merry mipim - amazon s3...mipim property show, where thousands of men and women of real estate took...
TRANSCRIPT
VOL 9 | ISSUE 3 | APR 2013 | perenews.com
FOR THE WORLD’S PRIVATE REAL ESTATE MARKETS
MERRY MIPIMThe mood at the show was upbeat, but that was before Cyprus
A NEW ERAHow Brookfield is building its global opportunistic platform
LOGISTICALLY SPEAKINGA look at e-commerce’s impact on the industrial warehouse sector
MGPA FOR SALEThe firm behind Asia’s largest private real estate fund is on the block
A TALE OF TWO EUROPESHow the region is attracting investors for core and opportunistic plays
We advise on the full range of real estate funds, from multi-investor funds to joint ventures, club arrangements and separate accounts. Our wide-ranging expertise in tax and regulatory issues, as well as corporate, ERISA and bankruptcy law enables us to address the full complexity of investing in real estate. We combine broad private investment fund experience across the U.S., Europe and Asia with a leading real estate practice to offer our real estate fund clients innovation, expertise and efficiency.
2012 marks the seventh time in recent years that Goodwin Procter has won a PERE Law Firm of the Year award.
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GOODGoodwin Procter has been representing leading real estate investment managers, advisors and institutional investors for over 30 years
INVESTMENT
Times are a-changin’ Welcome to the April issue of PERE, which has a distinctly European flavor to it. That is due in part to our coverage of the annual MIPIM property show, where thousands of men and women of real estate took over Cannes for a whole week. Starting on page 38, we offer highlights of the most notable trends and news to come out of the event, as well as a diary of team PERE’s escapades.
Also, beginning on page 48, there is a special European roundtable discus-sion involving Morgan Stanley, CBRE, The Townsend Group and Goodwin Procter. That lively conversation should leave you clear on how people see the region at this moment in time.
It must be noted, however, that both of these events took place before Cyprus became front-page news. Had that country’s prob-lems been laid bare a little earlier, it is possible that the sentiment across the whole of the region might have been different.
That said, the themes covered in this issue likely will continue to play out whatever the outcome for Cyprus, which at the time of writing was locked in talks with its European financial masters. For example, the implosion of the country won’t halt the march of e-commerce or the global forces that are having a profound effect on the logistics market, as James Comtois reports on page 35.
It also won’t affect the global aspirations of Brookfield Asset Management. Evelyn Lee recently took time out to talk to the in-creasingly powerful property group, which certainly won’t allow one country’s woes to derail its ambitions. You can read the inter-view, starting on page 28.
Undeniably, though, the world is a-changin’ as Bob Dylan once sang, and that certainly is the case in private equity real estate. I take note, for example, of new entrants such as KKR, which has been reported as readying its first dedicated real estate fund, and TPG, which is said to be aiming for $1 billion for its debut property vehicle. We can’t say this is a surprise as we tipped these two firms as coming into the space ages ago. In fact, you could ask what took them so long.
At the same time as there are new entrants, some players are seeking an exit. For example, MGPA is in advanced discussions with potential purchasers, as Jonathan Brasse revealed a few weeks ago. For a more in-depth look at that situation, turn to page 24.
Bearing in mind that real estate investing on behalf of third par-ties can be a long, drawn-out process, you could say the industry doesn’t move quite as quickly as a Cypriot bank accountholder. I am not saying it is predictable, but I would say that most of us have a good view of where we are going.
Enjoy the issue,
Robin MarriottEditor, [email protected]
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Senior Editor, Real EstateErik Kolb +1 646 380 6194, [email protected]
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APr 2013 | PERE 1
Abu Dhabi Investment Authority 4, 24, 25Abu Dhabi Investment Council 18, 25AEW Europe 6, 39, 40, 43Algemene Pensioen Groep 24, 25AllianceBernstein 18Alter Domus 21Apollo Global Management 14, 31Apollo Global Real Estate 20AREA Property Partners 43Atlantic Partners 39, 43Australia’s Future Fund 31Aviva Investors 8AXA Real Estate Investment Managers 37, 39, 41Babcock & Brown Residential 33Bentall Kennedy 4Beny Steinmetz Group Real Estate 20Birtcher Development 35BlackRock 15The Blackstone Group 4, 6, 12, 14, 16, 22, 27, 31, 35
British Land 41Brookfield Asset Management 6, 22, 30, 52Caisse de dépôt et placement du Québec 12, 39, 43California Public Employees’ Retirement
System 4, 10Canada Pension Plan Investment Board 6, 25, 30Canary Wharf Group 33, 52Cantor Commercial Real Estate 15CapRidge Partners 31The Carlyle Group 20Catalyst Capital 38, 43CBRE Global Investors 4, 24CBRE Global Multi-Manager 25Cerberus Capital Management 16Chelsfield Partners 18China Investment Corporation 24, 31China Resources Capital 24C-III Capital Partners 8Clarion Partners 36CNL Financial Group 24Contrarian Capital Management 8Cornerstone Partners 18Cornerstone Real Estate Advisers 8Crosstree Real Estate Partners 20Exeter Property Group 37Fore Partnership 43Franklin Templeton 18GE Capital Real Estate 40, 43General Growth Properties 32Gingko Tree Investment 39, 41Global Logistic Properties 27, 36Global Property Strategies 8Goldman Sachs Real Estate Principal
Investment Area 52Goodman Group 4, 24, 25, 35Government of Singapore Investment
Corporation 31Greenhill & Company 43Griffin Group 18Grosvenor Fund Management 20
Guggenheim Partners 14Heitman 20, 43Henderson Global Investors 36, 43Henley Investments 43Hillwood 36Hudson Companies 14Invel Real Estate 20Invesco Real Estate 26Investment Corporation of Dubai 22, 34Ivanhoé Cambridge 12, 39, 43Jamestown 4JPMorgan Asset Management 39, 43Kennedy Wilson 16Kohlberg Kravis Roberts 31Kuwaiti Fund for Arab Economic Development 39Legal & General 43Liberty Mutual Group 8, 14Lloyds Banking Group 20, 51LNR Property 16Lone Star Funds 16Los Angeles County Employees’ Retirement
Association 6, 10, 26Macquarie Group 24Massachusetts Institute of Technology
Investment Management 8, 14MGPA 4, 20, 24, 26Mildmay Capital 20Morgan Stanley Real Estate Investing 14, 40, 43, 51National Asset Management Agency 51National Financial Realty 4National Pension Service of Korea 25New Jersey Division of Investment 4, 6New York City Pension Funds 14Norges Bank Investment Management 38Norwegian Government Pension Fund
Global 38, 43Oaktree Capital Management 4, 16, 18Olympia & York 32ORG Portfolio Management 14Pacific Investment Management Company 20
Paladin Realty Partners 4Pátria Investimentos 12Patron Capital 8, 39, 43Pennsylvania Public School Employees’
Retirement System 33Pension Consulting Alliance 8PGGM 25Pramerica Real Estate Investors 22, 26Principal Hayley Group 20Prologis 27, 36Prudential Real Estate Investors 12PRUPIM 26Qatar Investment Authority 18Real Asset Portfolio Management 14Related Companies 14Rockpoint Group 4Royal Bank of Scotland 51RREEF Real Estate 20, 34, 43, 52San Francisco Employees’ Retirement System 34SEB Asset Management 26Shui On Land 27Silverlake Real Estate Partners 24Songbird Estates 52Starwood Capital Group 16, 20State Oil Fund of Azerbaijan 39Teacher Retirement System of Texas 6, 31, 39Teachers’ Retirement System of Illinois 14Thakral Holdings Group 34TIAA-CREF 8Towers Watson 8, 14The Townsend Group 50TPG Capital 4, 39, 43Uni-Invest 39, 43University of Texas Investment
Management 20, 39Valad Europe 43Verde Realty 33Walton Street Capital 35Westbrook Partners 16Winnington Capital 27
4 The News in Numbers
6 Deconstructed
8 Remembering Peter Lewis When the head of Americas real estate
investment research for global consulting firm Towers Watson died unexpectedly last month, numerous industry executives paid tribute to a friend and colleague known as much for his quick wit as his expertise.
10 Stateside A new bill purports to help make
California public pension plans more competitive, but it also appears to contradict the pro-transparency stance that many investors have adopted as of late. By Evelyn Lee
12 Americas News Blackstone faces challenges in Brazil NYC pensions invest in rebuilding Cantor eyes debt fund business
16 Eurozone Doubts that buyers of nonperforming
loans can make 20 percent returns in low-growth Europe have surfaced with regularity over recent weeks. By Robin Marriott
18 Europe News Oaktree takes stake in Griffin Starwood’s Taljaard forms new firm Cyprus cause scare for GPs
22 Asiaview Whether or not Dubai’s real estate
market is experiencing a mini-recovery, there are indicators of a positive future. By Jonathan Brasse
24 Asia News MGPA on the auction block Goodman’s HK fund motors on More core funds in Asia
28 Breaking new ground Brookfield Asset Management is
ushering in a new era for its real estate business as it strives to build a global opportunistic platform. By Evelyn Lee
35 The logistics of e-commerce As e-commerce giants like Amazon and
eBay grow at a staggering rate, so are their needs for global warehouse space. What private equity real estate firms are doing to capitalize on this growing trend and what value they can provide to the Amazons of the world. By James Comtois
38 It’s a wrap The pavilions at this year’s MIPIM
property show in Cannes have been taken down, but the plot could have been very different had Cyprus blown up earlier. By Robin Marriott
44 Becoming the hub of communication
Alter Domus explores the role of depositaries for real estate funds under Europe’s Alternative Investment Fund Managers directive.
47 Come for core, stay for opportunistic
International capital continues to be drawn to Europe for core properties in safe haven markets, but more investors are beginning to come for the region’s potential opportunistic plays. By Robin Marriott
56 Capital Watch
28
47
35
index
in THis issue
Cover imageThe nationale-nederlanden building, also known as the dancing House, in Prague, Czech republic
2 PERE | APr 2013
THe yeAr in numBers
5The number of former Paladin
Realty Partners executives on the six-member senior management
team of Jamestown’s newly created Latin America subsidiary
-2 The percent return from open-ended property funds in Europe during the last quarter of 2012, according to IPD
40The number of buildings in a portfolio of us
properties primarily occupied by Wells Fargo Bank that oaktree Capital management and national
Financial realty acquired
$1.95 billion
The amount of capital that Rockpoint Group
raised for Rockpoint Real Estate Fund IV
$11 billionThe amount of real estate that mGPA,
which is being marketed for sale, manages across Asia and europe
6 millionThe square footage of ATL Logistics Center Hong Kong, in which a Goodman Group-led consortium
has agreed to acquire a 25 percent stake
$500 millionThe size of the New Jersey Division of
Investment’s largest-ever real estate fund commitment, which goes to The Black-
stone Group’s new Asia-focused vehicle
33The percentage of respondents in a
KPMG investor survey who felt that pooled funds were the most attractive
real estate investment vehicles
$3 billionThe maximum amount that the California Public Employees’
Retirement System and Bentall Kennedy are targeting through their new industrial partnership over the next five years
60The number of sovereign
wealth funds and pension plans that descended on the
annual MIPIM property show in Cannes last month
10The percentage of the Abu
dhabi investment Authority’s real estate team now based in
Asia, with the recent hire of Peter Kim from CBre Global investors
$1 billionThe minimum target size of TPG Capital’s
first-ever real estate fund
4 PERE | APr 2013
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deConsTruCTed
Quotable
“They eat their own cooking.”Steve LeBlanc, former head of private markets for the Teacher Retirement System of Texas, on Brookfield Asset Management being a significant investor in its own funds
“The positivity in the us is flowing through their veins, and they are starting to think about where they go next.” Russell Jewel, head of private equity at AEW Europe, on the opti-mism American investors have about opportunistic real estate
“e-commerce is here to stay. Private equity firms need to be aware of this and find interesting investment opportunities.” Frank Cohen, senior managing director at The Blackstone Group, on e-commerce’s impact on the warehouse sector
“The confidentiality issue hasn’t killed a deal…i don’t think anyone’s turned our money away.”Robert Van Der Volgen, chief counsel at the Los Angeles County Employees’ Retirement Association, on the impact of its public disclosure practices on real estate investments
“We’ve had a lot of interest…a lot more interest than i thought we’d get, to be honest.” Timothy Walsh, director of the New Jersey Division of Investment, on proceeding with the sale of $1 billion of real estate fund interests via the secondary market
“improving market conditions in the us will create a positive environment for riskier property assets, though we have not yet seen materially greater bidder interest in large value-add deals in secondary markets.” Chris Ludeman, president of capital markets at CBRE, speaking at MIPIM
“long-term investments have a direct impact on job creation, innovation, productivity, long-term GdP growth and the environment. These returns benefit society as a whole.” Mark Wiseman, president and chief executive of the Canada Pension Plan Investment Board, advocating long-term thinking when investing in such assets as infrastructure and real estate
Have you ever wanted to feel like an international spy but aren’t wild about potentially being murdered by a megalomaniac bent on world domination? If you answered ‘yes’, then the firm Noraparc is working on the theme park for you. If you answered ‘no’, then you’re probably lying. Either that or you yourself are a potential megalomaniac bent on world domination.
At any rate, Noraparc has chosen a 45 hectare plot near the French port city of Calais to build an amusement park centered on the themes of secret agents and espionage. This theme park, to be called Spyland, hopes to combine fun and educational activities based on both fictional and historic characters. Although the upcoming park’s website doesn’t mention any exhibits contain-ing sharks with lasers attached to their heads, it doesn’t say there won’t be any such exhibits.
Actually, those hoping to either inter-act with laser-wearing sharks or to act out more adult-themed spy fantasies—such as setting up a rendezvous with Pussy Galore—are in for a rude awakening as this theme park is child and family friendly. (The park does offer hotel accommoda-tions, however, so whatever role-playing games you want to act out with other consenting adults in the privacy of your own
room is none of PERE’s business.) “Centered on the stories of fictitious secret agents, Spyland of-
fers visitors several coaster rides that are themed on adventure, suspense and action,” the project’s website boasts. “Visitors be-come heroes, a child’s dream, by saving the world with the help of family and friends.”
In addition to hotel facilities and es-pionage-themed rides, as well as a water park, Spyland will feature restaurants and shops. However, expect the shops to be stocked with such standard goods as souvenir mugs and T-shirts, not lis-tening devices or watches with a rotary saw blade.
Noraparc chairman Bertrand Eliard presented the Spyland project to real es-tate professionals at MIPIM in Cannes last month, and the Calais Area De-velopment Agency will help Noraparc search for development and investment
partners. Because if there’s any group of people that need a break from the ordinary, it’s real estate executives (trust us, we know).
Spyland is scheduled to open in the spring of 2016. Until then, wannabe spies will just have to settle for eavesdropping on co-workers and cyber-stalking exes via Facebook to get their fix for espionage.
Your vacation, should you choose to accept it…A spy-themed amusement park is in the works in the French town of Calais
AquaSpy Hotel: “I have a reservation. The name? Cleftwell. Chest Cleftwell.”
6 PERE | APr 2013
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Early last month, the real estate industry was stunned by the news that Peter Lewis, head of Americas real estate invest-ment research at global consulting firm Towers Watson, had died at the age of 61. Beyond his expertise in the private equi-ty real estate sector, his friends and colleagues will remember Lewis for his warmth, wit and sharp sense of humor.
Pamela McKoin, vice president at Cornerstone Real Estate Advisers, said in an email to PERE that she was “saddened and shocked” to hear about the sudden passing of one of her “favorite real estate professionals.” She added that Lewis was “a quick mind and wit. He will be missed.”
“My friend Peter was witty, thoughtful and a strong advo-cate for his clients,” added David Glickman, managing direc-tor at Pension Consulting Alliance. “I shall miss our good-na-tured and affectionate verbal jousting.” Glickman also offered his “sympathies to Lewis’ family and his many dear friends.”
Whether responding to colleagues at panel discussions with quotes from vintage Saturday Night Live sketches or writing and performing a song about real estate managers to the tune of Don McLean’s “American Pie” (“So bye-bye, Mr. Manager Guy / Turned my billions into millions / Til the coffers ran dry”), Lewis brought a sense of levity to the industry events he attended, always making them fun as well as informative affairs.
Jon Willis, the former real estate investment officer at the University of California and cur-rent principal at Global Property Strategies, said: “Many of us saw him just over one month ago at a real estate conference, where at one point we broke into small groups to debate designated top-ics. A representative of each group was asked to summarize the group’s conclusions, and Peter always was chosen as the representative in situations such as this because of who he was. He managed to go a step beyond mere summarization to include a tortured pun, a slightly salacious double enten-dre and a gentle rebuff to some of our own pretensions. This was vintage Peter.”
“Conferences and annual meetings will seem different without Peter’s presence,” said Russ Bates, head of Americas at Aviva Investors. “While many will remember his quick wit, I also will remember his willingness to spar with managers in a friendly manner, all while keeping a big beaming grin. He was a happy warrior on behalf of investors whose personal generosity and kindness will be missed.”
In addition to being a conference cut-up, Lewis also was
an avid cyclist. “One small fact that most won’t know is that the bike-riding events at most real estate conferences today were Peter’s idea,” said Kevin Maxwell, managing director at TIAA-CREF.
Lewis joined Towers Watson as the head of its US real estate investment research team in September 2011. “I thoroughly enjoyed working with him and benefited from his consider-able experience, guidance and humor,” said Douglas Craw-shaw, senior investment consultant and co-worker at Towers Watson. “I’ll miss him for sure.”
Before joining Towers Watson, Lewis was a senior invest-ment officer from 2006 to 2011 at Liberty Mutual Group, where he was responsible for the insurer’s $2.5 billion real estate investment portfolio. Prior to that, from 1996 to 2004, he built and managed a real estate and real asset investment portfolio for Massachusetts Institute of Technology (MIT)
Investment Management and MIT’s pension plan, where he made many friends and connec-tions within the industry.
“I first met Peter about 10 years ago when he invested in one of our real estate funds while still at MIT,” said Gil Tenzer, founding member of Contrarian Capital Management. “I always found him to be smart and unconventional in his approach to the industry. Even when he was asking tough questions, it was always with a smile and twinkle in his eye.”
“Peter changed my world,” said Keith Bre-slauer, founder of London-based Patron Capi-tal, who added that his firm “would not be here if it wasn’t for Peter.” According to Breslauer,
Lewis’ guidance, faith in and contribution to Patron’s first fund 14 years ago while at MIT enabled Patron to grow into the powerhouse it is now.
In his “On the Road” blog, consultant Steve Felix wrote: “Peter Lewis was a gentle soul. His presence and personality will be a loss to the industry he served well.”
“Peter was a wonderful person and a good friend,” added Bill Bowman, an advisor at C-III Capital Partners. “Behind his swift wit and strong opinions was a warm and caring person.”
Lewis is survived by his wife Monica, his children Jeremy and Amanda, his father Gerald and his brother John. Services were private, but donations can be made in his name to the Pan-Mass Challenge, an annual cycling event benefiting the Dana-Farber Cancer Institute that he loved, at www.pmc.org or by mail at Pan-Mass Challenge, 77 Fourth Avenue, Needham, MA 02494.
Remembering Peter Lewis When the head of Americas real estate investment research for global consulting firm Towers Watson died unexpectedly last month, numerous industry executives paid tribute to a friend and colleague known as much for his quick wit as his expertise
TRIBUTE
Lewis: purveyor of warmth and wit
8 PERE | APr 2013
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Full disclosure: we here at PERE are big advocates of public records access. Therefore, it’s always worrying when there are proposed legislative changes that could make it more challenging to access information. That is precisely what is happening in the Golden State, where a bill has been introduced to ex-pand what information legally can be exempt from public disclosure.
Under the existing California Public Records Act, the state’s public pension plans are exempt from disclosing information on their alternative investments, which currently are defined as investments in private equity funds, venture funds, hedge funds and absolute return funds. The proposed legislation (AB 382), which is sponsored by Assembly member Kevin Mullin, would expand alternative investments to also include private real estate investments.
AB 382 is intended to make public pension systems more competitive by not disclosing sensitive information regard-ing potential real estate investments. However, the bill makes public pensions in California look more than a tad hypocriti-cal. These same investors, after all, have been very vocal about demanding more detailed and frequent reporting from GPs while also touting themselves as being more transparent.
Transparency is not an issue to be taken lightly. Indeed, the largest California pension plan, the California Public Employ-ees’ Retirement System (CalPERS), was sued in 2010 by the nonprofit group First Amendment Coalition for failing to re-lease documents relating to its $100 million loss on a real estate investment in East Palo Alto, California.
Robert Van Der Volgen, chief counsel at the Los Angeles County Employees’ Retirement Association (LACERA) – one of the driving forces behind the bill – asserted that the legis-lation wouldn’t change LACERA’s current public disclosure practices because it applies to information that the pension plan normally would withhold anyway.
Under the current law, a pension plan can decline a public records request for sensitive information using the so-called catch-all exemption, or balancing test, where the benefit in nondisclosure is believed to outweigh the public benefit in disclosure. Explaining and getting people to understand the balancing test, however, can be a difficult task. “It doesn’t have the same clarity as a list,” said Van Der Volgen. “I don’t have a specific provision to point to and say that the due dili-gence is protected.”
Among the records that will not be subject to disclosure un-der AB 382 are due diligence materials; quarterly and annual financial statements of alternative investment vehicles; meeting
materials; information about the portfolio positions in which the vehicles invest; capital call and distribution notices; and al-ternative investment agreements and related documents.
While LACERA is “fairly religious” about responding to pub-lic records requests and considers a failure to do so a violation of the Public Records Act, not every California pension plan is so diligent. Indeed, the interpretation and implementation of the Public Records Act already seems to vary widely among these investors, and it would not be at all surprising if some were to become even less transparent if the bill were to be enacted.
Then there’s the issue of competitive disadvantage. The premise for AB 382 is that public disclosure would hurt a gen-eral partner because the GP considers certain investment-re-lated information to be trade secrets that would give them a leg up on the competition. If those records are released into the public domain, competitors could ‘outbid’ that GP on a prop-erty investment or on fund terms. If a GP is outbid, that could adversely affect the performance of that investment or fund and, ultimately, the returns for the pension plan.
“This is a big problem,” one non-California pension plan told PERE. “Depending on the asset class and the general partner in question, GPs would not just be skittish but would altogether avoid dealing with potential LPs with disclosure requirements in favor of LPs that have fewer or no requirements.”
