LGT Clerestory
Madison International Realty
Metropolitan Real Estate Equity Management
Partners Group
Penn Square Real Estate Group
Portfolio Advisors
Versus Capital Advisors
$4,589
AC RE Global Opportunity Fund I
Commonfund Strategic Solutions Real Estate
Opportunity Fund 2014
FLAG Real Estate Partners III
Franklin Templeton Private Real Estate Fund II
Hawkeye Partners Scout Fund II
Investors Diversified Realty Fund II
IVG Balanced Portfolio Asia
Landmark Real Estate Partners VII
Crown Small Cap Real Estate Fund II
Madison International Real Estate Liquidity
Fund VI
Metropolitan Real Estate Partners Secondaries &
Co-Investments Fund
Partners Group Global Real Estate 2013
TownSquare Real Estate Alpha Fund
Portfolio Advisors Real Estate Fund V
Versus Global Multi-Manager Real Estate Income
Fund
Milan
Wilton (CT)
Global diversified
US diversified
Launched
Interim
€0
$73
€ 300
$150
Stamford (CT)
New York
Austin (TX)
Cleveland
Bonn
Simsbury (CT)
New York
New York
Global fund of funds
Global fund of funds
US fund of funds
US fund of funds
Asia fund of funds
Global secondaries
Global fund of funds
Global diversified
Interim
Launched
Interim
Launched
Launched
Interim
Interim
Launched
$37
$0
$533
$0
$0
$670
$123
$0
$75
N/A
$750
$150
$475
$1,000
$400
$950
New York
Global secondaries
Interim
Zug (Switzerland)
Radnor (PA)
Darien (CT)
Greenwood Village
(CO)
Global fund of funds
Global fund of funds
Global fund of funds
Global fund of funds
Interim
Interim
Interim
Launched
Fund of funds/Secondaries subtotal
$70
$450
$300
$143
$196
$0
$1,000
$200
$400
$750
$2,145
TOTAL
$30,084
FUNDS CLOSED IN 2015
FIRM
Global funds
Starwood Capital Group
FUND
HEADQUARTERS
STRATEGY
Starwood Distressed Opportunity Fund X
Greenwich (CT)
Global diversified
Global funds subtotal
Americas funds
Ares US Value Enhancement Fund VIII
CIM Fund VIII
Harrison Street Real Estate Partners V
Hutensky Capital Partners Fund III
Pennybacker III
LaSalle Canadian Income & Growth Fund IV
MedProperties Investment Partners
New York
Los Angeles
Chicago
Hartford (CT)
Austin (TX)
Chicago
Dallas
Savanna Investment Management
Viking Partners
Savanna Real Estate Fund III
Viking Partners Fund III
New York
Cincinnati
US diversified
US diversified
US diversified
US retail
US diversified
Canada diversified
US healthcare
properties
US office
US diversified
Americas funds subtotal
Ares Management
Kames Capital
Moorfield Group
Revcap Advisors
Rockspring Property Investment Managers
Figures are through 17 March 2015
Siguler Guff
Morgan Stanley Alternative Investment
Partners
Fund of funds/Secondaries subtotal
2015 TOTAL
64
PERE | APR 2015
$5,000 Mar-15
$824
$2,410
$850
$117
$322
C$256
$95
$440
$84
$750
$2,000
$750
$250
$300
C$250
$150
Jan-15
Jan-15
Jan-15
Jan-15
Jan-15
Jan-15
Mar-15
$650 Jan-15
$84 Jan-15
$5,342
Ares European Real Estate Fund IV
Active Value Property Fund
Moorfield Real Estate Fund III
Kitty Hawk Capital Partners III
Rockspring UK Value Fund II
New York
London
London
London
London
Europe distressed
UK diversified
UK diversified
Europe diversified
UK diversified
Europe funds subtotal
Fund of funds/Secondaries
$5,600
$5,600
Ares Management
CIM Group
Harrison Street Real Estate Capital
Hutensky Capital Partners
Pennybacker Capital
LaSalle Investment Management
MedProperties Holdings
Europe funds
TOTAL
CLOSED (M) TARGET ($M) DATE
€ 1,300
£275
£250
£225
£342
€ 1,000
£250
£250
£200
£300
Jan-15
Mar-15
Jan-15
Feb-15
Jan-15
$2,993
Siguler Guff Distressed Real Estate Opportunities
Fund II
Phoenix Global Real Estate Secondaries Fund
II 2013
New York
Global diversified
$877
$750 Jan-15
New York
Global secondaries
$500
$500 Feb-15
$1,377
$15,312
5’ T
E1 UN
ER O
‘P ISC
TE D
O %
U 0
Q a2
r
fo
Guernsey
FUNDS
FORUM
2 0 1 5
Achieving stability
in a world of change
Growth opportunities, innovation and governance
Guernsey Funds Forum, 12pm Thursday 14 May, etc.venues, 155 Bishopsgate, London
Keynote
Moderator
More information
Visit the event website for full details:
guernseyfundsforum.com
Who should attend?
Guy Hands
Terra Firma
Alastair Stewart OBE
ITV News Presenter
Session topics
Panel 1: Meeting the needs of European private equity
•
•
•
•
Base Erosion and Profit Shifting (BEPS)
BVCA insights
Manager experiences of private placement under AIFMD
AIFMD passporting latest
Panel 2: Permanent capital - the future of investment entities
•
•
•
Regulation - current issues arising out of AIFMD, FATCA,
NMPI and CRS
Case studies covering the latest IPO innovations
Governance challenges
Partners
•
•
•
•
•
•
•
•
Investors
Fund promoters
Investment managers
Corporate finance advisers
Fund formation lawyers
Tax advisers
Fund auditors
Anyone launching a fund
Key stats
350+ attendees
16 exhibitors
Half day format
Excellent networking
Event schedule
12 pm
1.15 pm
5.00 pm
Lunch & registration
Start of forum
Drinks reception
A 30 year
track record
30 years as one of
Europe’s leading property
investment managers
With thanks to our clients and business
partners for their enduring support Rockspring celebrates 30 years of shared
success in European property investment
management.
Today, we are a fully independent professional
investment fiduciary, solely focused on
European real estate with €7.9 billion in funds
under management.
As our name suggests, we are committed to
offering our investors the ‘rock’ of a proven
track record combined with the ‘spring’ of
entrepreneurial thinking.
Share our journey at
www.rockspringpim.com/timeline
PERE
VOL 11 | ISSUE 3 | APR 2015