ADIA’s condition is not black and white

Senior departures and less visible asset sales have distracted from thematic investments made via indirect channels.

The Abu Dhabi Investment Authority’s $500 million commitment to a long-standing US student housing joint venture demonstrates the current condition of this investor’s real estate business cannot be summed up in black and white terms.

We revealed on Monday how ADIA, the preeminent sovereign wealth fund of the United Arab Emirates, was on course to add $500 million in firepower to a partnership with Athens, Georgia-based student accommodation specialist Landmark Properties, already extending to $3.5 billion in gross asset value. The partnership was formed in 2015. Few outside folks had a clue it existed.

In the meantime, ADIA’s real estate department has seen a once glowing reputation deteriorate as senior departures and asset sales painted a somewhat lopsided picture of its activities. Real Capital Analytics, the well-respected real estate deals research firm, pegged the investor as a net seller since 2015. Indeed, RCA, which monitors direct investments, recorded 15 exits in the past two years alone and no new investments.

Added to a bench understood to have halved from approximately 100 in the last six to seven years, including two global head leavers, and it is entirely understandable that when PERE started to investigate the happenings at ADIA this summer, we were told things like: “ADIA has completely fallen apart” and “It’s no secret they have struggled a lot.”

Clearly such commentary is subjective. When we dug deeper we discovered a business with certain challenges, but not one with the absence of a plan. As acting head Salem Al Darmarki remarked in a white paper we saw early, today’s real estate department has pivoted from a heavy devotion to direct outlays to a greater focus on thematic conviction bets, more agnostic when picking vehicle types than before.

And those bets have been placed continuously during the pandemic. One person familiar with the investor informed us that, in fact, ADIA has not been a net seller but has placed as much as $3 billion of capital in each of the covid years so far. See PERE’s deeper analysis here.

As we discovered with the Landmark Properties outlay, onlookers should expect this investor to be narrower and deeper in its commitments than previously. They should expect also considerably more indirect plays: greater listed positions and platform-level investments with existing managers for starters. Besides Landmark, beneficiaries of that approach have included Hong Kong’s Gaw Capital Partners and logistics giant Prologis.

Deal visibility will, subsequently, be worse. That can be problematic, particularly for a group which had allowed direct dealings to do much of its talking in the past. But consider Al Darmarki’s white paper as one step in the name of greater transparency. Not routine, the paper was a notable, additional communication alongside its annual review, which was last published last month.

Stumbling blocks remain. The staffing issue needs to be reconciled. Certainly, dissidents will not stop picking at ADIA’s insistence all employees reside in Abu Dhabi and work from its headquarters on the Corniche. ADIA fell from the top of PERE’s Global Investor 100 ranking, at least in part, because that policy, married with covid-enforced travel restrictions, meant direct buying would be curtailed.

To what degree does the chicken and egg idiom apply to its current, largely indirect strategy? Only ADIA really knows the answer here. But, whatever the reality, this heavyweight institutional investor has found a way to navigate today’s challenging private real estate landscape. Whether its real estate department is well enough equipped to continue like this is a question for the future. For now, repeat commitments to trending sectors like student accommodation allow it to at least keep its heavyweight peers within reach.