It is true that, in a normal fundraising environment, some GPs would avoid certain public pensions for those reasons. However, the industry currently isn’t in normal times, and many GPs are hard-pressed to raise capital. Because of this, it’s doubtful that most firms would refuse money from a US pub-lic pension plan, especially since every state has some form of public records legislation.
LACERA’s Van Der Volgen noted that the confidentiality of documents always is “a sticking point” whenever the pension plan is negotiating with a GP. However, he acknowledged that “the confidentiality issue hasn’t killed a deal…I don’t think anyone’s turned our money away.” One GP that counts Califor-nia pension plans among its LPs agreed, adding: “I doubt we’ll quit any pilgrimages to Sacramento.”
To take that point further, in many cases, public disclosures actually could benefit the GP since the LP indirectly would be helping to publicly promote and market a fund in revealing its rationale for making that investment. If a GP is more success-ful in its capital-raising and investment efforts, that ultimately would benefit its LPs as well.
We at PERE aren’t trying to dismiss concerns about the po-tential consequences of public disclosures. We do think, how-ever, that the flip side of the issue has been overlooked in the drafting of the bill. Transparency, after all, should be viewed as a two-way street.
Do as I say, not as I doA new bill purports to help make California public pension plans more competitive, but it also appears to contradict the pro-transparency stance that many investors have adopted as of late. By evelyn lee
neWs AnAlysis | sTATeside
10 PERE | APr 2013
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As the world’s largest real estate owner, The Blackstone Group has conquered much of the globe, building up a formidable presence in the US, Europe, Asia and Australia. Now, the pri-vate equity and real estate giant is taking on Latin America.
Blackstone recently broke into the Brazil retail real estate market with a $500 million investment in a retail development joint venture with Pátria Investimentos, in which it owns a 40 percent stake. Under the program, Blackstone and the São Paulo-based investment manager plan to build between 10 and 20 shopping centers in Brazil’s secondary cities over the next several years.
Pátria, which incidentally is raising its first Brazilian retail real estate fund, is managing the joint venture and owns a ma-jority stake in Tenco, which has built more than 20 shopping malls in Brazil during its 25-year history. Tenco currently is constructing four shopping centers on behalf of the program, although Blackstone is in discussions with other local develop-ers to work with the new venture.
On paper at least, Blackstone ap-pears to be making all the right moves in its entry into Brazil. A recent report from Prudential Real Estate Investors stated: “Retail mar-kets present opportunities in Bra-zil, especially secondary cities, and likely will for years.” Meanwhile, a new Cushman & Wakefield report noted that Brazil had five square meters of shopping mall space per every 100 people, compared with nearly 200 square meters in the US. “The opportunity for future growth is apparent when compared to more mature retail markets,” the report added.
Although Blackstone declined to comment, it’s evident from the size and nature of its planned investment that the firm is very optimistic about Brazil. However, the country’s retail real estate market has reached a point in the cycle where it is best for a firm to be pessimistic in its underwriting, noted one Brazilian real estate developer.
The shopping mall market in Brazil – even in some second-ary cities – already is crowded with both local and international competitors. For example, Ivanhoe Cambridge, the real estate subsidiary of Canadian pension Caisse de dépôt et placement du Québec, built Porto Velho Shopping, a 312,160-square-foot mall in Brazil’s Amazon basin, with local partner Ancar back in 2008.
For this reason, Blackstone’s biggest advantages as a real estate player – its scale and deep pockets – may not serve it as well in Brazil as it has in other markets. “There’s way too much
money looking to develop shopping centers,” the developer said. Blackstone’s main resource is capital, but “it’s the one resource that’s not needed for this sector.”
Because both Blackstone and Pátria lack retail real estate experience in Brazil, the two firms will rely heavily on local developers to build the shopping centers. Partnering with the right developer is paramount to being successful in the coun-try since many fail to deliver projects on time and at cost, said Alfonso Munk, head of Prudential Real Estate Investors Latin America. Therefore, any real estate player in Brazil, but espe-cially a newcomer, would need to be extremely cautious in how it selects local partners.
“It’s a very specific issue to Brazil,” Munk said, noting that construction costs in Brazil have more than doubled in recent years. “A lot of people have gotten burned by partners that didn’t deliver projects according to original underwriting.”
Another Brazil-specific problem is the financial instability of smaller retail tenants, which therefore are more prone to de-
faulting on rental payments. This has led to higher levels of turnover and retail vacancy rates as high as 30 per-cent in some malls that have opened in the country in the past year, ac-cording to the Brazilian developer.
Additionally, because financing for shopping centers is difficult to obtain in Brazil, those projects of-ten need to be built with equity – as Blackstone initially plans to do with its development program. However, not using leverage on a project typi-cally will lead to more modest re-turns, which may go against the ex-
pectations of investors putting capital into an emerging market. What is most worrisome to Munk, however, is the level of
consumer loan delinquencies at Brazilian banks. Bank credit to consumers, after all, has been a major driver of the coun-try’s retail sector. While consumer delinquencies in Brazil decreased by 3.4 percent in February – its fourth consecutive monthly decline – delinquencies were up 10.1 percent from the same time one year ago, according to Serasa Experian, a Latin American data provider.
“Consumers are overextended in terms of debt,” Munk said. If Brazilian banks were to start pulling back on consumer lend-ing, “that would be a bad thing for retail.”
The conventional wisdom in the industry is to never bet against Blackstone, and the investment manager could indeed triumph over the challenges and make a success of its first foray into Brazil. The odds, however, currently aren’t stacked in its favor.
Investments
Blackstone’s Brazil challengeThe new york-based private equity and real estate giant has its sights set on latin America as its next area of expansion, but industry observers say success in the region’s largest property market is no home run
neWs AnAlysis | AmeriCAs
Roraima Garden Shopping in Boa Vista, Brazil: one of Tenco’s prior projects
12 PERE | APr 2013
1 PETER LEWIS PASSES AWAY Peter Lewis, the head of Americas real estate
investment research at Towers Watson, died unexpectedly last month at the age of 61. Before joining the global consulting firm, Lewis was a senior real estate investment officer at Liberty Mutual Group. Prior to that, he managed a real estate investment portfolio for Massachusetts Institute of Technology Investment Management and the university’s pension plan.
2 RISK AVERSION MAY DECLINEIn a speech at the PREA/IPD US Property
Fund Index launch, The Blackstone Group’s global head of real estate Jon Gray told attendees: “In the low interest rate environment we’re in, some of this hyper-risk aversion may well go away.” He added that the industry “may start to see real estate investors widen the lens a little bit in terms of what they’re comfortable owning.”
3 ILLINOIS TRS HIRES CONSULTANTSThe Teachers’ Retirement System of Illinois
has hired ORG Portfolio Management and Real Asset Portfolio Management to advise it on the creation of a co-investment program within its $4.6 billion real estate portfolio. Under the new program, Illinois Teachers would be able to directly invest in a property as a complement to an existing investment in the same property through a commingled fund.
4 GUGGENHEIM ExPANDS Guggenheim Partners has expanded its real
estate and infrastructure investment platform. As part of the expansion, Guggenheim has named former Apollo Global Management executive Henry Silverman as its global head of real estate and infrastructure. Silverman is responsible for managing activity for all of Guggenheim’s various real estate businesses, as well as overseeing the infrastructure team.
5 MSREI PLOTS NExT FUNDMorgan Stanley Real Estate Investing
is in the early stages of launching a global opportunistic real estate fund after reconsidering the launch of a series of regional offerings. The firm apparently is seeking $3 billion in capital commitments for the offering, which currently has no name or prospectus filed with the US Securities and Exchange Commission.
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neWs AnAlysis | AmeriCAs
A quintet of New York City pension plans have partnered with a pair of New York fund managers to rebuild areas affected by Superstorm Sandy.
At the end of February, New York City Comp-troller John Liu announced that five New York City pension plans had voted to invest $500 million in residential and commercial real estate in areas hit by the super-storm last fall. Liu serves as the investment advisor, custodian and trustee of the New York City Pension Funds, which are composed of the New York City Employees’ Retirement System, the Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System.
Under the program, investments on behalf of the pension plans will be made by the Related Companies and the Hudson Companies, to which the five pensions will provide $300 million and $200 million, respectively. With leverage, it is anticipated that this will result in $1.5 billion of total capital for the potential development or redevelopment of 3,000 housing units and 150,000 to 200,000 square feet of commercial space.
“The $1.5 billion rebuilding program will become the bricks and mortar that neighborhoods need to rebuild from Sandy’s wrath,” said Liu, who of-ficially threw his hat into the ring to become mayor of New York shortly after announcing the initiative.
Because this investment program functions as private investment vehi-cles, Related and Hudson were unable to comment. Sources familiar with the project, however, told PERE that the respective funds are expected to close sometime this month.
The Related investment fund will focus on the renovation and recon-struction of housing that was damaged or destroyed by Sandy. The devel-oper will use the capital in its vehicle primarily for the city’s outer boroughs and low-lying areas of Manhattan.
In addition, Related will invest across New York to increase the overall availability of housing units to residents displaced by Sandy, with a priority on rental units. The fund additionally will create a loan program for prop-erty owners who face shortfalls from insurance proceeds, with that capital designated for the restoration of properties to full function. Related will invest $10 million of its own equity into the program, which is projected to yield net IRRs of 9 percent to 12 percent for the firm.
Meanwhile, Hudson has earmarked 80 percent of its investment fund to create affordable and market-rate housing in coastal areas that were im-pacted by Sandy. Part of that money will be used to develop properties that incorporate green and flood-prevention design technologies. In addition, the developer will acquire properties in need of repair and retrofitting.
Another portion of the capital that Hudson will invest will go towards retail properties. The firm will invest $8 million of its own equity into the projects, which are projecting net IRRs of 12 percent to 14 percent.
Liu added: “This investment demonstrates the commitment of city em-ployees and retirees to pursue opportunities that are not only expected to deliver strong returns, but also to generate collateral benefits for the com-munities they call home.”
Investors
LPs to the rescueWith the help of two local fund managers, five new york City pension plans are looking to invest in and rebuild areas hit by superstorm sandy
Liu: rebuilding New York
14 PERE | APr 2013
With the hiring of Chris Milner as its new head of invest-ment management, Cantor Commercial Real Estate (CCRE) is slowly yet steadily on its way towards entering the investment management business. This means that the affiliate of bond gi-ant Cantor Fitzgerald could be entering the floating-rate busi-ness before year’s end and, perhaps by next year, be raising its first private real estate fund. However, the New York-based commercial real estate lender isn’t there just yet.
Indeed, Milner, who joined CCRE early last month, and chief executive officer Anthony Orso currently are in preliminary discussions about how exactly to implement the firm’s investment man-agement business. Although the executives have a number of ideas, they’re quick to point out that they’re still only in the beginning stages of outlin-ing their plan of attack.
“It’s an ongoing process,” said Milner, who for-merly was the co-founder of BlackRock’s commercial real es-tate debt business. “Some joint venture components will be involved, but it’s currently a work in progress.”
CCRE has made approximately $6 billion of loans over the past two years and roughly $4.2 billion in the last 12 months. Having established itself as a real estate finance firm, Orso said
the firm believed the time had come to expand its business and work with joint venture partners to create new lending programs.
“Our goal is to ultimately grow into a full-service lending platform that will be seen as the pre-eminent lending firm in
the marketplace,” added Orso. “This is just a natu-ral extension of this goal.”
Milner added that, since CCRE has a well-devel-oped fixed-rate conduit business, one of its main objectives as it enters the investment management field most likely will be to launch a floating-rate origination business. At first, the firm anticipates starting out in the core and core-plus arenas, then eventually migrating over towards the opportunis-tic end of the spectrum. This would be achieved primarily through joint ventures with institutional fixed-income investors.
Eventually, CCRE plans to provide private com-mingled funds as part of its suite of products. The possibility of a fund, however, is much further down the road. For now, the firm is still in the planning phase for joint venture structures.
“We’re in the early stages coming up with those plans,” Mil-ner added. “We see the marketplace being attractive, but we’ve got a lot of work to do before giving a timeframe.”
Debt
Cantor’s debt evolutionCantor Commercial real estate is taking the next step in its evolution with the hiring of Chris milner to build and head a new investment management capability
neWs AnAlysis
Milner: moving CCRE into uncharted waters
APr 2013 | PERE 15
neWs AnAlysis | eurozone
Need it be said that private equity real estate is a competitive business. Indeed, there is a legion of firms out there mar-keting their point of difference to lim-ited partners. Some of these general partners are a bit unrealistic in their self-appraisal, while some correctly an-alyze their strengths. Therefore, when a GP says it is good at X, one needs a healthy dose of skepticism on hand. Likewise, when market players point
out a weakness in others, the same bottle of cynicism is required in the jacket pocket.
From time to time, a theme emerges where that bottle needs to be permanently in hand, and one such moment has arrived in relation to nonperforming loans (NPLs). In Europe, I detect there currently is a kind of white noise around the theme that NPL buyers may struggle to make the returns they have prom-ised investors – namely 20 percent or better.
The thrust of the argument being made, mainly by firms not pursuing large NPLs, seems to be that profits in NPLs are made in the ‘tail’ – loosely defined as the assets that remain in a port-folio after the sale of the better quality ones, those that can be refinanced and those with the best credit rating. While it may be easier selling the first tranche of assets, the real kicker is in selling the more challenging assets.
The problem, however, is that Europe is a low or no growth environment. Is it re-ally possible that buyers will be able to exit the tail successfully, ask naysayers.
One answer to this tends to be to look at the other end of the equation. The most important factor in distressed debt in-vesting is the ability to invest when buy-ing opportunities are special. In other words, when the entry price is below intrinsic value. There are plenty of times when it is not optimal for the purchaser of distressed debt to be invest-ing, such as when sellers are not under much pressure – real or psychological – to sell. The investment results can be lackluster in such a market.
In mainstream private equity, Oaktree Capital Management chairman Howard Marks suggests that there have only been two periods out of 18 years when it was possible to access highly out-standing returns through bargain basement purchases. In the Guide to Distressed Debt and Turnaround Investing, published by PERE’s parent company PEI Media in 2007, Marks said one episode was in 1990, when a recession, a credit crunch, the Gulf War, the meltdown of many prominent leveraged buyouts of the 1980s and the government’s war on junk bonds enabled optimal
conditions. The other was in 2002, when there also was a reces-sion and a credit crunch, the invasion of Afghanistan and – for good measure – the bursting of the dot-com bubble, as well as financial scandals such as Enron.
On paper at least, it looks like 2012 and onwards in Europe should be added to that list, given the confluence of events. Still, one problem seems to be a lack of willingness or necessity on the part of sellers to take a haircut. In addition, lenders seem like they are chasing up prices, making it harder to enter a transac-tion at a low basis.
Even when conditions are good for distressed debt investing, performance cannot be achieved without good management and expertise. This is where it is worth dwelling on the small number of protagonists in Europe, including Cerberus Capital Management, The Blackstone Group, Lone Star Funds, West-brook Partners, Starwood Capital Group and Kennedy Wilson.
An interesting question is to ask how many of these firms have an in-house special servicing arm. The ones that don’t find it harder to finance their bids than the ones that do, which is why it was smart of Starwood to buy LNR Property, which has a European special servicing unit. Furthermore, the ones that have large teams on the ground with comprehensive experience in the target countries have a particular advantage in being able to make a NPL portfolio really profitable.
Those with experience say they acknowledge the argument about not being able to make money from the tail, but they maintain their expertise is in underwriting and pricing correctly and selling aggressively. If, for example, a portfolio contains a residential block in a Spanish coastal town, they might price 20 of the 200 units at zero value. Those 20 apartments might be facing the motorway instead of the sea or in the basement of a
block where there is hardly any light. Caveat emptor.In Germany, one of these firms currently is dealing with a tail
from a loan backed by retail assets. The sponsor of the original investment went insolvent and one of the firms above acquired the loan. Even though the retailer got into difficulty, it kept pay-ing the rent and apparently even extended some leases. The NPL buyer is in no rush to sell the tail of the assets because cash is coming in, and therefore distributions are being made to lim-ited partners. The firm is concentrating on the equity multiple back to the limited partners and things look good – and that is in a low-growth environment.
There is no way to generalise the potential success of NPL buyers in Europe. Some will make mistakes and fail to make money, while others will see lackluster returns. The best, how-ever, will achieve alpha returns.
“The most important factor in distressed debt
investing is the ability to invest when buying
opportunities are special.”
Profit in the taildoubts that buyers of nonperforming loans can make 20 percent returns in low-growth europe have surfaced with regularity over recent weeks. By robin marriott
16 PERE | APr 2013
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neWs AnAlysis
Throughout the 1990s, Przemyslaw Krych and his two long-standing partners spent much of their time privatizing Polish companies such as a cement manufacturer and a high street department store. Now, the team behind Warsaw-based private equity firm Cornerstone Partners is busy looking to take ad-vantage of distressed real estate and special situations in the Central and Eastern Europe (CEE) region.
In an effort to further that business, last month Oaktree Cap-ital Management became a 50 percent partner in Cornerstone’s joint venture property investment arm, Griffin Group. Oaktree, via funds advised by its European principal group, purchased its stake from Chelsfield Partners, a firm started by British prop-erty tycoon Elliott Bernerd and backed by the Qatar Investment Authority. The new backing by Oaktree will provide Griffin with additional equity to make fresh acquisitions in Poland.
Speaking with PERE, Krych noted that he and the co-found-ers of Cornerstone, Tomasz Klukowski and Marcin Halicki, actually made their names in Poland and other parts of Cen-tral and Eastern Europe at Bank Handlowy, which was estab-lished in 1993 and where Krych formed a private equity business. In 1999, they left the bank to run Franklin Temple-ton’s emerging Europe private equity funds division. Throughout their time together, the trio pulled off a string of eye-catching deals including the priva-tization of Poland’s largest cement com-pany, Cementownia, and the country’s largest chain of high street department stores, Domy Towarowe Centrum.
Following a wave of deals, Krych and his partners decided to start Corner-stone in 2001 with financial backing from Dave Williams, the former head of Alliance Capital, the US asset manager that later became AllianceBernstein. As an independent company, the trio continued investing in buyouts such as Lux Med, one of the largest healthcare providers in Poland that subsequently has been sold to Bupa. Further deals took place in the hydro and wind power sectors.
Krych noted that Cornerstone already had completed real estate deals, just not in an organized fashion, when the firm founded Griffin in 2006. Immediate prior to forming Griffin, the partners had bought state-owned cinema operator Neptun Film. In communist Poland, cinemas were positioned next to churches to offer an alternative place to go on Sundays. Krych and his partners shut down the operation and started con-verting the 44 theatres to retail properties. Halfway through the program, it exited the investment successfully to London’s Patron Capital.
That original Neptun Film investment was made in part-nership with Chelsfield, and Cornerstone decided to continue
investing through the partnership. The joint venture formed private equity real estate funds, the first of which was Griffin High Street, a fund that raised €50 million in 2007 mainly from high-net-worth individuals in the Gulf region. The same year, the venture created Griffin Property Finance, a mezzanine property fund that raised €150 million and whose main inves-tor is the Abu Dhabi Investment Company.
Cornerstone already had come to know Oaktree in 2006, when the Los Angeles-based firm was one of the parties origi-nally considering the 50 percent stake in Griffin, Krych ex-plained. Instead, their relationship began in 2010, when Cor-nerstone and Oaktree started a joint fund called Griffin Topcore I – and subsequently Griffin Topcore II – to enter into distressed real estate deals, restructurings and special situations. The only investors in those two vehicles were Cornerstone and Oaktree. However, with the recent deal for Oaktree to own 50 percent of Griffin, the two firms have since launched Griffin Topcore III, which will open up to third-party investors.
Of the corporate transaction, Krych said: “We have been working with Oaktree for three years as they are basically a limited partner in funds we manage. This transaction is the next step in cementing that relationship.”
Oaktree’s intention behind the Griffin investment is to create a long-term plat-form to make real estate-related invest-ments in Poland, including direct pur-chases of assets, development projects and lending activities. “We have been following the Polish real estate market for many years and had been looking for potential partners who could provide us
with the right platform to make significant investments over a long period of time,” said Karim Khairallah, managing direc-tor of Oaktree’s European principal group and head of its’ CEE activities, in a statement.
For its part, Oaktree is no stranger to Poland. Indeed, it is known in the country as the owner of spirits company Stock Poland, formerly Polmos Lublin, and Zielona Budka, one of the best-known ice cream brands.
So far, Oaktree has allocated €150 million to the partnership with Griffin. A portion of those funds, in conjunction with other capital, has been used to purchase such assets as the Re-noma Shopping Center, office buildings in Warsaw and a land bank for residential development.
“Contrary to popular belief, there is still a lot of capital look-ing for investments but definitely not enough management talent providing for its effective deployment,” Krych said. “Oaktree does that on a global scale, while Griffin is focused on regional markets. An exchange of experience benefits both sides of the equation.”
m&A
Zloty ambition The partners behind some of the biggest privatizations in Poland are now sharing a future in real estate with oaktree
Krych: Polish private equity turned real estate
18 PERE | APr 2013
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way up to increasing the value of the property. What sets us apart: 600 dedicated staff members in more
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1 PAPA’S BACKChris Papachristophorou, the former
global head of RREEF Real Estate’s opportunistic investment platform, is back in the high-yield investment game with plans to deploy $2 billion of capital across Europe. Papachristophorou joined Beny Steinmetz Group Real Estate, the real estate division of the Beny Steinmetz Foundation, to launch Invel Real Estate.
2 PIMCO HIRES LUCCIONI Last year, PERE tipped Pacific Investment
Management Company (PIMCO) to make a big hire, and sure enough news arrived last month that the California bond giant had selected former MGPA European chief Laurent Luccioni as its new head of European commercial real estate. Based in the firm’s London office, he will report to Dan Ivascyn, managing director and head of PIMCO’s mortgage credit portfolio management team.
3 HEITMAN’S APOLLO LANDING Heitman, the Chicago-based real estate
investment firm, has bolstered its ranks in Europe by hiring a former Apollo Global Real Estate professional. Erik Rijnoudt joined as senior vice president of portfolio management in the firm’s London office, having previously been responsible for Apollo’s €1 billion core and value-added portfolio in Western Europe.
4 UTIMCO EYES EURO FUND The University of Texas Investment
Management has revealed that its pipeline of investments for 2013 includes a pan-European opportunistic real estate fund and a country-specific manager in Germany. According to a recent board presentation by head of real estate Mark Shoberg, the university’s overall strategy is to build a global diversified portfolio.
5 GROSVENOR NAMES NEW CHIEF Grosvenor Fund Management, the third-
party asset management arm of British property company Grosvenor Group, announced a major change at the top of the organization. James Raynor, the firm’s London-based chief investment officer, is taking over as chief executive from current incumbent Jeffrey Weingarten, who has agreed to join the board of the Grosvenor Group as a non-executive director.
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neWs AnAlysis | euroPe
Eric Sasson, head of European real estate at The Carlyle Group, and Robert Hodges, head of asset management in the region and UK investments, are leaving to start their own investment firm after their employer decided to concentrate on asset management rather than raise a new fund.
In a statement, Carlyle said: “We can confirm that Eric Sasson and Robert Hodges are resigning from The Carlyle Group to pursue their own business interests. Their departure is amicable, and they will leave later in the year to allow for a seamless transition – we wish them well for the future. “
The Washington DC-based firm added: “We have a strong, experienced fund advisory team in place in Europe, and the ongoing asset management of the funds’ European property investments will be unaffected as we continue to strive towards creating value for our limited partners. “
Christopher Finn, the founder of Carlyle’s European operations 15 years ago and a member of the Carlyle Europe real estate board for more than 12 years, will be moving from his board position to lead the European real estate advisory team.
Starwood Capital Group recently completed a £360 million (€421 million; $547 million) acquisition of UK-based hotel, conference and training cen-ter company Principal Hayley Group from majority owner Lloyds Banking Group. Completion of the deal on February 27 was significant for Starwood, with chairman and chief executive officer Barry Sternlicht calling it an “excit-ing investment” that provided a platform to further expand the firm’s global hotel portfolio in Europe.
The deal was significant for another party as well. Desmond Taljaard, Star-wood’s European chief operating officer and head of asset management, had been a key member of the firm’s European team for six-and-a-half years, but the completion of the Principal Hayley transaction has allowed him to leave the Greenwich, Connecticut-based firm and set up his own platform.
Speaking with PERE, Taljaard said he has established Mildmay Capital, which will target hotel investments in northern Europe. For capital, he ex-pects a small number of family offices to make up the investor base.
When he joined Starwood in November 2006, Taljaard was one half of the senior management team in Europe. The other was Sean Arnold, head of Eu-ropean acquisitions, who left in 2011 to start Crosstree Real Estate Partners.
As a leisure property expert, Taljaard was involved in a number of deals during his tenure, mainly in the hospitality sector, using his experience built up at a series of well-known corporates. Prior to joining Starwood, he was head M&A and development director at Whitbread, a large UK pubs and res-taurants group, from 2004 to 2006. Before that, he was property director at Sainsbury’s Supermarkets for a year and, prior to that, was global head of real estate at Hilton International for eight years.
“The challenge is to find the right deal as opposed to the right capital,” Tal-jaard said of his new venture. “The gap between seller and buyer expectation still exists, and there is very much a focus on sponsors with the right assets in the right locations.”
PeoPle
Starman’s next turnThe former european chief operating officer at starwood has set up mildmay Capital to raise a hotel fund focused on northern europe
Carlyle team splits Top two executives at Carlyle europe to leave
20 PERE | APr 2013
neWs AnAlysis
Private equity folk can factor most risks into their analysis, but the bankruptcy of a banking system can be outside their scope. Therefore, it is little surprise that the precarious €10 billion bailout of Cyprus last month sparked a fair amount of anxiety.
Fund administration firms in Cyprus reported to PERE how clients had been contacting them in significant numbers seek-ing advice and reassurance. Alter Domus, for example, has a number of global private equity clients that route investments in Russia, Poland, Ukraine and India through the stricken country. In the hours after the first bailout was rejected by the Cypriot government, George Rologis, Alter Domus’ managing director in Nicosia, said: “Ever since the situation broke out, there has been a lot of interaction with our clients.”
The tremors from Cyprus also were felt much farther afield than just the island nation. In Russia, for example, Dmitri Nikiforov said the phones had been ringing as well. “We need to see how Cyprus will resolve this issue,” said the chair of the Moscow office of law firm Debevoise & Plimpton. “People are concerned since most of the real estate projects in Russia are structured as share deals, and a lot of property in Russia is held by special-purpose companies in Cyprus.”
Nikiforov noted that he was having numerous discussions about developers needing to re-structure their projects in Rus-sia. “In order to develop prop-erty via offshore companies, such as a Cyprus company, they borrow from both Russian and international banks on behalf of the project company. Right now, because of this crisis, people are scratching their heads about how to either restructure their projects or refinance them. That’s the real problem.”
Alyona Kucher, a Debevoise & Plimpton partner in Moscow who counts real estate as one of her specialist areas, reported how clients were asking about alternative jurisdictions within hours of the bailout proposition and the threatened banking collapse. “Even [just prior to the bailout agreement], I took questions from my clients about Singapore [as a jurisdiction] because it is not in Europe,” she said.
It is no surprise such concern was sparked. After all, a whole fund administration industry has grown up in Cyprus. It has a low tax regime as well as a hitherto stable banking system. As such, the country has become a very popular domicile for special-purpose vehicles (SPVs) and partnership structures, as well as for routing carry schemes. Furthermore, Cyprus re-mains a favored country for real estate deals in Russia, despite a renegotiated tax treaty between Russia and Cyprus that was just ratified late last year. That new double-taxation treaty took
Cyprus off Russia’s ‘black list’ of tax havens and dictated that any real estate transaction in Russia should be taxed in Russia itself, Kucher explained.
Indeed, Cyprus’ biggest advantage is that it has a double-tax treaty with 44 countries. Through such a treaty, capital gains taxes on money repatriated back to a fund can be successfully limited, with experts suggesting the effective rate can be be-tween zero and 10 percent, depending on the circumstances.
Cyprus also has become a sought-after location because the legal system is based upon English law, given that Cyrus was an English colony until 1960. It also possesses ‘softer’ advantages, such as a small time zone difference with western European countries and a developed banking, legal and tax industry.
Speaking before the country finally negotiated a bailout on March 25, Alter Domus’ Rologis said his clients’ SPVs in Cyprus remained unaffected. The majority of those clients banked with international players such as The Bank of New York Mellon, Barclays, JPMorgan and Royal Bank of Scot-land, which provide a range of additional services such as
lending and foreign exchange, he noted. Those clients do not use local Cypriot banks, which re-mained closed while the bailout was negotiated.
“Because this is a Cyprus banking crisis and not a crisis that affects anything else at the moment, alternative asset man-agers have not made any moves to make any changes,” Rologis said.
There is another reason why, at the height of the crisis, clients did not panic and try to relocate their structures – firms likely spent considerable resources de-
ciding upon using the country in the first place, Rologis noted. Unpicking a structure can either crystallise a loss or a gain, which could result in a tax event – something that private eq-uity firms clearly do not want.
“If clients still see Cyprus as being the most optimal in terms of tax structuring, they will use it,” said Rologis. “Going through anywhere else might not be as efficient.”
Recent draft legislation in Cyprus proposing tax changes have, for the most part, left alternative asset managers unaf-fected. The only significant change is that Cyprus has recom-mended an increase in the corporate tax rate from 10 percent to 12.5 percent, which is the same as that of Ireland. Regardless, that should not affect private equity firms because they are not trading companies, but simply holding or financing entities.
Rologis said: “Speaking with them over the last few days, private equity firms obviously have remained cautious and are watching the developments unfold, but they haven’t need-ed to make any moves.”
Cyprus: the country’s potential collapse had firms hitting the phones
DomIcIles
Cyprus scare A near banking ‘collapse’ in Cyprus sparked huge concern among fund managers
APr 2013 | PERE 21
neWs AnAlysis | AsiAVieW
This year, there have been noises emanating from Dubai, the one-time poster child for the global financial crisis, to suggest that its real estate market is experiencing something of a mini-recovery. Whether the world once again is being subjected to the emirate’s unremitting PR machine or whether there actually are solid foundations to this claim is open for debate.
Certainly, Dubai’s government would have you think the world again is interested in its bricks and mortar. According to recent findings by Dubai FDI, a division within its Depart-ment of Economic Development, overseas capital investment in the emirate increased by 7 percent year-on-year in the first half of 2012 and real estate once again was one of the 10 most popular sectors for investors. More than $10 billion of foreign direct investment into real estate markets in the United Arab Emirates (predominantly Dubai and Abu Dhabi) happened in 2012 – that’s the official line.
One property agent PERE spoke with was skeptical about that claim. Certainly, Dubai’s office market has seen little love and is very much still on its knees, he pointed out. Indeed, most of the property services firms active in the region admit the property markets, commercial especially, are in fact not “recovering,” rather they simply have stopped hemorraging.
According to Knight Frank, the vacancy rate for offices citywide was a jaw-dropping 50 percent as of the third quar-ter last year. Even prime locations were 20 percent vacant. Accordingly, rents have trended down. For example, you can lease offices in the Dubai International Financial Centre (where most big business resides) for AED2,530 (€532; $688) per square metre today, way down from almost AED4,000 per square metre back in 2008.
To make matters worse, new office developments still are being churned out. CBRE reports that office supply has in-creased 75 percent since 2009, with another 600,000 square metres coming this year.
Furthermore, with another 68,000 square metres of space slated for delivery in 2013, an oversupplied retail property sector also is on the cards, according to Jones Lang LaSalle’s latest research. The firm predicted increased competition among developers as the market reaches “saturation.”
So, where is the foreign capital going? One area undoubt-edly is residential, and that is not surprising as pockets of demand have emerged. In Dubai’s prime markets, rents in-creased by 16 percent in 2012, according to CBRE. That find-ing was backed up by anecdotal evidence gleaned by PERE.
The agent we spoke with just rented out a beachside villa on the Palm Islands at AED260,000 per year, reflecting an 18 percent increase on what he charged his previous tenant. In another example, a private equity real estate professional who recently relocated to Dubai said he’s paying 15 percent more rent for his home than he would have done last year.
The residential anecdotes unfortunately aren’t all positive. PERE heard how the developer behind one ‘sold out’ devel-opment has paid locals to stand in a queue to buy its apart-ments, purely to impress the cameras. In addition, less than 60 days after this particular development completed, its units have been advertised for sale in local newspapers for prices reflecting a 5 percent margin. There are few better indicators of property speculation than that.
This backdrop boggles the mind as to what private equity real estate platforms like Brookfield Asset Management and Pramerica Real Estate Investors – two groups to have formed recent UAE-focused real estate partnerships with state invest-ment houses – are doing in the emirate. In the case of Brook-field and its partner, the Investment Corporation of Dubai, the question resounds more as they have proposed raising $1 billion for their ICD-Brookfield Dubai Real Estate Fund – an unquestionably large amount of capital for a market of such limited scale. Obviously, Douglas Kirkman, the former high-flying real estate executive of The Blackstone Group, thinks there’s reason to come beyond just desert skiing – he took the CEO job for the fund last month.
PERE has done some digging around and it appears the thesis behind the ICD-Brookfield fund actually has shifted somewhat from when it was first launched in 2011, and that offers a fascinating insight. Shocking as it may seem given how stagnant Dubai’s commercial real estate market cur-rently is, the focus now is on the future – and new develop-ment. That is not crazy if you peg it to Dubai’s focus on its transport infrastructure. Actually, finely-tuned development close to key hubs like the Jebel Ali Port, the largest container port between Singapore and Rotterdam, and the vast air car-go-dedicated Al Maktoum International Airport, could yield some interesting results.
Of course, capturing such an opportunity in a market per-petually inflicted by an inshullah (Arabic for ‘God willing’) culture where things move glacially – PERE understands the ICD-Brookfield fund still is awaiting various licenses to begin raising capital well over one year after it was announced – is another matter. Funds by their nature have limited lives, and Dubai’s real estate opportunity still might be years away. Still, the timing of a fund doesn’t negate the underlying probability there actually is some substance in Dubai’s mirage, even if its PR machine makes so much noise in the meantime.
Substance in Dubai’s mirageWhether or not dubai’s real estate market is experiencing a mini-recovery, there are indicators of a positive future. By Jonathan Brasse
22 PERE | APr 2013
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neWs AnAlysis | AsiA
1 MGPA FOR SALEPERE revealed that MGPA, which currently
manages approximately $11 billion of real estate across Asia and Europe, had appointed advisors, including a boutique investment bank and a law firm, at the turn of the year to conduct a sale process. It was understood that several parties, including large insurance companies and asset management firms, already had undertaken due diligence and that a deal could be struck as soon as this quarter.
2 CHINA INVESTORS SEEK PROOFDelegates at PERE’s annual Asia conference
heard how China’s institutional investors were waiting for the private equity real estate model to become “proven” before committing to funds. Collin Lau, former head of real estate at China Investment Corporation, said his former employer would lead the way in terms of asset allocation and that Chinese pension plans and state-owned enterprises would follow once they see attractive returns.
3 ADIA BOLSTERS ASIA TEAM The Abu Dhabi Investment Authority has
increased the headcount of its Asia real estate team to 12 with the appointment of Peter Kim from CBRE Global Investors as a senior portfolio manager. Kim will report to Rob Walker, ADIA’s head of Asia, and will work closely with Todd Rhodes, another senior portfolio manager and recent hire from Silverlake Real Estate Partners.
4 CHINA RESOURCES EYES CAR PARKSChina Resources Capital and Dutch
pension administrator Algemene Pensioen Groep each have committed $120 million to the China Resources Car Park Investment Partnership, a club fund intended to build “a scaled and diversified portfolio of car park assets in city centre locations in China.”
5 GOODMAN BUYS STAKE IN HK SHED Goodman Group, the Sydney-based
logistics developer and fund manager, has led a powerful consortium of global investors to invest HK$3.5 billion (€346 million; $450 million) for a 25 percent ownership stake in the ATL Logistics Centre Hong Kong, a 6 million-square-foot monolith servicing most of Hong Kong’s container traffic.
Most read on
PERENews.com [Asia]last month
The firm behind the largest private equity real estate fund in Asia is in play. MGPA, the Asia- and Europe-focused firm, currently is in advanced negotiations to be sold in what could be the biggest corporate transaction in the industry globally this year.
As PERE revealed last month, MGPA is be-ing advised on its sale by a boutique investment bank and a law firm, and prospective bidders, including large insurance companies and asset management firms, already have undertaken due diligence. At press time, a preferred bidder was yet to be identified, although that was ex-pected to happen this month.
It is uncertain how much MGPA, which is 56 percent owned by Macquarie Group and the re-mainder by its management, would cost. Austra-lia’s Financial Review estimated the firm could change hands for more than $200 million, al-though PERE sources have suggested that figure was high.
Nonetheless, the amount of money paid is expected, in part, to reflect the amount of capital MGPA has to invest currently and what it can raise going forward, all of which garner fees. The value of the co-investment capital in-jected by MGPA into its various real estate funds also is likely to be a factor.
Formed in 2004 as an amalgam of Macquarie and a management buy-out of the real estate funds business of Australian property company Lend Lease, MGPA has since attracted $8.6 billion of equity for 11 funds. In-cluded in that total is $3.9 billion for its MGPA Asia Fund III – the most ever raised for a fund focused on Asia.
MGPA’s strategy for Asia Fund III raised question marks in the mar-ket when it paid S$2.97 billion ($2.3 billion; €1.8 billion) to the Singapore Urban Redevelopment Authority for two land plots at the Marina View development area in Singapore immediately prior to the downturn. With rental levels subsequently falling, the firm was criticised for its original underwriting of the development of the Asia Square towers on the sites and for concentrating so much resource to one market. However, rental levels since have recovered significantly, and certain commentators now expect a return for investors on the fund’s original investment, albeit shy of opportunistic levels.
As exemplified by Asia Square, MGPA is well-known for its operational credentials versus some of its private equity rivals, which have depended more on allocating capital to third-party developers and property com-panies. MGPA employees about 240 staff across offices in Singapore, Lon-don, Beijing, Tokyo, Hong Kong, Warsaw, Paris and Luxembourg, and it is this depth in real estate experience that also could play an important part for groups seeking a strategic fit and, indeed, in the determination of the sale price.
In terms of future fundraising activity, MGPA is understood to be lay-ing the groundwork for MGPA Asia Fund IV and already has hauled $100 million for its Europe-focused counterpart. The firm also has invested in Europe via a separate account with a North American investor and invests retail capital on behalf of a sub-advisory mandate awarded by Orlando-based REIT manager CNL Financial Group. MGPA declined to comment.
m&A
On the block nine years after forming the firm, mGPA is close to being sold by its management and bank owner
Asia Square in Singapore: the land cost MGPA
S$2.9 million
24 PERE | APr 2013
neWs AnAlysis
Low risk and high return – it is the ideal proposition for in-stitutional investors the world over. Sydney-based logistics developer and fund manager Goodman Group has a fund in Asia that has been providing its investors with such a blend since its inception in 2005.
The Goodman Hong Kong Logistics Fund was intended to return approximately 10 percent per year from invest-ments in prime industrial assets across the former UK colony. Through an open-ended structure, the vehicle would focus on long-term investments that offer sustainable income streams from assets let to established occupiers, including third-party logistics providers and retailers.
Thanks to some positive market forces, active asset management and savvy sales, the Goodman Hong Kong Logistics Fund has outperformed, with returns between 15 percent and 20 percent per year. “I never expected the fund to deliver the returns it has,” said Adrian Baker, managing direc-tor of CBRE Global Multi-Manager, one of the fund’s investors. “The Goodman Hong Kong Logistics Fund has been one of our best performing investments, delivering ‘opportunistic’ style returns with a ‘core’ risk profile.”
Indeed, that is a primary reason why the Goodman Hong Kong Logistics Fund is oversubscribed, noted Phillip Pearce, Goodman’s managing director for greater China. Although he declined to confirm specific returns – “it’s a very private fund,” he said – he acknowledged that there have been attempts from certain large investors to acquire units in the vehicle and that these have been blocked by current investors gripping tightly to their positions. “People have tried to get into this fund but, when the stock comes up (for sale), it is taken up by existing investors,” he added.
PERE understands one such failed attempt was made by the National Pension Service of Korea, South Korea’s pre-eminent state investment fund. “We have investors that want in, but it’s been very hard for us to get them in,” Pearce admitted. According to one capital advisor who declined to be named, units of the Goodman Hong Kong Logistics Fund have not become available on the secondaries market for about three years. “The logistics market in Hong Kong has been rocketing since,” he added.
Perhaps then it is unsurprising that when Goodman tapped the fund’s investors – including Dutch investors Algemene Pensioen Groep and PGGM and Abu Dhabi state funds Abu Dhabi Investment Authority and Abu Dhabi Investment Council – for HK$2.3 billion (€228.2 million; $296.5 million) to buy into the world’s largest logistics facility last month, its request for funds was oversubscribed. Pearce described the clamber to fund the acquisition of a 25 percent stake in the ATL Logistics Cen-tre Hong Kong – a 13-story, 6 million-square-foot mega-property – as well as a stake in ports owner and operator CSX
World Terminals Hong Kong from Dubai’s DP World as “overwhelming.”
That capital-raising effort was the third such undertaking for the Goodman Hong Kong Logistics Fund, following its ini-tial HK$4.4 billion haul at launch and an additional HK$1.6 billion raised in 2011 to fund the development of Interlink, an-other nearby mega-property in which a 50 percent stake later was sold to the Canada Pension Plan Investment Board. That brings the fund’s total equity raised to HK$8.3 billion.
“The key for this transaction is to cement our leading posi-tion in a very key logistics market,” Pearce said. “In terms of free port status in Hong Kong and activity with China, it al-ways will play an important part in the logistics market.”
Indeed, the acquisition of the ATL Logistics Centre has re-sulted in Goodman assuming a 35 percent market share in Hong Kong and, in so doing, has provided its investors with a stronghold in the third busiest container port in the world behind Singapore and Shanghai.
Such an outlay represents the sort of strategic long-hold in-vestment for which the Goodman Hong Kong Logistics Fund originally was intended. Whether the fund can sustain op-portunistic returns without booking significant capital appre-ciation via further sales is questionable. Assets like the ATL Logistics Centre become available infrequently, so there could well be an onus on effective asset and tenant management in order to maintain outperformance. Regardless, even a slip by as much as 5 percent would see the fund’s performance remain well within its original targeted range.
strAtegy
Idyllic Hong KongGoodman’s local fund has given investors an ideal blend of low risk and high return
ATL Logistics Centre in Hong Kong: the world’s largest logistics property
Goodman Hong Kong Logistics FundInception: 2005
Focus: Long-term, sustainable income from prime industrial assets in Hong Kong
Capital raised since inception: HK$8.3 billion
Goodman co-investment: 20 percent
Current assets under management: HK$17.8 billion
Target return: 10 percent
Average return since inception: 15-20 percent**According to PERE sources, unconfirmed by Goodman
APr 2013 | PERE 25
neWs AnAlysis | AsiA
The best evidence of investor appetite for a particular strategy is the capital committed to it. However, when the number of funds offered by managers for the strategy increase, that too is a good indicator.
Last month, PERE revealed that Pramerica Real Estate In-vestors (PREI) Asia had cast its net to capture S$500 million (€308.7 million; $400 million) of institutional capital for its Pramerica AsiaRetail Fund, a core open-ended real estate fund dedicated to shopping malls in Singapore and Malaysia. It was the latest in a growing list of managers tapping investors for capital to deploy in lower-risk strategies in the region.
Having successfully combined and converted two closed-ended development funds in 2011, PREI is ready to fundraise again. The firm is confident its current portfolio of ‘irreplace-able’ assets and the prospects of finding more like them will en-tice institutions to take on core property in a region historically associated with higher risk than in the West.
“This portfolio is very stable,” said Benett Theseira, managing director for Southeast Asia at PREI. “It is producing income and ideal for institutional investors to hold long term.” Investors can expect an annualized return of between 8 percent and 10 per-cent from a healthy mix of income and growth, he noted.
International investors increasingly are warming to the no-tion that accessing such real estate in the region on a liquid basis is both credible and, importantly, a scalable proposition. Furthermore, there is mounting evidence suggesting investors are benefiting from diversifying their low-risk real estate port-folios from Europe and North America. According to data pro-vider IPD, core Asia-Pacific funds returned 7.9 percent in the past year, more than those focused on Europe (1.4 percent) and within reach of North America (9.9 percent).
UK and German investors already have gotten comfortable with the idea, and the message is getting through stateside. In a document from the Los Angeles County Employees’ Retirement Association recommending a $100 million commitment to a re-cently launched fund by Invesco Real Estate, John McClelland,
principal investment officer for real estate, wrote: “Staff have become increasingly impressed with the institutional quality of core properties in the region as well as the diversification ben-efits of investing in multiple economies.”
Choice breeds competition The first core open-ended real estate fund focused on Asia was the Asia Property Fund, which was launched in 2007 by PRU-PIM, part of UK insurance giant Prudential’s M&G asset man-agement business. Since then, PREI and Invesco have come to market, as have private equity real estate firm MGPA and Ger-man asset manager SEB Asset Management, the latter two of-fering purely to German institutions.
With this increased competition comes choice for inves-tors. “We have a sense of the competition now,” admitted Earle Spratt, the fund manager of PRUPIM’s fund. “For us, it’s a good thing others have set up these kinds of vehicles. That demon-strates the allocation makes sense to investors.”
PRUPIM has about $100 million in dry powder to invest, and Spratt reckoned there was scope within the fund’s existing re-sources to grow assets to $2 billion from $1.5 billion currently before it has to approach investors again.
As with all open-ended funds, investors have every oppor-tunity to get out. PRUPIM offers monthly redemptions coin-ciding with monthly mark-to-market valuations. Others offer quarterly trading points, and it is in this minutia that investors might discern one offer from the next, particularly as competi-tion stiffens.
Geographical reach also may play its part. Invesco, for in-stance, plans to invest in China in the belief certain of its mar-kets should be considered core now. Other managers, including PRUPIM, do not share that belief.
At some stage, China’s most sophisticated markets and those of Indonesia, Taiwan and Malaysia widely will be considered core. That likely will precipitate many more real estate funds looking for investment.
FunDs
A widening choiceinvestors seeking lower-risk real estate vehicles in Asia are finding more options
More core than beforeSix years ago, there were no core open-ended real estate funds dedicated to Asian real estate. Today, institutional investors have a choice of managers
year of inception Firm Fund name strategy current Aum
2013 Invesco Real Estate Invesco Real Estate Asia Fund Core in Korea, China, Singapore, Hong Kong, Australia and Japan
0*
2012 SEB Asset Management SEB Asia REI** Core in China, Japan, Korea, Taiwan, Singapore, Malaysia and Australia
$71 million*
2011 MGPA MGPA Asien Spezialfonds** Core-plus throughout Asia A$105 million
2011 PREI Pramerica AsiaRetail Core retail in Singapore and Malaysia S$3 billion
2007 PRUPIM Asia Property Fund Core in Australia, Japan, Korea, Hong Kong and Singapore
$1.5 billion
Notes: *Fund just brought to market **Dedicated solely to German institutional investors
26 PERE | APr 2013
The Asia-focused conference drew a large audience
(L to R) Christopher Abbiss, Rachel Renucci-Tan, Suchad Chiaranussati, Tomas Svensson and Charles Cosgrove
(L to R) Tim Bellman, John Saunders, NickCrockett and Collin Lau
Shui On Land’s Vincent Lo chides the industry in his address
Headline actsThe largest Pere summit in Asia to date was treated to insights from industry heavyweights such as Blackstone, Global logistic Properties and shui on landDelegates at the sixth annual PERE Summit: Asia were treated to a first-hand narrative from the global head of real estate at the world’s largest private equity real estate firm (by capital raised) on how it sees the world’s major markets evolving.
In an energetic address, Jonathan Gray of The Blackstone Group described an environ-ment replete with dislocation and strong competitive dynamics for those with capital to deploy. Fresh from raising $13.3 billion of equity for its latest global opportunity fund, Gray regaled the audience with tales of how his firm was witnessing markets starved of traditional funding sources, where development of new space has been scaled back and, consequently, where occupancy demand appeared to be growing.
Despite these positive signs, and despite Blackstone’s record equity haul, Gray has expe-rienced investors adopting an overly cautious tone to investing – something that he said must change. “There has been an excess of risk aversion,” he said. “But, in order to deploy the incremental capital they’re growing, investors will need to widen their focus.”
Gray wasn’t the only headline act offering a global perspective at PERE’s largest confer-ence to date. Jeffrey Schwartz, the co-founder of Global Logistic Properties, was the subject of an on-stage interview, in which he described how and why the Singapore-listed indus-trial developer and fund manager had monetized large portions of its Japanese empire to break into Brazil – its first market outside of Asia. He also explained why the market fundamentals of Europe and the US, his old stomping grounds when he was in charge of rival logistics giant Prologis, look relatively less attractive for large-scale investment today.
On day two, it was Vincent Lo, chairman of Hong Kong property giant Shui On Land, who provoked much of the chatter on the event’s sidelines. “I’ve worked with private eq-uity in the past, and it wasn’t easy. You guys are high maintenance,” he exclaimed early in his keynote.
In a thinly-veiled dig at Winnington Capital, Shui On’s partner for a series of develop-ments in China, Lo complained how the timescales and return expectations of private eq-uity firms aren’t always conducive to partnering with developers. “You want to make your money quickly, but real estate is a long-term game,” he said.
Blackstone’s Jonathan Gray opens the conference
Jeffrey Schwartz of Global Logistic Properties offers insight on the region
PERE SUMMIT | ASIA
BLUEPRINT | BROOKFIELD
Photography by donald Bowers
Breaking new groundBrookfield Asset management is ushering in a new era for its real estate business as it strives to build a global opportunistic platform. By evelyn lee
(L to R) Barry Blattman, Ric Clark and Brian Kingston
Ric Clark is leading the way around Brookfield As-set Management’s brand-new New York offices – and global real estate headquarters – on the 15th floor of
250 Vesey Street in Lower Manhattan, just one month after completing a move from an adjacent building within the World Financial Center. The relocation is so recent, in fact, that the space still smells of new paint and has stacks of boxes that have yet to be unpacked.
The main reason for the new offices – featuring an all-white décor, open-floor plan and sweeping views of the Hudson River – is to allow for technological upgrades, says Clark, a nearly 30-year veteran of Brookfield and global head of its real estate arm, Brookfield Property Group. The relocation, however, is fitting for other reasons. After all, Brookfield, one of the world’s largest property owners, has witnessed a number of significant moves in its real estate business over the past year.
Barry Blattman, head of Brookfield’s real estate fund business and co-head of its opportunistic real estate program, returned to New York last summer after a year-long stint in London. While in the UK capital, he helped to build the firm’s opportu-nistic property business in Europe.
Meanwhile, Brian Kingston, formerly the senior managing partner responsible for Brookfield’s Australian operations, also came back to New York in January to assume the new role of chief investment officer for both Brookfield Property Partners (BPY), a new public entity expected to begin trading this month, and Brookfield Property Group, which will man-age the new spin-off. Additionally, Kingston will co-head the global opportunistic real estate program with Blattman, a role previously filled by Clark. Clark, for his part, was named chief executive of BPY last May.
Furthermore, the Toronto-based asset manager currently is in the process of spinning off substantially all of its commer-cial property operations –including its office, retail, multifam-
ily and industrial assets – into BPY. The flagship fund of BPY, Brookfield Strategic Real Estate Partners (BSREP), represents the firm’s first global opportunistic real estate fund.
opportunistic progressionClark says the decision to form the new entity was part of a strat-egy laid out by Bruce Flatt when he took over as chief executive of Brookfield Asset Management in 2002. That plan called for streamlining what was then a complicated conglomerate into four main platforms focused on real estate, renewable power, infrastructure and private equity.
“Our opportunistic strategy naturally followed and is a function of our experience in opportunistic investing, the in-vestment climate and opportunity set that we saw, as well as the strategies of the institutional investors that invest with us,” Clark says.
Blattman, however, makes it clear that “we always knew that flagship real estate opportunity funds were always going to be critical to our business.” Brookfield began laying the ground-work for a global opportunistic real estate strategy less than a decade ago with the 2006 launch of its first opportunistic real estate fund, the Brazil Retail Property Fund. On behalf of the vehicle, which raised $800 million in commitments, the firm acquired interests in a number of Brazilian shopping centers and regional malls.
Brookfield went on to raise Brookfield Real Estate Oppor-tunity funds I and II, which invested in underperforming real estate properties in North America, in 2006 and 2007, respec-tively. However, 2009’s Real Estate Turnaround Program, which made equity and debt investments in undervalued real estate companies and portfolios, was Brookfield’s first global real estate capital-raising effort. The program, which raised a total of $5.5 billion, was structured as a club deal between limited partners that included the Canadian Pension Plan Investment
BLUEPRINT | BROOKFIELD
Blattman, Clark and Kingston: addressing the recent changes in Brookfield’s real estate business
30 PERE | APr 2013
Board, Australia’s Future Fund, the Government of Singapore Investment Corporation and China Investment Corporation.
When Brookfield formed the consortium, many limited partners were wary of committing to commingled funds af-ter getting battered by heavy losses from such vehicles during the global financial crisis and subsequent downturn. However, “there were a number of partners who had given us direction that they wanted to do deals but they just couldn’t do a fund at that time,” recalls Blattman.
The experience with the Turnaround Program, however, re-vealed the shortcomings of the club structure. “If you have a consortium where everybody is going to choose whether they are in or out, when you’re working on a transaction, everybody wonders who ultimately is going to be in,” Blattman says.
A commingled investment strategy, on the other hand, offers a sponsor the certainty that all of the investors will invest in the deals in the fund, while allowing larger limited partners to co-invest on significant transactions through sidecar vehicles. “A traditional commingled fund is really the model that makes the most sense for us,” Blattman notes. “But the consortium was the right thing at that time.”
In an earnings report and letter to shareholders for the first quarter of 2011, Brookfield revealed the news that the industry had been waiting for – the launch of its first global real estate fund. Last May, the firm held a first close for BSREP, raising more than $2 billion in equity, according to filings with the US Securities and Exchange Commission. The equity haul included a $200 million commitment from the Teacher Retirement Sys-tem (TRS) of Texas and $310 million in aggregate commitments from New York City’s five primary employee pension systems, according to those pension plans.
Brookfield declined to comment on its fundraising activity, citing SEC restrictions. PERE, however, understands that the firm has raised $2.6 billion of its $3.5 billion equity target as of press time and is expected to hold a final close in June.
Closed-ended evolutionBSREP is an example of what Steve LeBlanc, the former head of private markets for Texas Teachers, calls “the new evolution of the closed-ended fund structure,” where the general partner is a publicly-traded company rather than a private firm. Aside from Brookfield, other GPs that fit the new model include listed private equity firms such as The Blackstone Group, Kohlberg Kravis Roberts (KKR) and Apollo Global Management – all of which, incidentally, are on TRS’ premier list. That list includes real estate, private equity and real asset fund managers that the pension system has pre-screened and pre-determined as being top quartile – and are the only private market GPs with which it invests.
Indeed, while all of the GPs on the premier list meet Texas Teachers’ strict criteria for governance, alignment of interest, transparency and investment track record, the fact that Brook-field is a major investor in its funds makes it stand out from the pack. “They eat their own cooking,” says LeBlanc.
Because public ownership significantly increases the amount of permanent capital that a GP has, the amount of co-investment by a publicly-traded fund sponsor also is sub-stantially larger than that of the private fund sponsor, which
typically makes a co-investment that is 2 percent to 5 percent of the total fund. Brookfield, for example, is said to have com-mitted $1 billion, or nearly one third, of its $3.5 billion target to BSREP through BPY.
LeBlanc, who left Texas Teachers last June to start his own investment and management firm, CapRidge Partners, expects this new model of the closed-ended fund to become more prev-alent in the industry. “It’s going to be interesting over the next 10 years, as more and more GPs become public and have more and more of their shareholders’ capital and their own capital invested in each of their closed-ended funds,” he says.
Some investors and others in the industry have expressed concern that a publicly-traded GP will represent less alignment than a private GP because the capital in a co-investment by a
Brookfield’s new spin-offThe creation of Brookfield Property Partners is expected to be a win-win for the global asset manager
The spin-off of Brookfield Property Partners (BPY) is intended to simplify Brookfield Asset Management’s corporate structure by creating a platform that will house all of its real estate assets. The formation of the new entity follows similar spin-offs for Brookfield’s infrastruc-ture and renewable energy businesses in 2008 and 2011, respectively.
BPY will be divided into four operating platforms: office; retail; multifamily and industrial; and opportunistic, ac-cording to documents posted on Brookfield’s website last month. Those platforms will be comprised of the firm’s wholly-owned real estate assets; its interests in Brookfield Office Properties, GGP and Canary Wharf; its partial inter-ests in properties; and its sponsorship interests in various private property funds.
Public shareholders are expected to own approximate-ly 47 percent of BPY’s common stock, while Brookfield is anticipated to own about 53 percent upon completion of the spin-off. The new entity is scheduled to start trading later this month.
Brookfield, however, intends to reduce its ownership in BPY over time. The larger BPY becomes and the less Brookfield owns in the entity, the more fees Brookfield is expected to earn. The amount of capital that the firm invests in any fund, property or company also will decline since Brookfield’s interest in any particular real estate as-set will be proportionate to its ownership stake in BPY.
Not only does this free up more of Brookfield’s capital to be invested elsewhere, but this ultimately helps to boost the firm’s balance sheet. Because Brookfield is put-ting less equity into its real estate holdings by moving its interests in these assets off its balance sheet and into BPY and simultaneously increasing the fees it collects for real estate, it can significantly enhance its return on equity, which is the ratio of the firm’s earnings over the amount of equity invested.
APr 2013 | PERE 31
publicly-traded GP consists of capital from both public share-holders as well as the firm’s senior executives. This is in con-trast to private firms, where all of the capital is coming from the company’s executives.
However, LeBlanc – who himself led a publicly-traded com-pany, Summit Properties (now part of Camden Property Trust), from 1998 to 2005 – argues against such a premise. With a pri-vate sponsor, employees involved with managing a fund would get a salary and bonus, along with half of the carry generated by the fund. While this also may apply to a publicly-traded spon-sor, the employee of a publicly-traded GP also would get stock options and grants in the company. “It seems like there’s even more alignment or, at the very least, the same,” he says.
Brookfield’s senior executives, for example, own 19 percent of the company’s common shares. While this is a lower percent-age of ownership than the listed private equity firms, the latter have been on the public markets for a much shorter period of time than Brookfield, whose oldest predecessor company began trading on the Toronto Stock Exchange in 1902. Moreover, ‘in-sider’ ownership of common stock among listed private equity firms also is likely to decrease as the companies issue more of their stock to public shareholders.
In examining the new closed-ended fund model, LeBlanc says that, “in a lot of ways, it’s better. You have more transpar-ency, more scrutiny of the GP, larger investment by the GP in their funds and more standardized reporting of their returns.”
However, there is one key difference between Brookfield and other ‘new model’ GPs. While the likes of Blackstone and KKR have been managing closed-ended funds for many years and only recently began managing public shareholder money, Brookfield is exactly the reverse. “The companies are approach-ing the same space from completely opposite ends of their his-tory,” notes LeBlanc.
Platform investmentsOver the past decade, Brookfield’s private funds business and its global real estate opportunistic strategy have both helped to alter its investment profile. The firm does not have a defined maximum hold period for real estate assets acquired on balance sheet or through Brookfield Office Properties, a publicly-traded
entity with a core and core-plus strategy. By contrast, most of its opportunistic investments are held in finite-life vehicles.
“It’s been a bit of an evolution for us,” says Clark. “We’ve come from starting with straight asset-level joint venture arrange-ments on a core to core-plus kind of deal to getting those part-ners involved with us early on so that they can invest at different points in the risk spectrum.”
Brookfield has made a name for itself by executing a number of high-profile platform-level investments, but the transaction that is said to have put the company on the map in US com-mercial real estate was the recapitalization of bankrupt real es-tate firm Olympia & York in 1996. In that deal, Brookfield Of-fice Properties, then known as Brookfield Properties, acquired a 46 percent interest in World Financial Properties, the entity formed from the bankruptcy. That investment gave Brookfield partial ownership of three of the four towers of the World Fi-nancial Center, as well as One Liberty Plaza and 245 Park Av-enue in Manhattan. Brookfield subsequently increased its own-ership interest to 99.4 percent.
“There are very few groups who can marshal large amounts of capital and who can work through very complicated distressed situations,” says Kingston of Brookfield’s affinity for platform investments. “For those who are able to do that and navigate those areas, the rewards are very high because you typically can buy very well as opposed to the simpler, more straightforward transactions, where it’s much more competitive on the price.”
In addition to more favorable pricing, investing in distressed capital structures as opposed to distressed assets offers a higher potential return, says Blattman. “Because it’s a platform, there is a lot more reward that comes from the investment than just the recovery in those underlying assets,” he explains. “You don’t have visibility when you make the investment to understand what kind of great additional opportunity is going to come from these platforms, but inevitably it does come.”
A ‘brilliant’ dealBrookfield’s blockbuster platform investment of the current cycle is the recapitalization of bankrupt US mall owner Gen-eral Growth Properties (GGP). In 2010, the firm, along with its partners in the Turnaround Program, made an initial capital
BLUEPRINT | BROOKFIELD
The long and winding roadBrookfield’s history spans more than 100 years, and its involvement in real estate is nearly as long
1899: Brookfield’s oldest predecessor company, the São Paulo Tramway, Light and Power, is in-corporated in Ontario, Canada, by a group of Canadian utility entre-preneurs
1902:The common shares of the São Paulo Tram-way, Light and Power commence trading on the Toronto Stock Exchange
1924:Canadian Arena Corpo-ration, the predecessor company to Brookfield Office Properties, builds the Montreal Forum for hockey and other sporting and cultural events. This is Brookfield’s first real estate investment
1996:Brookfield Office Properties acquires a 46 percent stake in World Financial Properties, the corporation formed from the bankruptcy of Olympia & York
2003:Brascan makes its first investment outside of North America with the acquisition of a 9 percent interest in Canary Wharf Group
32 PERE | APr 2013
infusion of $2.6 billion into the retail real estate investment trust and, one year later, acquired an additional 10 percent in GGP for about $1.7 billion. The investment, which helped to bring GGP out of Chapter 11 bankruptcy protection, has been called “a brilliant deal” by industry observers.
As the largest transaction made through the Turnaround Program, the GGP investment helped to contribute to the stel-lar performance of the vehicle, which has generated a 51.2 per-cent net return as of March 31, 2012, according to documents from the Pennsylvania Public School Employees’ Retirement System (PSERS). Partly based on that track record, the state pension plan agreed to invest $200 million in BSREP in June.
Brookfield currently holds 22 percent of GGP on its balance sheet, including warrants, while the consortium owns an ad-ditional 19 percent. Although the consortium interest is held through a vehicle with a 10-year life, how long the firm hangs onto the remainder of its stake in the REIT remains to be seen.
“We feel like we’re in the initial stages of this investment,” says Clark. “I think the management team has done a phenom-enal job in the couple of short years that they’ve been out of re-organization, but we see a lot more upside.”
Some critics have argued that Brookfield has benefited its consortium partners at the expense of its public shareholders by holding onto its stake in GGP. Kingston, however, asserts that the investment’s initial value creation came solely from the stabilization of the company. “We think there is a much lon-ger game to this, which is actually operating these assets much better, improving the net operating income and finding ways to selectively redevelop or expand these assets,” he adds.
shifting us opportunitiesA more recent platform investment on behalf of BSREP is the firm’s acquisition of an 81 percent stake in Verde Realty, a Houston-based industrial REIT. The $866 million transaction has helped to expand Brookfield’s holdings in industrial real estate, a relatively new property type for the firm, as well as its presence in northern Mexico, where a portion of Verde’s 111 industrial facilities are located.
Brookfield plans to add value to the Verde platform by in-creasing occupancy levels at the REIT’s properties in order to boost net operating income, as well as selling non-strategic land and non-core assets and seeking potential consolidation with other challenged mid-sized businesses.
Of course, the opportunity set for platform investments has shifted in the face of changes in the global capital markets. “When there was distress in the US, our first choice would be to find great platforms,” says Blattman. “Right now, in the US, we are seeing less of those opportunities in our pipeline.”
Two or three years ago, there was a shortage of capital for very large transactions in the US, explains Kingston. Currently, capital dislocation in the US is concentrated primarily in the mid-market deals on the asset level, and Brookfield has fol-lowed suit in its deal sourcing.
Perhaps that explains the February acquisition of a port-folio of 19 apartment communities in the southeastern US from Babcock & Brown Residential for a total of $414 million. Brookfield intends to invest an additional $30 million towards upgrading and repositioning select assets in the portfolio to in-crease rents and return on investment.
About 70 percent of Brookfield’s global real estate fund will be allocated to large-scale platform investments with an aver-age equity size of $700 million, as well as a sizable allocation to mid-cap property investments with an average equity size of $50 million, the majority of which are anticipated to come from the US, according to PSERS documents. Sources familiar with the matter noted that BSREP is about 30 percent invested as of press time.
emerging in europeWhere Brookfield actively is targeting distressed platforms is Europe. “There is still a lot of debt overhang that hasn’t been worked through yet as it has in the US,” says Kingston. “The banks aren’t really that open for business, and it’s clear that a private market solution is required to help recapitalize some of these companies.”
It was this emerging opportunity that led Blattman to relo-cate to London for one year to build Brookfield’s opportunistic real estate business there. “We had the UK and Europe in our sights for many years, and the one opportunity that emerged that we went after in a very aggressive way was when Canary Wharf was sold,” he recalls.
In 2003, Brookfield made its first investment in the UK with the purchase of a 9 percent interest in Canary Wharf Group, an owner of office and retail real estate assets in the former dock-lands area of London, subsequently increasing its stake to 22 percent in 2010.
2005:Shareholders of Brascan approve changing its name to Brookfield Asset Management
2006:Brookfield launches its first opportunistic real estate fund, the Brazil Retail Property Fund
2010:Brookfield makes an initial equity invest-ment to recapitalize bankrupt mall owner General Growth Prop-erties on behalf of its Turnaround Program
2011:Brookfield announces the launch of its first global real estate opportunity fund, Brookfield Strategic Real Estate Partners
2013:Brookfield spins off all of its real estate hold-ings into a new entity, Brookfield Property Partners
APr 2013 | PERE 33
“We had it in our minds that when Canary Wharf-type situations emerge, we would go after them, but it didn’t hap-pen that often,” says Blattman. “The financial crisis and what clearly was brewing in the UK and Europe was something to which we needed to pay attention, given our quest to create op-portunity in the company.”
Topping Blattman’s to-do list in London was finding some-one to head the European opportunistic platform. That some-one turned out to be David Brush, the former chairman of RREEF’s global opportunistic business, who joined Brookfield in July after six months of discussions.
Brookfield’s focus in Europe is on opportunistic property in-vestments in major commercial centers in the UK, France and Germany, although it has yet to make such an investment in the region. Indeed, industry observers have said those markets are among the most stable in Europe and therefore may offer limited deal flow in terms of opportunistic investments.
investing down underAnother recent platform investment made on behalf of Brook-field’s global real estate opportunistic strategy is its successful takeover of Australian listed REIT Thakral Holdings Group for $492 million. The acquisition, which closed in December, gave the firm ownership of the Wynard City One office development site in central Sydney, as well as hotels and other assets along Australia’s east coast. Brookfield previously made a number of unsuccessful attempts to acquire the Wynard assets.
Until recently, Brookfield saw investment opportunities in Australia stemming from a significant repatriation of capital from foreign banks out of the continent, which left certain bor-rowers unable to refinance their debt. Such a capital dislocation made it possible for the firm to acquire a portfolio of nonper-forming loans backed by real estate assets in New Zealand from a European bank in November 2011.
“Ordinarily, that probably could have been refinanced,” says Kingston, who spent five years on the continent overseeing the integration of Brookfield’s 2007 acquisition of Multiplex, an Australian commercial property owner and developer. “Be-cause there was a shortage of capital for a moment in time in that part of the world, it created some opportunities for us.” That opportunity, however, has subsided somewhat as Asian banks have been putting more capital into the region.
Meanwhile, Brookfield currently is in the ‘R&D phase’ for opportunistic investments in Asia, where it has offices in Hong Kong and India. “We have plenty to work on and there is no shortage of opportunities that we’re seeing in the five geogra-phies we’re currently investing, but Asia is definitely on our ra-dar,” says Clark. As proof of this, the firm announced in Febru-ary that it had hired Niel Thassim, the former head of Asia real estate at RREEF, as Asia head for its private funds group.
Additionally, Brookfield and the Investment Corporation of Dubai appointed Douglas Kirkman, formerly with Blackstone in Asia and the Middle East, as chief executive officer of ICD-Brookfield Management, which will be the manager of the ICD-Brookfield Dubai Real Estate Fund, an opportunistic vehicle with a $1 billion target.
Troubles in latin AmericaOf course, Brookfield has had its share of missteps as well. For example, its Brazil Retail Property Fund has been a subper-former, generating a 0.6 percent net return as of March 31, 2012, according to PSERS documents. That compares to an average net return generated by Brazil- and Latin America-focused funds of the same vintage in the mid- to high teens.
The reason for the underperformance of Brookfield’s Brazil fund is said to be overpayment on leveraged mall purchases on behalf of the fund because the firm was under pressure to invest the fund’s capital as it neared the end of the vehicle’s investment life. Furthermore, the firm supposedly had to use additional balance sheet capital to repay its debt after the fund’s LPs re-fused to kick in more capital.
If that is not enough, Brookfield currently is facing bribery charges from a Brazilian prosecutor, who has alleged that the firm’s local subsidiary made pay-offs to expedite the approval of construction permits. Brookfield, which denies any wrongdo-ing by its employees, has conducted a through internal inves-tigation that uncovered no evidence to support the allegations and is fully cooperating with local authorities.
Winning over investorsWhile the fallout from the lawsuit remains to be seen, Brook-field has been successful thus far in expanding its investor base – particularly among US pension plans – through its global real estate opportunistic strategy. Indeed, many of BSREP’s limited partners – including Texas Teachers, PSERS, the five New York City pension systems and the San Francisco Employees’ Retire-ment System, which committed $50 million last August– have told PERE or indicated in public documents that they are first-time investors in the firm’s funds.
“When we started talking to the traditional US investment community a dozen years ago, we were hard to understand because our organization wasn’t structured in an easy-to-un-derstand format,” says Blattman. As the firm has evolved into a more streamlined organizational structure, however, Brook-field has won the support of a significant portion of US-based consultants and investors. “We’re just in a different place now.”
As Brookfield proceeds with the spin-off of BPY and the ex-pansion of its global opportunistic real estate platform, it is clear that the long evolution of the 100-year-old-plus alternative asset manager is far from over.
BLUEPRINT | BROOKFIELD
Brookfield Asset ManagementFounded: 1899 (through predecessor company
São Paulo Tramway, Light and Power)
Headquarters: Toronto and New York (real estate)
Chief executive officer: Bruce Flatt
Senior real estate executives: Ric Clark, Barry Blattman and Brian Kingston
Total assets under management: $175 billion
Real estate assets under management: $89 billion
Total equity raised for real estate: $11 billion
34 PERE | APr 2013
The logistics of e-commerce As e-commerce giants like Amazon and eBay grow at a staggering rate, so are their needs for global warehouse space. James Comtois looks at what private equity real estate firms are doing to capitalize on this growing trend and what value they can provide to the Amazons of the world
Last month, Jones Lang LaSalle began marketing the Goodman Logistics Center Oakland, a 374,725-square-foot distribution facility under construction less than
one mile from the Oakland International Airport. The prop-erty is the first new development in a planned strategy of up to $1.5 billion in US logistics and industrial facilities by Good-man Birtcher, a partnership between Australian property in-vestor Goodman Group and Irvine, California-based Birtcher Development.
March also brought news of Goodman agreeing to buy a 25 percent stake in ATL Logistics Centre Hong Kong for approximately $450 million. At 13 stories and 6 million square feet, the property is the world’s single largest logistics facility and services most of Hong Kong’s container traffic.
These deals by Goodman are two of many recent examples in which private real estate firms are cap-italizing on a fast-growing need for new warehouse space. Indeed, all over the globe, the demand for logistics facilities is rising at a rapid pace.
Greg Goodman, chief executive officer of Goodman Group, tells PERE that the industrial real estate segment is “probably one of the best in-vestment classes globally,” adding that “industrial is very attractive to investors.”
One of the reasons for this increased demand? The continu-ally accelerating growth of e-commerce businesses.
Though there are other contributors to the recovery of the industrial real estate market, such as increased consumption, supply chain reconfiguration and the overall recovery of global trade, the growth in e-commerce is one of the major factors driving the increasing demand for this property type. In turn, the increasing need for warehouse space is causing a decline in the need for traditional retail space, although that property type is far from dying out altogether.
The e-commerce boomOnline retailing giants like Amazon and eBay need more ful-fillment centers and warehouse space to service their rapidly expanding customer bases. To these online retailers, it doesn’t matter whether they get these space needs met by a private eq-uity firm, a REIT or a local developer, so it’s crucial that private real estate firms take advantage of the trend.
“E-commerce is here to stay,” says Frank Cohen, senior managing director at The Blackstone Group. “Private equity firms need to be aware of this and find interesting investment opportunities.”
The rise of e-commerce is nothing new. Over the past 10 years, e-commerce has been growing approximately 10 percent to 15 percent on a year-over-year basis. Citing statistics from Forrester Re-search, a recent report from Internet Retailer mag-azine projects that e-commerce spending in the US will hit approximately $262 billion this year, up 13.4 percent from $231 billion spent in 2012.
As Internet shopping grows, so grows the need for distribution and fulfillment centers. One third of all demand for big-box warehouse space has been tied to multi-channel retailers, or ‘e-tailers’, that have found online and mobile sales driving the need for fewer brick-and-mortar re-
tail stores and more regional distribution facilities to accom-modate next-day delivery.
What is relatively new is that private equity firms are finally taking advantage of the wealth of opportunities in the space. Even a titan like Blackstone is getting in on action, complet-ing its takeover of the CalWest portfolio, a 21 million-square-foot US industrial portfolio previously owned by Walton Street Capital, last year. The New York-based private equity and real estate giant now owns some 83 million square feet of industrial space in the US and 26 million square feet in
LOGISTICS FOCUS
Goodman: capitalizing on global demand
APr 2013 | PERE 35
LOGISTICS FOCUS
Europe. Bear in mind, the firm owned no industrial ware-house space prior to 2010.
Clarion Partners, which has developed 33 million square feet of industrial space since 2002, is another firm clearly primed to take advantage of the e-commerce boom. Last May, the New York-based real estate investment manager teamed up with Dallas-based Hillwood to develop a massive 950,000-square-foot fulfillment center in San Bernardino, California, on behalf of Amazon. Various media outlets have reported that Clarion has since expanded its relationship with the e-tailing giant.
“The boom of e-commerce in many respects is a net gain for the warehouse sector,” says Tim Wang, director and head of in-vestment research at Clarion.
Bringing value to the tableIt’s clear why a private equity real estate firm would want to capitalize on this ever-expanding need for industrial space. The bigger question is what they can bring to the table. In other words, why would the Amazons, 360buys and VIPshops of the world want to partner with the Goodmans, Clarions and Blackstones?
Simply put: private real estate firms, especially those with a massive national or global footprint, can simplify e-commerce firms’ lives and provide options as to their real estate needs. Indeed, although e-commerce firms require more space these days, they generally don’t want to acquire, develop or hold the warehouse space they need. Therefore, they often turn to expe-rienced real estate firms with the capacity to develop and own the facility and then lease it back to them.
Thorsten Kiel, a fund manager at Henderson Global Investors in charge of the firm’s soon-to-close Henderson German Logis-tics Fund, says: “E-commerce retailers sometimes are not will-ing to accept 10-year leases and have weak covenants, so they cannot get a developer to build a new asset for them. Therefore, they tend to rent space, which helps strengthen rents for land-
lords such as us.”Ultimately, it makes sense for a global firm like Amazon to
turn to a real estate firm with a global or national footprint in-stead of a local developer.
“We’ve got a big infrastructure around the world,” says Good-man of his firm. “We’ve got the capital and financing to build three or four buildings at a time for Amazon or Alibaba.com.”
Warehousing in the WestWith economic recovery underway and low levels of new sup-ply, industrial fundamentals are positive, particularly in the US. In addition, companies are looking at supply chains and try-ing to improve them. Since the US in particular is a mature in-dustrial market, changes are being made to the existing supply chain in addition to new construction.
The US isn’t the only country in the Americas to see strong and growing industrial fundamentals. Brazil also is seeing growth in the warehouse sector. Last November, Global Logis-tic Properties (GLP) expanded its empire beyond Asia for the first time with the $1.45 billion acquisition of a pair of large portfolios in Brazil, thereby becoming the largest logistics real estate investment manager in the country.
Mexico is another country in the Americas that a few private equity firms are bullish on in terms of industrial real estate. In particular, Guy Jaquier, chief executive officer of private capital at Prologis, says Mexico “is becoming an increasingly more de-sirable location for manufacturing due to higher fuel costs and an increase in labor costs in China, especially in the automo-tive, aerospace, electronics and large appliance sectors.” The San Francisco-based logistics firm currently is building out a one million-square-foot facility in northern California for Amazon and a 1.1 million-square-foot space in Atlanta for Home Depot on behalf of its HomeDepot.com e-commerce site.
In Western Europe, meanwhile, Forrester Research projects e-commerce spending to reach €128 billion this year, up 14.3 percent from €112 billion in 2012. Although the market in Eu-rope is similar to that of the US and facing some of the same fac-tors driving fundamentals, it is by no means identical to the US.
First of all, Europe comprises about 4.5 times less Class A in-dustrial space than the US, which suggests considerable room for further growth. Secondly, the recovery in Europe has been lagging the US by several quarters. Not only that, but the Eu-ropean logistical market just isn’t as mature as that of the US.
Still, Europe is seeing some considerable activity. Goodman, for example, is in the process of developing an 80,000-square-meter facility in France, a 50,000-square-meter property in Germany and another warehouse in Germany that’s about 78,000 square meters – all of behalf of e-tailers.
Ultimately, logistics is becoming an increasingly attrac-tive property type in Europe among institutional investors for many of the same reasons as it is in the US (improved economy and a growing online shopping culture). Indeed, a new survey conducted by CBRE unveiled at the MIPIM property confer-ence last month revealed that investors are warming up to the logistics sector in Europe. The survey noted a marked rise in the popularity of logistics property among investors, with 20 per-cent selecting the sector as the most attractive for purchases this year compared with 14 percent in 2012.
The Euro industrial complexAmong projected total returns across core property sectors in europe, warehouse and industrial assets are expected to reign supreme over the next few years
Note: weighted average of prime local market forecastsSource: Henderson Global Investors
High Street Shops OfficeRetail Warehouse Industrial
12
2012 20142013 2015 2016
8
2
10
4
6
0
36 PERE | APr 2013
In contrast, investors appeared more cautious about retail property this year, with lower proportions of investors selecting shopping centers as the most attractive sector compared with the 2012 survey. “In Europe, e-commerce is a driver as well, but the main differentiator from the US is the region’s new supply chain reconfigurations,” says Jaquier.
eastern e-tail Changing fundamentals also are affecting the warehouse space in Asia, where e-commerce is a big growth area. At GLP, for example, its top tenant in China is Amazon, which represents about 5 percent, or about 300,000 square meters, of the firm’s leasable space in the market, as of December. In addition to Amazon, GLP has a few more e-commerce companies among its top 10 tenants, including 360buy and VIPshop.
Although the amount of logistics space per capita in China is just one-fourteenth of that in the US, e-commerce customers represent a growing proportion of the market. For example, as of the fourth quarter, online retailers represented about 20 per-cent of GLP’s leased space in China. That is up from 11 percent in 2011 and just 3 percent In October 2010.
When a tenant thinks about leasing warehouse space, it’s mainly about scale, and that is where some of the industry’s heavyhitters offer the most benefit. For instance, in GLP’s three primary markets – China, Japan and Brazil – it is the market leader in terms of its industrial footprint. In China, the firm is about seven times the size of its next biggest competitor and, in Japan, it’s 40 percent larger than its next largest competitor.
For Prologis, Japan is its most profitable country in the region. Its success in the region, according to Jaquier, “is heavily impacted by supply chain re-configuration. The recent success of our J-REIT shows considerable investor interest for high-qual-ity properties in Japan, and Prologis is committed to further growing our platform there,” he says.
stayin’ alive (sort of)When it comes to e-commerce, where logistics space gains, retail space suffers. Indeed, some re-tailers like Best Buy are finding that their stores are being used more as showrooms; customers come to inspect the merchandise, but they make the ac-tual purchase online.
“As you can imagine, store-front and showroom retail is be-ing minimized in some cases and in other cases replaced by Internet fulfillment warehouses,” says Ward Fitzgerald, chief executive of Exeter Property Group, which earlier this year bought a 600,000-square-foot distribution warehouse in West Memphis, Tennessee.
On average, consumers under the age of 25 are shopping al-most exclusively online. As they get older and accumulate more income, the population that shops exclusively online via com-puters, tablets and smartphones is expected to grow even larger.
In February, AXA Real Estate released a rather dire report on e-commerce’s impact on traditional retail, concluding that a reduction in the financial viability of physical retail units will bring some rental values in the sector down close to zero. That is a pretty sobering assessment.
While it’s true that some retail segments, such as booksell-ers, electronics retailers and furniture stores, are becoming more vulnerable to e-commerce, things aren’t as dire for the traditional retail sector as many would believe. Some sectors, such as grocery-anchored retail, movie theatres and personal healthcare stores, are still pretty resistant. In addition, retail spaces that are attached to either office space or residential units are projected to remain strong.
The bottom line is many consumers still prefer shopping for food at the store rather than online. Furthermore, e-commerce simply can’t eliminate the social and communal aspect of shop-ping that many consumers enjoy. “Because there’s a social as-pect of shopping, there’s a lot of retail that I don’t think can be replaced,” notes Cohen.
Lastly, despite e-commerce being a game-changer, it is unlikely that it will continue to grow at 15 percent per year indefinitely. So, although the retail sector is facing strong headwinds, it is highly unlikely that it will go the way of the dodo.
Getting on boardWith e-commerce continuing to grow for the foreseeable future, such retailers increasingly are turning to asset managers with a substantial footprint and expertise in major logistics mar-kets across a country or region. If an e-commerce company wants to set up fulfillment centers in a dozen towns throughout China, for example, it
makes far more sense to have one contract with GLP than a dozen contracts with 12 different independent operators.
“E-commerce is a very fluid business where there is no one-size-fits-all approach for everyone,” notes Jaquier. “With our global platform, we have the capability to develop build-to-suit space, small or large, on well-located land in a variety of markets.”
This trend of growing e-commerce companies requiring more logistics space is happening with or without the partici-pation of private equity real estate firms, so it’s up to the indus-try to decide whether or not to get on this fast-moving train or get left behind at the station. With deals like the Goodman Logistics Center Oakland and the ATL Logistics Centre Hong Kong taking place, however, it looks as though the industry is beginning to climb aboard.
Goodman Logistics Center Oakland: the firm’s first project for a dedicated US strategy
Jaquier: no one-size- fits-all approach
APr 2013 | PERE 37
It’s a wrap The pavilions at this year’s miPim property show in Cannes have been taken down, but the plot could have been very different had Cyprus blown up earlier. By robin marriott
Was it good timing or bad? This year’s MIPIM prop-erty show was held between Tuesday, March 12 and Friday, March 15, just as last year’s shocks to the Eu-
rozone were starting to fade into memory. By the time delegates had returned to their desks the following Monday, however, Europe seemed to have been plunged into a fresh crisis.
Suddenly, Cyprus was under pressure to accept a €10 bil-lion bailout from the European Union that involved raiding the bank accounts of ordinary citizens. There was outcry from the outset that the scheme set a ludicrously dangerous precedent for similarly vulner-able countries in the Eurozone. Later that week, the Cypriot parliament rejected the bailout, leaving the island nation searching for a Plan B. At press time, that seemed like it could involve an emergency investment by Russia, given the close ties between the two countries. In fact, there already are jokes that Russia ‘buying’ Cyprus could become the best distressed deal of all time in Europe.
Had Cyprus’ dramatic problems come to light one week ear-lier, it would be fair to assume that it would have been men-tioned 80,000 times during MIPIM – assuming the reportedly 20,000 delegates attending the property show in Cannes men-tioned the stricken country at least once every day. As it turned out, Cyprus remained a small country in the Mediterranean Sea that was not really worthy of mention at all.
Instead, most of the talk at MIPIM revolved around how Eu-
rope no longer presented a serious and present danger to inves-tors, given that the ‘worst was over’ economically speaking. To that extent, the organisers of MIPIM were lucky because they could suggest there was more optimism at this year’s jamboree, as indeed there was. Julian Newiss, founding partner of Lon-don-based Catalyst Capital, summed up the mood best, saying: “There’s generally more enthusiasm that we’re past the worst.”
There were several reasons for the increased buoyancy. “I think the main thing is the increased availability of debt
priced at a number that works for people rather than the numbers that were being talked about last year,” ventured Newiss. Part of the explanation for that phenom-enon stems from the new entrants into the lending market.
Indeed, during MIPIM week, there were reports of how Norges Bank Investment Management, which has been investing in direct real estate for the past two years on
behalf of the 4.14 trillion kroner (€551 billion) Norwegian Government Pension Fund Global, had issued a request for proposals for a feasibility analysis of the European real estate debt market. Market participants seeking to win that mandate would have preferred the report hadn’t surfaced during the event in order to preserve their perceived competitive advan-tage. Still, the potential entry of another big player into real estate finance was roundly taken as a positive.
The other reasons for enthusiasm were as follows: the repeated
SPECIAL REPORT | MIPIM
Palais des Festivals: the hub of MIPIM
“The positivity in the US is flowing through their
veins, and they are starting to think about where they go next.”
-russell Jewell
38 PERE | APr 2013
emergence of international money for direct real estate and the general expectation that Europe’s banks will begin releasing their distressed assets and loans into the market.
During MIPIM, the point about international capital was underlined when AXA Real Estate Investment Managers an-nounced it had led one European and two Asian investors in a joint venture to buy Ropemaker Place in central London for £472 million (€551 million; $714 million). One of the inves-tors reportedly was Gingko Tree Investment, a Chinese state-owned entity.
As new pockets of capital continue to open up, everyone could agree that there is huge interest in prime property in cit-ies such as London. One example of that hunger is the State Oil Fund of Azerbaijan, which in December made a £177 million (€217 million; $287 million) investment in an office property at 78 St. James in the West End of London. A representative of the State Oil Fund was said to be at MIPIM seeking to further relations and lunched with luminaries such as Pierre Vaquier, global head of AXA Real Estate.
All about the investorsPlenty of institutional investors made it to Cannes to speak to fund managers and gauge the opportunity in Europe as a whole. A random list of those with full diaries, especially on Tuesday and Wednesday, included Hanadi Shabakouh, head of real estate investment fund division at the Kuwaiti Fund for Arab Economic Development; Mark Shoberg, managing direc-tor of investments at University of Texas Investment Manage-ment; and Craig Rochette, investment manager at the Teacher Retirement System of Texas.
One group that is highlighted to reach Europe’s shores next, probably for core real estate, is the fraternity of Australian su-perannuation funds. Certainly, PERE is aware of at least one such investor that is busy formulating plans as of the time of this writing.
On the other hand, Ivanhoe Cambridge, the real estate arm of Caisse de dépôt et placement du Québec, has been investing in Europe for years. Bill Tresham, president of global invest-ments, and his team were on hand inside the ‘bunker’ of the Palais des Festivals, where the Canadian pension had a stand. As well as having a raft of developments under its belt, the Ivan-hoe Cambridge team has been busy showing its opportunistic capability by partnering on distressed property deals. The in-vestor revealed that it had teamed up with TPG Capital and Pa-tron Capital on the takeover of Dutch property company Uni-Invest – not something that has been widely publicized.
MIPIM director Filippo Rean indicated that the number of sovereign wealth funds and pension plans present at the prop-erty show is a noteworthy trend. “This year, we welcomed a record 60 pensions and sovereign wealth funds to Cannes,” he said.
Brad Olsen of Atlantic Partners, who appeared to be using the JW Marriott hotel as an unofficial base for meetings, said one feature he had picked up on was the way US investors in particular were beginning to think about Europe seriously. The question, though, was to what extent they actually were writing out checks to fund managers.
The theme of US investors and their attitude towards Europe was revisited constantly during MIPIM. In a suite on the first floor of the Majestic hotel, Peter Reilly, head of real estate for Europe in JPMorgan Asset Management’s global real assets group, had little doubt that there has been a big change in senti-ment among Americans.
Around nine months ago, US investors for the most part were unable or unwilling to entertain serious discussion about investing in Europe, Reilly noted. However, since the start of the year, that has changed. Plenty of US investors have been making the trip to London to talk further, he added, and some were present at MIPIM.
Russell Jewell, head of private equity at Paris-based AEW Eu-rope, which has launched a capital-raising program for Europe-an opportunistic investing just as JPMorgan has done, said the bigger question was ‘how’ investors would enter the fray. Dur-ing a panel session hosted by PERE, he noted that he had just re-turned from the US, where conversations about programmatic investing through clubs, separate accounts and joint ventures were taking place as much as those about commingled funds.
Overall, Jewell confirmed: “We find it is easier to have a con-versation with US investors about opportunistic investing in
Europe than it is to have one with Europeans. The positivity in the US is flowing through their veins, and they are starting to think about where they go next.”
The value-added propositionDespite the positivity, there was an undercurrent among some fund managers in Europe. In a room of an apartment block away from the heaving bars and cafes, PERE attended a meeting with a large pan-European real estate investment manager that is contemplating a value-added investing prop-osition for investors.
It seems real estate fund managers are beginning to see a broadening of interesting deals involving quality income-pro-ducing real estate that nevertheless require asset management to make decent long-term money. The strategy involves going up the risk curve by taking some leasing risk, for example, but keeping things within acceptable parameters to deliver a gross return in the 15 percent to 17 percent range.
MIPIM delegates: walking into a storm
APr 2013 | PERE 39
SPECIAL REPORT | MIPIM
This theme of ‘value add’ was detectable at MIPIM, and it re-veals a conundrum. In order to face sovereign, currency and le-gal risk in Europe, some US investors want to see opportunistic returns of 20 percent-plus coming out of the region. Meanwhile, there are European investors who don’t believe this is possible anymore and think those returns will be in the mid-teens at the very best. Therefore, the compromise for investment managers is to launch something that most investors will agree has ‘ac-ceptable’ higher risk.
In fact, firms already are acknowledging that perhaps a com-
mingled fund is not the answer at all because of the tensions just described. Instead, the answer might lie in a value-added segregated account, joint venture or club-type structure involv-ing fewer like-minded investors.
dogs of war Meanwhile, at the sharp end of opportunistic investing lies distress, and most observers believe that opportunities will come out of the banks, whether in Spain, Germany, the UK, Ireland or elsewhere.
On Wednesday, March 13, PERE was on stage in auditorium A of Les Palais des Festivals to lead a conversation on glob-al private equity real estate. Joining us in the discussion were Michael Levy, chief financial officer and chief operat-ing officer at Morgan Stanley Real Estate Invest-ing; François Trausch, chief executive officer for Asia Pacific at GE Capital Real Estate; and Russell Jewell, head of private equity at Paris-based AEW Europe.
Levy kicked things off by explaining how the US was seeing most parts of its economy improve, which had translated into “better fundamentals” for the real estate sector. For ex-ample, the energy boom created by shale gas and fracking activity has moved economies that never would have been considered before, he added, noting how North Dakota and Ohio have become hotbeds of activity. All of that activity has been reflected in the capital markets, with CMBS making a “comeback” and low base rates leading to low borrowing costs for real estate in-vestors, he said.
Despite fewer private equity real estate par-ticipants, Levy noted that significant amounts of capital are being raised. Indeed, according to PERE Connect, some $55 billion was raised by private equity real estate funds in 2012 – a 100 percent increase over the year before. Still, the larger distressed transactions already may have been done.
“There are a lot of smaller transactions tak-ing place now,” Levy said. “The multi-billion re-capitalization opportunities have mostly worked through the system in 2010 and 2011. Today, the new owners are seeking exits for them – often breaking those portfolios up and selling them in smaller groups in order to maximize pricing levels.”
However, Levy also noted that the world is in transition. “At the margin, you see redevelopment and development opportunity in the US, as well as other opportunities for higher returns. Even more interesting are the conversa-
tions about when and whether the opportunity is com-ing in Europe – not only among US investors, but Asian investors as well. It is clearly dominating discussions we have today.”
AEW’s Jewell just returned from the US. “We find it is easier to have a conversation with US in-vestors about opportunistic investing in Europe than it is to have one with Europeans,” he said. “The positivity in the US is flowing through their veins, and they are starting to think about where they go next.”
Jewell continued: “There are still a few inves-tors that think there are enough opportunities in the US, but I would say the majority definitely are looking more towards Europe. The bigger question is how they will do it.” He noted that conversations suggest programmatic invest-ments in clubs, separate accounts or joint ven-tures are taking place as much as commingled fund investments.
While US investors like the idea of opportunis-tic investing, Jewell pointed out that many are nervous of leverage. “Some have preferred to talk about 15 percent or 16 percent returns using lower leverage rather than getting to 20 percent returns using 70 percent leverage,” he said.
Morgan Stanley’s Levy acknowledged that his firm is experiencing demand from investors for shorter lifespans for funds. “We are starting to see shorter investment periods – eight-year fund lives and two- year investment periods – to address greater volatility and less visibility in markets,” he said.
In Asia, it is Japan that has attracting dis-tressed investors, but other opportunistic re-turns would come from growth markets such
as China, said GE Capital’s Trausch. Just as important has been the export of capital out of Asia, which started with Korean investors and now encompasses Chinese entities, he noted. Major markets in Europe, such as London, have been the prime beneficiaries of that trend.
Amperes in the amphitheatre ‘Positivity’ is ‘flowing through the veins’ of us investors, leading many to look to europe
Trausch: Asia exporting capital
Levy: higher returns possible
Jewell: US positivity
40 PERE | APr 2013
Indeed, Spain was very near the top of talking points. One real estate professional was amazed how many people, particularly investors outside the Eurozone, were ask-ing about it. Another top-ranking invest-ment professional, however, expressed some reservations, agreeing that perhaps foreign investors were getting excited without fully understanding the risks and challenges of a market such as Spain.
There are rumors that one private equity real estate firm has struggled with an in-vestment in a loan portfolio made a while ago, given that values have since fallen. A Madrid-based expert with a good vantage point counseled that the local banks are not to be underestimated. Though they might be deemed forced sellers, their extensive branch networks meant they knew exactly
the value of properties on their books better than anyone, he explained.
There was a sense at MIPIM that Europe-an loan opportunities will require patience as well as an aggressive, persistent mentality. As one person put it, the ‘skillset’ required to deal with problem loans is to be a pit bull. If you are not a deal person who goes home and is psyched because you managed to rip a few more euros out of a guy’s throat, then maybe Europe isn’t for you.
Perhaps the people of Cyprus can iden-tify with that mindset. After all, they feel similarly attacked by the International Monetary Fund and the European Central Bank. Although the European bankers’ ef-forts have been stymied so far, no one can say for sure how long the people of Cyprus will avoid their day of reckoning.
Petit foursA collection of short news items and anecdotes coming out of the miPim property showThe weather was a huge talking point, as snow in places such as Paris, London and Frankfurt delayed a significant number of delegates from ar-riving in Cannes per their original schedules. PERE’s own Jonathan Brasse was one of those affected, as delays at Paris Orly airport scuppered plans for him to arrive on Tuesday afternoon. His duty leading a global private equity real estate discussion at the Palais des Festivals on Wednesday morning had to be handed off to PERE editor Robin Marriott. Even in Cannes itself, the weather was not its usual sunny self as delegates needed umbrellas close at hand for sudden showers.
Contrary to the weather, there was a general enthusiasm that Europe was past the worst economically speaking. Part of the enthusiasm stemmed from a perception that there is an increased availability of debt priced at a “number that works for people,” as one delegate put it. Adding to some joie de vivre, property services firm Cushman & Wakefield predicted lending to European real estate would increase by 22 percent in 2013, following an increase of 29 percent over the past 12 months, thanks in part to an increase in the number of debt funds being raised and new entrants to the market.
The mayor of London, Boris Johnson, visited the property show for the fourth time, this time with a headline-grabbing plan to create Britain’s larg-est ‘floating village’ on a six hectare site at Lon-don’s Royal Victoria Dock. Johnson challenged investors to come up with spectacular designs for the project. Also in Cannes for the event were the mayor of Moscow, Sergey Sobyanin, and the mayor of Istanbul, Kadir Topbas.
This year’s country of honour at MIPIM was Turkey. John Forrester, DTZ’s chief executive for Europe, the Middle East and Africa, said: “Turkey was a great choice for Country of Honour. What we have seen at MIPIM is that in-vestors in particular are looking for new opportunities and to increase their understanding of markets beyond well-established territories in Europe.”
Delegates noted how Chinese money was flowing into prime UK real es-tate as British Land announced the £472 million (€551 million; $713 million) sale of Ropemaker Place, a 593,000-square-foot office in central London, to Frasia Properties Subsidiary, which is a consortium led by AXA Real Estate Investment Managers that reportedly includes Gingko Tree Invest-ment, a Chinese state-owned firm. Meanwhile, UK property professionals remained impressed with British Land, which also announced plans to raise around £500 million via a share place-ment to help boost investments. Proceeds from the share placement and the sale of Ropemaker have given the UK real estate investment trust a £1 billion war chest to buy London offices and south east retail property.
Hotel Martinez: the place to party
Umbrellas were out on the Côte d’Azur
Johnson: plans for a floating city
Ropemaker Place: bought with Chinese money
APr 2013 | PERE 41
SPECIAL REPORT | MIPIM
Cannes-do attitude From brunch to punch, the PERE team did its best to keep up with events, both official and unofficial, during the annual miPim property show in Cannes last month. Here’s a small selection of what the team did and saw, plotted on a map of the city to show where the selected encounters took place. As you can see, we were busy – and always on duty.
D
G
H
J
F
C
K B
A
Tuesday, 9:30 am Vegaluna Beach Club Day one at MIPIM begins with a network-ing brunch hosted by Valad Europe and its CEO Marty McCarthy. Champagne is offered, though it feels a little too early. A
Tuesday, 10 am The JW Marriott Hotel Coffee with Ian Rickwood, chief execu-tive of Henley Investments, which recently added debt as a new business line. Rick-wood feels the best opportunity in UK real estate right now is providing debt to resi-dential developers. B
Tuesday, 3 pm Claridge restaurant A coke with Jeremy Walden, a lawyer at Hebert Smith Freehills, who acted for the Norwegian Government Pension Fund Global on its first real estate investment. We are joined later by Basil Demeroutis, managing partner at Fore Partnership, which has invested €100 million over the past 12 months and now has five families in the ‘club’. C
Tuesday, 5 pm The Majestic Off to the buzzing Majestic for a catch-up with Peter Reilly and Joe Valente of JPM-organ’s global real assets group. Basically, they feel US investors are much more in-terested in a European opportunity fund than they were nine months ago. D
Tuesday, 7:30 pmThe MajesticStill at the Majestic, Greenhill & Company’s real estate capital advisory group throws a dinner for clients and friends. The lobby of the hotel is crawling with senior real estate figures. D
Wednesday, 10 am The Intercontinental Carlton INREV hosts its annual seminar, which this year is about global standards for perfor-mance. The general feedback is that it may not have been the most electrifying topic, but the event was well attended. E
Wednesday, 11:30 amPalais des FestivalsPERE hosts a panel discussion on global private equity real estate. The auditorium is very busy – no doubt coming to hear Morgan Stanley, GE Capital Real Estate and AEW Europe opine on the issues. F
Wednesday, 4 pmJetee Albert Edouard Cocktails with RREEF Real Estate aboard its yacht, Mosaique. Other private real estate firms that have hired vessels for the week include Catalyst Capital, Heitman, AEW Europe, Henderson Global Investors and AREA Property Partners. G
Wednesday, 5 pm Brasserie du Casino PERE discreetly meets a Singapore-based agent, who relates how one Japanese in-stitution is plotting a $300 million program focused on US core real estate. H
Wednesday, 6 pm Palais des FestivalsThe Ivanhoé Cambridge team walks PERE through its business. Didn’t realize the real estate arm of Caisse de dépôt et place-ment du Québec was the investor along-side TPG and Patron Capital in the takeover of Uni-Invest. F
Wednesday, 7:30 pmMiramar PlageDubbed the ‘worst-kept secret in Cannes’, the parties of this private equity real estate firm have taken on legendary status. This year’s Hawaiian theme sees partygoers treated to straw skirts and floral and shot-glass necklaces. I
Wednesday, 9 pmLe Cirque restaurant More than 80 alumni of Morgan Stanley Real Estate reunite to reminisce over dinner and drinks until 2 am, allegedly. J
Wednesday, 10 pmJetee Albert Edouard Legal & General, which is not exactly known for throwing wild parties, throws the bash of the night aboard its yacht, Lati-tude. A live band keeps things going until the wee hours of the morning. G
Thursday, 10:45 amBoulevard de la Croisette Nursing a hangover, it is time for a sedate meeting with a European limited partner. He supports the commingled fund model but notes there have been zero first clos-ings so far. K
Thursday, 7 pm Palais des Festivals The German ‘after-fair’ lounge gets going with beer, wine and a BBQ to help MIPIM go out with a Germanic swing. Bradley Ol-sen of Atlantic Partners takes part in a View on Germany debate during the shindig. F
I
E
Becoming the hub of communicationAlter domus explores the role of depositaries for real estate funds under europe’s Alternative investment Fund managers directive. By Bruno Bagnouls and Benoit dewar
The Alternative Investment Fund Managers (AIFM) directive drastically changes the way real estate funds will need to be managed and administered in the fu-
ture. This regulation results in a number of strategic elements involving the definition and implementation of real estate products, in addition to the initial compliance requirements.
One of the points with which alternative fund managers must be compliant is the depositary function of a real estate fund. Such a function, which will be a new one in certain ju-risdictions, will impact the operational model for all parties involved in real estate fund administration.
roles and responsibilities According to the AIFM directive, the depositary will have three main roles:
1. Safekeeping of assets - The safekeeping of assets histori-cally is the core function of the depositary. In Luxem-bourg, for instance, any regulated fund, no matter what kind of assets are targeted, must designate a depositary for safekeeping the assets of the fund. The underlying idea is to have a body ensuring the existence of the assets and their ownership by the fund.
Real estate funds, however, mainly deal with non-fi-nancial assets, which are not required to be held in cus-tody with a bank. In most European countries, closed-ended funds (or at least funds having an initial lock-up period of five years) might choose to work with accredited professionals that may or may not be banks.
According to the AIFM directive, the depositary shall verify the ownership of fund assets, including real estate, and maintain a record of such assets. A key point to bear in mind is that these assessments and records will be per-formed based on documents provided by the fund man-ager. Communication and a comprehensive service level
agreement between the manager, the depositary and the other parties will be instrumental in the life of the fund.
2. Cash flow monitoring - While the safekeeping of cash accounts already was in the scope of depositary duties in a number of jurisdictions prior to the AIFM directive, the monitoring of cash flows is another story. According to the directive, a fund’s cash flows will be monitored by the depositary and a particular attention has to be paid to all payments made by or on behalf of investors upon the subscription of shares (or units) of the fund. The AIFM directive Level II further insists on the monitoring of all significant cash flows within the fund’s structure at the close of the business day. While the directive leaves some room for interpretation, it is clear that cash monitoring is the most challenging component of the depositary func-tion – a point to be developed further later in the article.
3. Other oversight duties - In addition, the depositary will need to monitor the transfer agent’s operations, the fund’s share valuation, the fund’s compliance with the prospectus and compliance with all pieces of appli-cable laws (also regarding income distribution), as well as ensuring that operations are processed and recorded in time. In order to comply with these requirements, the depositary will have to keep an eye on the main pro-cesses for the investments of a real estate fund from the property level up to the fund through the different spe-cial purpose vehicles and intermediary holdings compa-nies that may be implemented.
The key point clearly will be to supervise all these processes without making them more time-consuming or laborious in order to keep the structure as efficient as possible. Depositaries working closely together with the fund administration teams
SPONSORED ARTICLE | ALTER DOMUS
44 PERE | APr 2013
of a real estate fund will have a great advantage in this quest for efficiency.
The most challenging component Although there is not yet a best practice on this topic, it seems logical that the daily frequency of the monitoring required by the AIFM directive can be mitigated in the case of the strategy and activity of each real estate fund.
Real estate funds’ investment strategies incur structures that are more and more complex, with potentially several cross-border levels. These ramifications imply a large set of cash accounts in different countries, which easily may exceed one hundred accounts for certain funds, and a cash flow structure that is often significant to set up and monitor.
Depositaries setting up their cash flow monitoring without taking into account the inherent characteristics of domestic or international real estate investments and daily activities of real estate owning companies will experience serious risks in de-livering an optimal and added value solution to the fund man-ager. In addition to excellent knowledge and understanding of all aspects relating to the property industry, a depositary must develop a deep knowledge of each client’s operational model and of all communication flows through the chain of owner-ship of the real estate assets with the different third parties
Once these preliminary steps are carried out, the challenge for the depositary is to become a hub through which informa-tion flows without slowing down the process. Indeed, with the three roles imposed by the directive, the depositary will have no other choice than to have global supervision of the fund’s activities.
meeting the challenge togetherAlthough not clearly stated, the application of the AIFM di-rective implies efficient communication flows between all the various parties, particularly for cash monitoring. While the de-positary will be the hub of information regarding cash flows, it will never be the originator of them. Therefore, each party will need to play by the rules.
• The fund manager - While it can delegate the origination of some selected cash flows (to the property manager, for example), the fund manager will be the initiator of the main processes (investments / divestments, capital calls, etcetera) and consequently of the main cash flows. Once such a decision is taken, communicating it through the structure will be crucial. The content of the communica-tion might be determined in the operating memorandum of the fund in order to avoid the back and forth of requests for further information.
Furthermore, acting as the brain of the fund, the fund manager will be the first party having the overall big pic-ture. Consequently, it will be the only one able to have a comprehensive view of bank accounts opened in the structure. In this area, communication with the deposi-tary is essential.
• The fund administrator – Being the bookkeeper of the fund, the fund administrator is an important source of
information. Although cash monitoring is not part of the fund administration role, information used to perform its duties is mainly common to data required by the deposi-tary to properly monitor cash flows. In this way, a close relation between these two parties would certainly make things easier. Of course, a service provider able to inte-grate both fund administrator and depositary services in its range of products will provide a much more efficient answer to its clients. Nevertheless, the fund administrator only provides services to the fund and not to its sub-levels. Therefore, a close relation with the accountant of these sub-levels vehicles also will be very important.
• The property manager - As explained earlier, the prop-erty manager can be the originator of cash flows. This portion of the cash flows, which can be very significant from one real estate investment strategy to another, must be monitored. A good approach for the property manager would be to inform the depositary of the range of services that it will provide to the fund regarding the real estate it manages. The depositary then would be able to build an expectation regarding the cash flows that would occur and easily identify unexpected movements.
Conclusion The cash flow monitoring function clearly will be the main and most challenging activity of a depositary, given the complexity of a number of cross-border real estate funds and the number of parties involved in the management and administration of such funds. Nevertheless, the two other core functions, safe-keeping and other oversight duties, must not be underesti-mated. Therefore, selecting a firm operating in the real estate industry for many years as a depositary, like Alter Domus, will be decisive to obtaining an efficient answer to the new chal-lenges set by the AIFM directive.
About the Authors:Bruno Bagnouls is a director and global head of real estate at Alter Domus. He can be reached at +352 48 18 28 1 or via email at [email protected].
Benoit Dewar is the AIFM directive expert at Alter Domus, based in Luxembourg. He can be reached at +352 48 18 28 6346 or via email at [email protected].
About the Firm:Alter Domus is a leading global provider of professional admin-istration services for alternative investment funds and multina-tional corporations. Founded in Luxembourg with origins in a Big Four accountancy practice, the firm has 14 offices across four continents and professional staff with strong expertise in corpo-rate management services, consolidation, fund administration and fund reporting services.
Alter Domus supports the accounting, tax, regulatory and compliance requirements of legal structures established by its clients in each of the jurisdictions in which it operates. The firm’s clients include some of the foremost private equity and real estate funds, including 11 of the 20 largest private equity firms and 6 of the 10 largest real estate firms in the world.
APr 2013 | PERE 45
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A TALE OF TWO OPPORTUNITIES Four real estate professionals explain why europe is on the radar of both core investors and those looking for opportunistic returns
ROUNDTABLE | EUROPE
Photography by James Clarke
ROUNDTABLE | EUROPE
Come for core, stay for opportunisticinternational capital continues to be drawn to europe for core properties in safe haven markets, but more investors are beginning to come for the region’s potential opportunistic plays. By robin marriott
(L to R) David Evans, Brian Niles, Nick Cooper and Mark Evans
Situated in the shadow of St Paul’s Cathedral in central London, one likely couldn’t get a more touristy location for this year’s European roundtable. Perhaps that is fit-
ting, as the four roundtable participants drove the discussion around the theme of international capital ‘visiting’ European cities such as London in search of core real estate.
Taking part in the roundtable at CBRE’s City of London offices were Mark Evans, who heads up the equity placement business at the global property services firm; Nick Cooper, a principal at real estate consultant The Townsend Group; Da-vid Evans, the London office chair of US law firm Goodwin Procter; and Brian Niles, who is responsible for running Mor-gan Stanley’s real estate investment business across the entire European region.
To discuss the European marketplace from an opportunistic angle certainly requires acknowledgement of the huge demand for core assets that exists among global investors, and London nowadays is symbolic of how world capitals have become mag-nets for them. Yields in London have reduced noticeably, and the city remains one of the top places – if not, the top desti-nation – in Europe for international investors, whether they are Asian sovereign wealth funds, Canadian pension plans or something else.
There seems to be no sign of that abating either. Indeed, just recently, CBRE produced an investment ‘intentions’ sur-vey suggesting that, in keeping with the established trend, 53 percent of some 362 real estate investing organisations still feel prime/core property in Europe is the most attractive asset – a higher proportion than in 2012.
origins of the capitalFirst up is Cooper, who just returned to London after a two-year stint in Cleveland, Ohio, where Townsend is based. Given he has been surrounded by US investors for the past 24 months,
he was as good a place as any to start. “The world moves in cycles,” Cooper says. “In the US, they
feel they have had a good run in terms of recovery, and I think they now need to look towards Europe as their next recovery point and to see whether there are some rich pickings to be had.”
Cooper believes there are a number of US investors that se-lectively will “pick up” investment opportunity in the UK and Continental Europe, and that they will do so over the course of the next 12 to 24 months. Indeed, many of the big US public pension plans have capital to deploy, and most probably are be-low their strategic real estate weighting, he notes.
“Those groups certainly will look,” Cooper says. “Capital is in global flight and will look for opportunities in markets it finds attractive.” Of course, he is speaking not just of American institutional investors but of a global cast of investors that want exposure to physical assets.
CBRE’s Evans immediately picks up the theme, as his unit’s equity placement function is essentially to marry up global sources of capital with “best-in-class” real estate operators and managers. The team, which consists of six people in London and two more in Amsterdam, links up to equivalent CBRE pro-fessionals in the US and Asia Pacific. Given that perspective, he agrees with Cooper’s last statement on international investors looking towards Europe, adding that the group likely will in-clude Australian funds.
“Over the next 12 months, I think we are going to see the Australian superannuation funds enter the market. That is be-cause they can’t find the right opportunities in their domestic market,” says Evans. “I think they will come to invest in core product with best-in-class managers and low levels of lever-age. Clearly, the pension regulations are changing down there, and more money is going into them, forcing them to go into other regions.”
Are there any other sources of capital to watch and where
ROUNDTABLE | EUROPE
The roundtable participants: debating the opportunities in Europe
50 PERE | APr 2013
will they go? The answer as far as Evans is concerned is the Far East. “If you look at the Far East, I think that is one of the key markets where we are going to see capital moving over the next 10 years. Just look at the sheer weight of money in that re-gion, as well as the population profile. Again, they are looking to come to the most liquid markets in Europe such as London, Paris and Germany, where wealth preservation characteristics are present.”
looking beyond coreLike CBRE’s Evans and Townsend’s Cooper, Goodwin Proct-er’s Evans has witnessed the weight of capital chasing core prime property. Still, there are some interesting pockets open-ing up. “We are beginning to see US capital start to look at Eu-rope, but more in the value-added space as opposed to core,” he says. “The other area you are seeing interest in is Ireland, particularly in private equity.”
The reference to Ireland immediately prompts Niles to ex-plain what Morgan Stanley Real Estate Investing (MSREI) is seeing. After all, the firm’s Morgan Stanley Real Estate Fund VII Global fund recently acquired a €220 million portfolio of nonperforming loans from Ireland’s National Asset Manage-ment Agency (NAMA).
While MSREI has observed many transactions conducted by those chasing core assets, Niles says he also sees capital from Asia looking for opportunistic returns and seems skeptical about North American investors wanting to buy core in Europe.
“I think the North American investor base is less interested in investing in European core for two reasons: their focus on total returns and the exchange rate risk,” Niles explains. “Their view is ‘If I can already access this return profile in the US, why would I want to buy something with a 5 percent yield and take additional risk with the exchange rate?’”
Niles develops the theme: “There are definitely a large num-ber of investors out there that still view European assets as pre-dominantly distressed. Some of them have been frustrated by the lack of deal activity because it results in a lot of capital chas-ing relatively few opportunities. However, when things have been organized on the sell side, we actually have seen some pretty good pricing from the seller’s perspective, even with dis-
tressed assets.”Niles continues: “Looking at Europe as a whole, we think
there is a major deleveraging process that needs to happen. Unlike in the US, Europe doesn’t really have a deep and func-tioning capital market, so this is going to take some time to play out.”
The contrast is clear. Niles points out that, when the global financial crisis hit in 2008, the North American banks acted promptly to shed their loan exposure to European real estate and “moved on,” but that hasn’t been the case among Euro-pean banks.
In the UK, Lloyds Banking Group and Royal Bank of Scot-land have been notable examples of the few banks that have acted. In Ireland, NAMA also is transacting after a slow start, though the assets in the case of the portfolio that MSREI ac-quired actually are located in the UK, not in Ireland.
“When you look at the European banks, to date very few have started moving their positions in a meaningful way,” em-phasizes Niles.
Picking up the paceCrucially, MSREI is seeing the pace of activity finally starting to pick up. This is one of the biggest themes in European private equity real estate at the moment – to what extent are distressed opportunities coming to market? In recent weeks, various stud-ies and pronouncements have been made ranging from predic-tions of a glut of large-scale nonperforming loan portfolios to slow, deliberate and incremental dispositions of smaller lot sizes.
While MSREI is taking the view that there is not going to be a sudden wave of distressed assets, Niles nevertheless still sees opportunities increasing significantly. “To some extent, the market is coming to us,” he says. “We have been very cautious because Europe has been going sideways from a macroeconom-ic standpoint since 2010. We have underwritten everything thus far with the assumption that there will be no growth, but we do see a lot of opportunities in Europe and we think we will continue to see them for the next several years. It is going to be a good environment to be operating in. We see the pace of activity finally starting to increase, but we don’t think it’s ever going to
Nick Cooper Principal and partner The Townsend Group
Cooper is a principal and partner at The Townsend Group, which has oversight of client capital in excess of $110 billion invested around the world. He recently returned to London following a two-year stint at the firm’s Cleveland, Ohio headquarters and is responsible for international (ex US) business and clients. He is a former
chairman of the Association of Real Estate Funds in the UK, a leading property industry group open to fund managers and others involved in the property industry.
Niles: North American investors are less interested in core
APr 2013 | PERE 51
become a flood, simply because that’s not how counterparties are going to behave. What we’ve consistently been saying to our investors is that this process in Europe is a long game.”
A lot of this is resonating with Goodwin Procter’s Evans. A key rationale behind the law firm scaling up its operations in London is tied to what its US client base is doing in Europe. Back in the States, where has been operating for more than 100 years, Goodwin Procter has built up a large practice specializing in private equity real estate with a roster of around 80 or so fund managers, including household names such as Brookfield Asset Management. One only needs to witness what the firm is doing in Europe to understand why Goodwin Procter hired Evans.
Indeed, Brookfield is trying to build up its opportunistic business in Europe and hired David Brush, the former chair-man of global opportunistic investing at RREEF Real Estate, to add firepower to its aspirations to buy into distressed or com-plex corporate situations. Meanwhile, another US client with a European arm has become successful in Europe’s burgeoning mezzanine real estate debt fund space.
“Fourteen months ago, we moved into another phase here in Europe and now have built a law firm largely focused on private equity real estate, from fund formation and tax advice to transactions,” says Goodwin Procter’s Evans. “Many of our US clients fundamentally are looking for distress. As those op-portunities start to recede in the US, they are starting to look elsewhere. For sure, there is a fair amount we are doing in the UK and Europe, and that is going to increase because of the run off in US distress and more certainly and comfort around the absence of any break-up in the Eurozone as time goes on.”
Goodwin Procter’s European practice is busy structuring debt products for loan origination, where Evans says there is the beginnings of serious activity. “A lot of people are talk-ing about that via a commingled fund. However, while folks may have aspirations to do it that way, the reality often tends to come back to joint ventures or clubs because the ability to raise capital is still challenging here, even into a hot market like debt,” he points out. In terms of direct equity deals, the market is still seeing JV and club transactions, particularly from US players looking to do opportunistic-type deals for development projects with local partners, he notes.
structural weaknessEvans’ comment sparks lively debate about the model that in-vestors are using to access real estate in Europe. “There is a per-ceived desire to get a little more control, but the resources to deal with that control are simply not there in many cases,” says Cooper. “The net result is that the commingled fund is not off the table. We have just underwritten a fund here in the UK that will attract $100 million to $200 million of capital from our cli-ent base, and that fund format was accepted.”
Cooper explains how there is plenty of discussion about the creation and function of advisory committees. Aside from that, a big requirement by investors is that a fund manager needs to have a very clear strategy and that, if a manager wishes to devi-ate from that, it will cause a ‘discussion’.
Although there is a place for pan-European opportunistic funds, Cooper says some clients of Townsend do prefer to build more specific portfolios. Fund sizes definitely are smaller be-cause fundraising and deployment is tough, and “people don’t like the long J curve,” he notes. “That can be pretty horrible, and they say, ‘Well, I can forecast returns over five years, but 10-plus years?’ One thing we certainly would like is shorter fund life cycles.”
MSREI’s Niles is listening closely and agrees that the message from investors is that they want shorter investment periods.
From the perspective of CBRE, Evans sees the market be-coming much more “segregated” in terms of how investors want to deploy capital. He sums up that the market for the commingled fund is at the smaller investor end. At the same time, he says CBRE’s equity placement team is seeing much more activity in the club and joint venture area, which is domi-nated by the bigger investors who want to exercise control. In-deed, there is a view that there will be an increase in segregated account mandates in Europe, which currently is just a fraction of the segregated account market in the US.
CBRE’s Evans turns the spotlight on core property again, where he believes there should be more perpetual vehicles. “Whereas the more opportunistic strategies are very much aware of the need for a closed-ended structure, [perpetual ve-hicles] are where the core market is headed,” he says. “A lot of
ROUNDTABLE | EUROPE
Brian NilesManaging director and head of EuropeMorgan Stanley Real Estate Investing
Niles is a managing director and head of Europe at Morgan Stanley Real Estate Investing. In addition, he is a member of the firm’s global investment committee and serves as portfolio manager for the firm’s international real estate funds III to V, as well as being a director of Canary Wharf Group and Songbird Estates.
Prior to joining the firm in 2006, he worked for nine years at Goldman Sachs, primarily in the firm’s Real Estate Principal Investment Area.
Goodwin Procter’s Evans: following the firm’s client base to Europe
52 PERE | APr 2013
investors are struggling to buy core directly, so they are start-ing to move towards the JV club deal.” Furthermore, the key feature for a core vehicle is that investors must have redemption rights because a firm “cannot lock investors’ capital up indefi-nitely,” he adds.
Evans has an example that neatly encapsulates the themes in the discussion so far. Recently, CBRE worked with Dutch insurance company ASR, which held a first close in 2011 for a prime Dutch retail fund. It raised €380 million through a perpetual structure with a two-year lock-up and quarterly redemptions. It is unleveraged, but the manager can leverage up to 30 percent of gross asset value. However, the manager cannot leverage up, take the maximum amount out and then stop investors being able to redeem their capital, he explains. Instead, the manager has to manage down its leverage.
“It cannot work for all strategies, but for big core strategies you can use that,” Evans says. “I believe the more closed-ended structures should be there to take account of market timing cycles like development and so on, and those should be the ve-hicles giving higher returns. We see investors wanting capital deployed in a very short amount of time – up to two or three years generally. In those cases, it is more difficult to raise com-pletely blind funds as opposed to seeded vehicles.”
Cooper, however, seems unimpressed with Europe’s offer-ings for those seeking core properties. “The core industry needs to think very carefully as I don’t think that the current offer-ings fulfill the needs of the market,” he says. “In the US, you have a much larger market and you effectively get delivered a real estate market return, which is what we are after. We don’t want debt on the fund because we want our core real estate to deliver a core-like return, which our studies say does good things for our risk-adjusted returns. If this is not available, then the industry is going to surrender itself to the listed market.”
In fact, Goodwin Procter’s Evans has been thinking the same thing. “The circumstances now are tailor-made to oxy-genate REITs,” he says. In the same breath, however, he notes that it does not seem to be happening.
Niles agrees, adding that it’s because the listed sector in Eu-rope is an ‘after-thought’. “There should be more REITs,” he
says. “Those vehicles ultimately will be created, but it is just taking a lot longer.”
no apparent rushSomething else taking a lot longer in Europe is regulatory cer-tainly. Goodwin Procter’s Evans neatly combines a couple of big themes in European private equity real estate by mention-ing Solvency II regulations and the current penchant among many investors for real estate debt.
Towards the end of last year, guidance was issued on Sol-vency II seemingly suggesting a re-weighting of real estate debt in terms of its risk allocation. For insurance companies, it looks like real estate debt investments may be treated more like a bond than a ‘look-through’ to the asset and therefore may not be as attractive as first thought.
“You have seen a number of insurance companies jump large into real estate debt as an investment allocation,” says Good-win Procter’s Evans. “While the bigger ones might be able to write their own risk models in terms of weighting their capital, how all that will break out remains unclear to me.”
Meanwhile, talking about regulation, insurance and debt funds inspires CBRE’s Evans to opine on the successful manag-ers in the real estate credit space. He believes the firms that ul-timately will be successful are those that have two or three seg-regated accounts behind them. Given the diversity of Europe, he suspects there eventually will be specific vehicles for specific geographies, although he says it is not quite clear whether firms were raising debt funds on a relative or absolute return basis.
The Townsend Group already has underwritten one invest-ment in a debt fund in Europe, highlighting demand, but that was two to three years ago. Witnessing how the offering has since expanded from senior and mezzanine debt funds to stretch senior and whole loans, Cooper believes the firm’s client base will commit to another debt strategy this year.
As well as regulatory issues, there is yet another thing taking longer. It is taking much longer than expected for investors to receive distributions back from their fund investments – a con-stant bone of contention between LPs and GPs in recent years.
MSREI’s strategy for monetizing assets is interesting because it reflects a global and regional view of markets. For example, in
David EvansPartnerGoodwin Procter
Evans is chair of Goodwin Procter’s London office and a member of the firm’s business law department. He focuses on all aspects of real estate fund structuring and investment in many European jurisdictions and has experience dealing with complex tax and real estate issues applicable to fund structuring for both UK and
pan-European funds. Prior to joining Goodwin Procter in December 2011, he was a partner at Ashurst, where he served as head of its investment funds group.
CBRE’s Evans: closed-ended funds don’t work for core
APr 2013 | PERE 53
2009, 2010 and 2011, the firm saw strength in China but at the same time felt things were a little precarious, so it sold a num-ber of its investments in the country. In Europe, however, it has been more challenging to make exits, but the platform has been actively selling where it continues to see strength, such as cen-tral London.
“Over half of our attention goes to managing our current investments,” Niles says. “If the market improves in certain pockets or we complete asset management programs, then we look to monetize. Therefore, as the environment improves, we could see a fair amount of disposal activity.”
investment approachAt the same time as it reviews current investments, MSREI continues to invest, not least with rumours in the background of the bank raising a new global fund. So how is the firm ap-proaching Europe?
Niles says one focus area is ‘defensive’ types of investments from motivated sellers where the team thinks that, through as-set management initiatives such as extending out lease terms, it can increase income even in a difficult economic environment. “We are looking at properties with interesting initial yields and defensive cash flow characteristics, where you can probably get some financing and good cash return on your equity,” he says.
Then, there are distressed assets. MSREI, however, is not chasing the largest nonperforming loan (NPL) deals involving a thousand assets, which have become extremely competitive in auction scenarios. In contrast, the loan portfolio it bought from NAMA was “targeted.” The real estate investing group could identify the assets because the positions it bought con-sisted of just 10 loans, and most of the asset value was concen-trated in four positions.
For the NAMA deal, MSREI bought the portfolio entirely with equity. “There was a very solid base in the assets but not necessarily a lot of recurring cash flow,” says Niles. “Why take leverage in that situation when we were underwriting the portfolio to 20 percent unleveraged returns. Still, you need to look at a lot of deals to find such characteristics. Is there lever-age available for NPLs? Absolutely. In fact, with these NPLs, there is more liquidity and banks are more willing to lend than
on cash flow-producing properties outside of central London and Paris.”
Another part of the multi-layered strategy at MSREI is about identifying high-quality core assets outside of prime locations such as central London and central Paris. That could mean Italy or Spain, where one can buy core assets at historically at-tractive prices. Yet another strand involves providing capital in a variety of forms as part of the deleveraging theme in Europe. That could involve complicated recapitalisations.
Niles also mentions two huge retail acquisitions in Russia - its roughly $1.2 billion purchase of the Metropolis Shopping and Entertainment Mall, a 205,000-square-meter retail center in Moscow, and its $1.1 billion acquisition of the Galeria Mall, a one million-square-foot shopping mall in St Petersburg. Those assets were acquired at attractive yields in a country where capital is scarce but where there is growth potential for retail property.
Perhaps it is ironic that all the participants around the table are looking for growth in their businesses while operating in a low or next-to-no growth economic bloc. Each, however, al-ready has explained the logic of their firm’s presence.
Cooper says The Townsend Group will look for core expo-sure, participate in the real estate financing market and – music to the ears – finally have a strategy for buying distress. Good-win Procter’s business will grow alongside its clients buying core and distress, structuring commingled vehicles, joint ven-tures or clubs for investing in equity or in the debt. CBRE ex-pects to continue marrying the myriad of global capital sources with best-in-class managers and operators in the region, and MSREI expects to monetize investments by prior funds and continue to make fresh investments.
Europe is a big market, and it isn’t totally clear how things will play out going forward. Still, the four real estate profession-als meeting just yards away from St Paul’s Cathedral all will be working hard to build impressive businesses in the hopes of capitalizing on whatever opportunities emerge.
ROUNDTABLE | EUROPE
Mark Evans Executive directorCBRE
Evans is an executive director at CBRE and heads up the firm’s equity place-ment team within CBRE Real Estate Fi-nance. He advises on the structure and creation of new investment vehicles and debt and equity structuring for large complex property and corporate transactions, as well as advising on raising new equity, secondary market
trading and likely fund performance. Prior to running the equity placement business, he was responsible for the capi-tal strategies team, which undertook debt procurement, M&A advice and bespoke financial modeling in relation to complex property and financial issues. In September 1996, Evans joined Hillier Parker, which later merged with CBRE.
Cooper: eyeing debt opportunities and distress
54 PERE | APr 2013
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Funds in mArKeT/CominG To mArKeTFIrm FunD HeADQuArters strAtegy tArget(m)
global fundsDLJ Real Estate Capital Partners DLJ Real Estate Capital Partners V New York Global diversified $750 GDP Global Fund Managers GDP Global Real Estate Opportunity Fund New York Global diversified $1,000 Morgan Stanley Real Estate Morgan Stanley Real Estate Fund VIII Global New York Global diversified $3,000 TPG Capital N/A Fort Worth (TX) Global diversified $1,000
Global funds subtotal $5,750
Americas funds13th Floor Investments Florida Real Estate Value Fund II Miami Florida diversified $150 Alliance Residential Alliance Residential Fund II Phoenix US residential $400 American Real Estate Partners Strategic Office Fund Herndon (VA) US office $150 AREA Property Partners AREA US Value Enhancement Fund VIII New York US diversified $750 Autonomy Investimentos Autonomy Brazil Real Estate Fund I São Paulo Brazil office and industrial $300 Avenida Capital Avenida Colombia Real Estate Fund I New York Colombia diversified $125 Baceline Investments Baceline Distressed Real Estate & Debt
Opportunities FundDenver US distressed equity and debt $75
BAP Capital BAP Realty Fund I Miami Caribbean diversified $175 BayNorth Capital BayNorth Realty Fund VIII Boston US niche properties $400 Bell Partners Bell Institutional Fund IV Greensboro (NC) US multifamily $240 Broadview Investors Broadview Real Estate Investors I Boston US diversified $300 Cabot Properties Cabot Industrial Value Fund IV Boston US industrial $600 CityView / Lincoln Property N/A Los Angeles / Dallas Eastern US multifamily $200 Coventry Real Estate Advisors Coventry Real Estate Fund III New York US retail $400 Crocker Partners Crocker Partners V Boca Raton (FL) US diversified $400 Cronus Capital Cronus Capital Fund I New York US diversified $200 Crown Capital Crown Capital Opportunities Fund St. Louis US diversified $200 Dalfen America Dalfen America Opportunity XV Quebec US, Canada diversified $500 Embarcadero Capital Partners Embarcadero Capital Investors IV Belmont (CA) West Coast office $300-400Equity Global Management EGM Income & Growth Fund V Chicago US development $125 Falcon Real Estate Falcon Americas Real Estate Oppt Fund - US New York US diversified $250 Fir Tree Partners Fir Tree Real Estate Partners III New York US diversified $500 Garrison Investment Garrison Real Estate Fund III New York US diversified $750 GEM Realty Capital GEM Realty Fund V Chicago US diversified $750 Glenmont Capital Glenmont Real Estate Partners IV New York US multifamily and hotel $200 Granite Bay Development Granite Bay Lands Fund Granite Bay (CA) US commercial land $130 Graycliff Capital Partners Graycliff Capital CRE Value Add Fund Northbrook (IL) US diversified $75 GreenOak Real Estate GreenOak Real Estate US Fund II New York US diversified $500 Greystar Real Estate Greystar Equity Partners VIII Charleston (SC) US multifamily $600 Grosvenor Investment Management Grosvenor US Multifamily Fund Philadelphia US multifamily development $250 - 500Guardian Realty Investors Guardian Realty Fund III Bethesda (MD) Mid-Atlantic diversified $200 Harbert Management Harbert Real Estate Fund V Birmingham (AL) US diversified $350 Hayden Capital Investment N/A Lake Oswego (OR) US multifamily $200 Heitman Heitman Value Partners III Chicago US diversified $600 HPG Capital Partners HPG Capital Fund I Plano (TX) US diversified $50 Jamestown Latin America Jamestown Latin America Fund Atlanta Latin America diversified $200 Integrated Capital Integrated Capital Hospitality Fund II Los Angeles US hospitality $200 Ivy Equities Ivy Real Estate Fund III Montvale (NJ) US diversified $250 Kayne Anderson Real Estate Advisors Kayne Anderson Real Estate Partners III Armonk (NY) US student housing $700 KGW Real Estate / JP Realty State of Texas Real Estate Fund Dallas Texas distressed $500 Kisco Senior Living Kisco Senior Living Communities Fund I Carlsbad (CA) US senior housing $350 L&L Holding N/A New York New York City office $500 LandBaron Investment Western States Distressed Land Fund Las Vegas US distressed land $255 Lazard Freres Lazard Freres Strategic Realty Investors III New York US healthcare $500 LCN Capital Partners LCN Capital Partners North America Sale-
Leaseback FundNew York US sale-leaseback properties $200
Long Wharf Real Estate Long Wharf Real Estate Partners IV Boston US diversified $500 Macfarlan Capital Partners Macfarlan Special Situations Fund Dallas US distressed $300 Marathon Real Estate N/A New York US distressed $700 MedProperties Holdings MedProperties Investment Partners Dallas US healthcare properties $150 Menlo Equities Menlo Realty Partners V Palo Alto (CA) West Coast office $150 Michigan Avenue Real Estate Investors Michigan Avenue Investors Real Estate
Opportunity Fund IINorthbrook (IL) Chicago multifamily $50
Milestone Group Milestone Real Estate Investors III New York US multifamily $250 Murray Hill Properties Murray Hill Manhattan Office Fund New York New York City office $600 New Boston Fund New Boston Real Estate Investment Fund VIII Boston US diversified $300
Source: PERE and PERE Connect
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Capital WatchEach month, PERE publishes Capital Watch, a proprietary list of value-added and opportunistic real estate fundraising activity. Capital Watch has three sections: funds in the market/coming to market, funds with partial closes prior to this year 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.
56 PERE | APr 2013
Paramount Group Paramount Group Real Estate Fund VII New York US office $1,000 Pathfinder Partners Pathfinder Partners Opportunity Fund IV San Diego US distressed $150 Pearlmark Real Estate Partners Pearlmark Multifamily Partners II Chicago US residential $300 PRP Perseus Realty Partners III Washington, DC US diversified $300 Prudential Real Estate Investors PLA Industrial Fund IV Parsipanny (NJ) Brazil industrial $350 Prudential Real Estate Investors PLA Residencial Fund V Parsipanny (NJ) Mexico residential development $500 Racebrook Capital Racebrook Capital Partners New York US distressed debt and equity $250 Ramius Capital Group RCG Premier Equity Fund New York US diversified $500 RCG Ventures RCG Ventures Value-Add Real Estate Fund III Atlanta US retail $100 ROC Bridge Partners Real Estate Opportunity Capital Fund II Salt Lake City US diversified $375 RockBridge Capital RockBridge Hospitality Fund V Columbus (OH) US hotels $350 Rockwood Capital Rockwood Capital Real Estate Partners IX San Francisco US diversified $750 Savanna Investment Management Savanna Real Estate Fund III New York US office $650 SDI Desenvolvimento Imobiliário Tellus II São Paulo Brazil office and industrial $450 Strategic Capital Partners Strategic Partners Value Enhancement Fund II Chicago US diversified $250 Thor Equities Thor Urban Operating Fund IV New York US mixed-use properties $400 TriGate Capital TriGate Property Partners II Dallas US diversified $300 Unico Property Unico Partners I Seattle US office $300 Vestar Development Vestar Strategic Retail Partners Phoenix Southwestern US retail $250 Vinci Partners Vinci Real Estate Fund Rio de Janeiro Brazil office, retail $650 Virtus Real Estate Capital Virtus Real Estate Capital Austin (TX) US diversified $500 Virtus Real Estate Capital Virtus Student Housing Austin (TX) US student housing $100 - 150Waypoint Real Estate Group Waypoint Fund II Oakland (CA) US residential $500
Americas funds subtotal $27,725
europe fundsAEW Europe AEW Europe Partners Fund Paris Europe diversified € 350Alpine Real Estate Investment London Opportunity Fund London London distrssed office £100Apache Capital Partners Apache Prime Central London Res. Opp. Fund London London residential £75Antirion Sardegna Real Estate Investment Fund Milan Sardinia luxury properties € 100Arminius Advisors Arminius Real Estate Opportunity Fund II Luxembourg Germany distressed € 400AREA Property Partners AREA European Real Estate Fund IV New York Europe distressed € 750AXA Real Estate AXA Real Estate Alpha Plus Paris Europe distressed € 500Bouwfonds Real Estate Investment Management Bouwfonds European Real Estate Parking Fund II Hoevelaken, The Netherlands Europe parking garages € 500BPT Asset Management BPT Baltic Opportunity Fund Copenhagen Baltic States commercial € 100CarVal Investors CarVal Investors Europe Real Estate Partners Minnetonka (MN) UK, France diversified € 500Catella Real Estate / Bank Sarasin Sarasin Sustainable Properties - Europe Stockholm / Basel Europe sustainable properties € 500Chayton Capital CEE Special Opportunities London Central / Eastern Europe distressed £250Composition Capital Partners Europe III Sustainable Yield Fund Amsterdam Northwestern Europe diversified € 250F&C REIT Devonshire Opportunity Fund London UK diversified £300Frogmore Property Frogmore Real Estate Partners III London UK diversified £350Genesta Property Genesta Nordic Real Estate Fund II Stockholm Nordic diversified € 250Investment Management Group Russia Development Fund II Moscow Russia diversified $150LCN Capital Partners LCN Capital Partners Europe Sale-Leaseback
FundNew York Europe sale-leaseback properties € 200
Moorfield Group Moorfield Real Estate Fund III London UK diversified £250Peakside Capital Peakside Real Estate Fund II London Europe diversified € 300Pradera Europe Pradera Turkish Retail Fund London Turkey retail € 250Pradera UK Pradera UK Retail Fund London UK retail warehousing £250Resolution Property Resolution Real Estate Fund IV London Europe diversified € 800Revetas Capital N/A Budapest Central / Eastern Europe diversified € 250ScarWyn Capital Steeland Property Opportunity Fund Leeds (UK) UK diversified $150UBS Global Asset Management UBS Central London Office Value Added Fund London Central London office £100UNION Eiendomskapital Union Real Estate Fund Oslo Norway retail, office NOK1,700Weinberg Capital Partners Weinberg Real Estate Partners II Paris France diversified € 150
Europe funds subtotal $11,069
Asia/roW fundsAEW Asia AEW Value Investors Asia Fund II Singapore Asia diversified $500 Altis Property Partners Altis Real Estate Equity Partnership II Sydney Australia diversified A$250Apache Capital Apache China Real Estate Fund London China diversified N/AApollo Global Real Estate AGRE Asia Pacific Real Estate Fund New York China diversified $600 Ashington Capital Ashington Development Fund III Sydney Australia development $160 Asia Investment Partners AIP Japan Fund V Tokyo Japan senior housing ¥30,000AXA REIM / Ping An N/A Paris China residential $500 AXA REIM / Sumitomo Trust & Banking N/A Paris Japan offices $550 The Blackstone Group Blackstone Real Estate Partners Asia New York Asia diversified $3,000 CBRE Global Investors CBRE Global Investors China Opportunity Fund II Los Angeles China diversified $500 Charter Hall Charter Hall Special Situations Office Fund Sydney Australia office A$400Composition Capital Partners Asia III Opportunistic Fund Hong Kong Asia-Pacific diversified $300 Cube Capital Cube Asia Frontier Fund London Asia diversified $150 Dewan Housing Finance DHFL Venture Capital Fund II Mumbai India residential $200 Du Val Group Du Val Opportunity Fund Auckland, New Zealand New Zealand / Australia diversified $800
FIrm FunD HeADQuArters strAtegy tArget(m)
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APr 2013 | PERE 57
Funds WiTH PArTiAl Closes Prior To 2013
FIrm FunD HeADQuArters strAtegy closetotAl
closeD(m) DAte
global fundsBrookfield Asset Management Brookfield Strategic Real Estate Partners Toronto Global diversified First $2,100 May-12Meadow Partners Meadow Real Estate Fund II New York Global diversified First $125 Oct-12Starwood Capital Group Starwood Global Opportunity Fund IX Greenwich (CT) Global diversified Interim $2,000 Sep-12Walton Street Capital Walton Street Real Estate Fund VII Chicago Global diversified First $710 Aug-12
Global funds subtotal $4,935
Americas fundsAbacus Capital Group Abacus Multi-family Partners II New York US multifamily Interim $123 Aug-12Admiral Capital Admiral Capital Real Estate Fund San Antonio (TX) US diversified First $100 May-11
FIrm FunD HeADQuArters strAtegy tArget(m)
Everassion Funds Policy-Based House Investment Fund Beijing China diversified RMB1,000Everstone Capital IndoSpace Logistics Partners II Mumbai India logistics $350 ICICI Venture India Advantage Fund II Mumbai India residential $200 InfraRed Capital Partners InfraRed NF China Real Estate Fund II London China diversified $700 Infrastructure Leasing & Financial Services IL&FS India Realty Fund III Mumbai India diversified $750 International Housing Solutions South Africa Workforce Housing Fund II Johannesburg South African housing $360 Invesco Real Estate Invesco Asia Real Estate Partners III Atlanta Asia diversified $800 Investment Corporation of Dubai / Brookfield
Asset Management ICD-Brookfield Dubai Real Estate Fund Dubai / Toronto Dubai diversified $1,000
IREO India Real Estate Opportunities Fund II New York India development $400 Kotak Investment Advisors Kotak India Realty Fund II Mumbai India diversified $350 LaSalle Investment Management LaSalle Asia Opportunity Fund IV Chicago Asia diversified $750 LIDIS LIDIS Real Estate VI Sydney Australia diversified $400 Lime Tree Capital China Car Parks Investment Fund Hong Kong China car parks $325 Long Hills Capital Long Hills China Retail Real Estate Fund I Hong Kong China diversifed $400 Lotus Hotel Investment Fund Lotus Hotel Investment Fund Hong Kong Asian hotels $1,000 Lucrum Capital Lucrum Singapore Opportunity Fund Singapore Singapore diversified $201 Moonbridge Capital Moonbridge Capital Greater China
Development FundHong Kong China diversified $400
Mapletree Capital Management Mapletree Japan Property Fund Singapore Japan diversified $928 Moss Capital Moss Capital Australian Real Estate
Opportunities FundSydney Australia diversified $150
NBAD Investment Management N/A Abu Dhabi Middle East diversified $300 Orion Partners Ostara China Retail Properties II Hong Kong China retail $500 Orion Partners Ostara Japan Properties Fund III Hong Kong Japan healthcare $350 PFH Investment Advisory Fortune Capital Holdings Mumbai India hospitality $200 Prax Capital Prax Capital China Real Estate Fund III Shanghai China commercial $350 Profound Group PREF Capital Perth, Australia Australia development $90 Prologis Prologis Japan Development Fund Singapore Japan industrial development $600 Prosperitus Capital Partners Prosperitus India Real Estate Opportunities I London India diversified $250 Red Fort Capital Red Fort India Real Estate Fund III New Delhi India diversified $500 The Redwood Group Redwood China Logistics Fund Singapore China logistics CNY 2,500The Redwood Group Redwood Japan Logistics Fund Singapore Japan logistics $500 Rose Rock Capital Rose Rock Capital Fund New York China commercial $2,000 Saigon Asset Management / RNG Invest New Vietnam Smart Money Fund Ho Chi Minh City Vietnam diversified $100 SEB Asset Management SEB Asian Property Fund II Frankfurt Asia diversified € 600Seedstone Fund Advisors Rainbow Nation Property Fund II Cape Town South Africa development $100SP-aktif Properties Terra Optima One Bellville, South Africa Sub-Saharan commercial land R$1,000Vermillion Capital Management Vermillion Opportunity Fund Tokyo Japan offices ¥15,000
Asia/RoW funds subtotal $24,661
Fund of funds/secondariesAdvanced Capital AC RE Global Opportunity Fund I Milan Global diversified € 300FLAG Capital FLAG Real Estate Partners III Stamford (CT) Global fund of funds $125 Franklin Templeton Real Estate Advisors Franklin Templeton Asian Real Estate Fund II New York Asia fund of funds $300 Franklin Templeton Institutional Franklin Templeton European RE Fund II San Mateo (CA) Europe fund of funds € 300ING Real Estate Select ING RE Select Asia Pacific Property Growth Fund Hague Asia Pacific diversified $675 Investors Diversifed Realty Investors Diversified Realty Fund II Cleveland US fund of funds $150 IVG Immobilien IVG Balanced Portfolio Asia Bonn Asia fund of funds $475 LGT Clerestory Crown Small Cap Real Estate Fund II New York Global fund of funds $400 Mesirow Financial MFIRE Global Real Estate Investment Program II Chicago Global fund of funds $500 Metropolitan Real Estate Metropolitan Real Estate Partners IX New York US fund of funds N/APenn Square Real Estate Group TownSquare Real Estate Alpha Fund Radnor (PA) Global fund of funds $200 Portfolio Advisors Portfolio Advisors Real Estate Fund V Darien (CT) Global fund of funds $400 Versus Capital Advisors Versus Global Multi-Manager Real Estate
Income FundGreenwood Village (CO) Global fund of funds $750
Fund of funds/secondaries subtotal $4,749
totAl $73,955
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Astrum Investment Management Astrum Fund I Los Angeles SoCal mixed-use properties Interim $38 Dec-12Banner Apartments Banner Essex Strategic Apartment Fund II Northbrook (IL) US multifamily First $35 Nov-12Berkshire Property Advisors Berkshire Multifamily Value Fund III Boston US multifamily First $140 Dec-12Brightside Investment Group Brightside Hotel Fund Atlanta US hotels First $100 Jan-12Brilla Group Colombian Beachfront Hospitality Private
Equity Fund Miami Colombian hotels First $30 Mar-12
Brookfield Asset Management/Hillwood Industrial Partners Fund Toronto/Dallas US industrial First $410 Mar-12Centennial Holdings Centennial Real Estate Fund IV Atlanta Southern US multifamily First $100 Aug-12Cerberus Capital Management Cerberus Institutional Real Estate Partners III New York US diversified Interim $580 Dec-12CityView Southwest Multifamily Partners Los Angeles Southwestern US multifamily First $56 Jun-12Colony Capital Colony Realty Partners IV Santa Monica (CA) US diversified First $225 Dec-12Crossbeam Capital Crossbeam Apartment Fund II Bethesda (MD) US multifamily First $50 Jan-12Crow Holdings Capital Partners Crow Holdings Realty Partners VI Dallas US diversified Interim $604 Dec-12Encore Housing Encore Housing Opportunity Fund II San Francisco US residential Second $230 Nov-12Equus Capital Partners BPG Investment Partnership IX Philadelphia US diversified Interim $136 Oct-12Fortress Investment Group Fortress Real Estate Opportunities Fund New York US diversified Interim $530 Apr-12Gerding Edlen Gerding Edlen Green Cities II Portland (OR) US multifamily First $55 Dec-12Hackman Capital Hackman Capital Real Estate Fund Los Angeles US industrial First $28 Aug-12Henderson Global Investors CASA Partners V London US multifamily Interim $155 Nov-12High Street Equity Advisors High Street Real Estate Fund IV Boston US industrial First $100 Dec-11Hungerford Properties Hungerford Properties Western Canada
Opportunities Fund Vancouver Western Canada diversified First C$60 Dec-12
Invesco Real Estate Invesco Real Estate Fund III Atlanta US diversified Interim $250 Apr-12Kennedy Wilson Kennedy Wilson Real Estate Fund IV Los Angeles US diversified First $118 Jun-11KTR Capital Partners KTR Industrial Fund III New York US diversified Interim $390 Dec-12LaSalle Investment Management LaSalle Income & Growth Fund VI Chicago US diversfied First $265 Apr-12The Lionstone Group Lionstone US Land Two Houston US infill land First $100 Oct-12Magna Hospitality Magna Hotel Fund IV Warwick (RI) US hotel Interim $84 Oct-12Massey Knakal / RiverOak MKRO I New York /
Stamford (CT)New York City diversified First $10 Nov-12
Meritage Properties Meritage/Oppenheimer Real Estate Value Fund III
Scarsdale (NY) Northeastern US office First $41 Jan-12
Miller Global Miller Global Fund VII New York US multifamily First $110 Jun-12Normandy Real Estate Partners Normandy Real Estate Fund III Morristown (NJ) East Coast office First $150 Nov-12O'Connor Capital O'Connor/Wafra Retail Fund New York US, Mexico retail First $150 Sep-11Patria Investimentos Patria Brazil Retail Property Fund São Paulo Brazil retail First $115 Sep-12PCCP PCCP Equity VI Los Angeles US distressed First $170 Jul-12Ram Realty Ram Realty Partners III Palm Beach
Gardens (FL)Southeastern US retail
and multifamilyInterim $111 Dec-12
Regional Real Estate Investment Develop-DC Plymouth Meeting (PA)
Washington, DC development
First $35 Aug-12
Rialto Capital Rialto Real Estate Fund II Miami US distressed First $260 Dec-12Rubenstein Partners Rubenstein Properties Fund II Philadelphia US office First $113 Oct-12Square Mile Capital Management Square Mile Partners IV San Antonio (TX) US diversified First $255 Dec-12Stoltz Real Estate Stoltz Real Estate Fund IV Bala Cynwyd (PA) US diversified Second $131 Apr-12Stonelake Capital Stonelake Opportunity Partners III Dallas US diversified First $150 Dec-12TerraCap Management TerraCap Partners II Cape Coral (FL) Florida diversified Second $30 Nov-12Thayer Lodging Thayer Hotel Investors VI Annapolis (MD) US hotels First $70 Oct-12Tishman Speyer Tishman Speyer Brazil Fund III New York Brazil development Interim $540 Aug-12Tishman Speyer Tishman Speyer Real Estate Venture VIII New York US diversified First $500 Mar-12Tricon Capital Group Tricon XI Toronto US residential First $125 Sep-12
Americas funds subtotal $8,156
europe fundsAberdeen Property Investors Aberdeen European Shopping Property
Fund Stockholm Europe retail Interim € 218 Jun-11
Andersson Real Estate Investment Management
AREIM II Fund Stockholm Swedish diversified Second SEK 2000 Dec-12
CBRE Global Investors European Shopping Centre Fund The Hague German retail Interim € 220 Dec-11CIT CIT Jadwa UK Special Opportunities London UK diversified First £120 Nov-11Cordea Savills Prime London Residential Development
FundLondon London residential First £25 Jun-12
Europa Capital Europa Fund IV London Europe diversified First € 200 Aug-12Internos Real Investors Internos Hotel Real Estate Fund London European hotels First € 75 Jul-12Invesco Real Estate Invesco European Hotel Fund II Dallas Pan-European hotel First € 85 Mar-11Invesco Real Estate Invesco Real Estate - UK III Fund Dallas UK diversified First € 75 Aug-10LaSalle Investment Management LaSalle European Recovery Fund III Chicago Europe diversified First € 100 Dec-11MGPA MGPA Europe Fund IV London Europe diversified First € 100 Nov-11Nordic Real Estate Partners NREP Nordic Retail Fund II Copenhagen Nordic retail First € 121 Aug-12Orion Capital Managers Orion European Real Estate Fund IV London Europe diversified First € 650 Dec-12Perella Weinberg Partners Perella Weinberg Real Estate Partners II New York Pan-European diversified First € 600 Sep-12Realkapital Realkapital Residential Norway Oslo Norway residential First NOK 200 Mar-12Revcap Advisors Kitty Hawk Capital Partners II London Europe diversified First £60 Jun-12Tristan Capital Partners European Property Investors Special
Opportunities III London Pan-European diversified First € 170 Dec-12
Wainbridge Wainbridge Global Opportunities London London London diversified Second £65 Sep-11
Europe funds subtotal $4,116
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Asia / roW fundsAlpha Investment Partners Alpha Asia Macro Trends Fund II Singapore Asia diversified First $460 Sep-11Asia Pacific Land N/A Hong Kong Tokyo residential First $70 Jan-11CBRE Global Investors CBRE Asia Value Fund Los Angeles Asia Diversified First $261 Dec-12China Overseas Land and Investment/
Industrial and Commercial Bank of China Harmony China Real Estate Fund II Hong Kong China residential development First $230 Feb-12
CITIC Capital CITIC Capital China Retail Properties Investment Fund
Hong Kong China retail Second $500 Dec-12
Gaw Capital Partners Gateway Real Estate IV Hong Kong China diversified First $140 Nov-12GreenOak Real Estate GreenOak Real Estate Japan Fund I Tokyo Japan diversified First $200 Jan-12JPMorgan Asset Management JPMorgan India Property Fund II New York India residential First $75 May-12Phatisa Pan African Housing Fund Mauritius Africa diversified First $42 Dec-12Secured Capital Secured Capital Real Estate Partners V Tokyo Japan, China diversified First $200 Jul-12
Asia / RoW funds subtotal $2,178
Fund of funds/secondariesAberdeen Asset Management Aberdeen Asia Property Fund of Funds III Aberdeen, Scotland Asia Pacific fund of funds First $472 Apr-12Cohen & Steers Capital Cohen & Steers Global Realty Partners New York Global fund of funds First $100 Dec-11Metropolitan Real Estate Equity Mangement Metropolitan Real Estate Partners Global VI New York Global fund of funds First $25 Jul-12
Fund of funds/Secondaries subtotal $597
Pre-2013 totAl $19,982
Funds Closed in 2013
FIrm FunD HeADQuArters strAtegy close closeD(m)totAl
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global fundsOaktree Capital Management Oaktree Real Estate Opportunities Fund VI Los Angeles Global diversified Interim $238 $463 JanRockpoint Group Rockpoint Real Estate Fund IV Boston Global diversified Final $550 $1,950 Mar
Global funds subtotal $788
Americas fundsAEW Capital Management AEW Partners VII Boston US diversified First $89 $89 MarCIM Group CIM Fund VIII Los Angeles US diversified First $357 $357 JanDune Real Estate Dune Real Estate Fund III New York US diversified First $175 $175 MarGTIS Partners GTIS US Residential Strategies Fund New York US residential Interim $186 $186 MarHarrison Street Real Estate Capital Harrison Street Real Estate Partners IV Chicago US diversified First $465 $465 MarKimpton Hotels & Restaurants Kimpton Hospitality Partners Fund III San Francisco US hotels Final $203 $203 MarNoble Investment Group Noble Hospitality Fund II Atlanta US hospitality Interim $102 $102 MarPaladin Realty Partners Paladin Realty Latin American
Investors IVLos Angeles Latin America diversified First $76 $76 Mar
Quadras Futuro Inmobiliario Bogota Colombia residential Interim COP60,000 COP60,000 FebReal Estate Capital Partners RECAP Metropolitan Opportunity Fund III San Francisco US diversified Final $120 $120 JanSares Regis Group Sares Regis Group Western States
Multifamily FundIrvine (CA) US multifamily Final $113 $113 Mar
Singerman Real Estate Singerman Real Estate Opportunity Fund I
Chicago US distressed Interim $47 $47 Mar
TA Associates Realty TA Realty Associates Fund X Boston US diversified Final $475 $1,575 JanThe Wolff Company Wolff Real Estate Partners II Scottsdale (AZ) US multifamily Interim $425 $425 Mar
Americas funds subtotal $2,865
europe fundsCapMan Real Estate CapMan Nordic Real Estate Fund Helsinki/
Stockholm Nordic diversified First € 50 € 50 Mar
Meyer Bergman Meyer Bergman European Retail Partners II
London Europe retail Interim € 30 € 160 Feb
Europe funds subtotal $103
Asia / roW fundsHarvest Capital/China Resources SZITIC Trust Harvest Capital/China Vanke Fund Hong Kong/
ShenzhenChina residential
development Final CNY 956 CNY 956 Jan
Asia / RoW funds subtotal $154
Fund of funds/secondariesHawkeye Partners Hawkeye Partners Scout Fund II Austin (TX) US fund of funds Interim $478 $478 MarMadison International Realty Madison International Real Estate
Liquidity Fund V New York Global diversified Interim $93 $231 Mar
Fund of funds/Secondaries subtotal $570
2013 totAl $4,480
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60 PERE | APr 2013
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Mor
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Stan
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entit
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. ©
2012,
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Stan
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Olivier de Poulpiquet Managing Director23 Church Street#16-01 Capital Square, [email protected]
Hoke SlaughterManaging DirectorLevel 46 ICC, 1 Austin Road WestKowloon, Hong [email protected]
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