AEW bets on co-working trend with $1.12bn Asia value-add fund

The Boston-based investment manager expects co-working operators to comprise a greater part of the tenant mix in the assets held by AEW Value Investors Asia III.

The Boston-headquartered investment manager AEW has closed its third Asia-Pacific value-add fund at $1.12 billion, significantly more than the initial $750 million fundraising target.

With the latest capital haul for AEW Value Investors Asia (VIA) III, the firm is upping its bet on the co-working sector . The fund’s capital will be mainly invested in office assets, and David Schaefer, managing director and head of AEW Asia, told PERE that he expects a greater part of the potential tenant mix in the assets to consist of co-working operators.

Schaefer: led the $1.12bn fundraise.

In his view, the overall penetration of co-working space especially across Asia markets is still relatively low compared to other parts of the world.

The fund’s predecessor, AEW Value Investors Asia II, which closed on $640 million in May 2016 , also had one co-working tenant in one of its office buildings.

PERE also understands that all 10 investors, comprising US and European public and private pension funds and insurance companies, which committed capital to Fund II decided to invest in Fund III. These include the Teacher Retirement System of Texas (TRS) that has committed $150 million, including a $50 million in co-investment capital, and the California State Teachers’ Retirement System that invested $100 million. The two investors had invested the same amount in VIA II, according to PERE data.

Meanwhile, the Florida State Board of Administration has committed $100 million to the VIA III, while the Los Angeles County Employees’ Retirement Association has committed $50 million, shows.

In addition, there are four new investors in VIA III, two from Europe and two from the US, according to Schaefer.

Elaborating further on VIA III’s investment strategy, Schaefer said that the firm will be eyeing investments in Beijing and Melbourne alongside other markets in which VIA II was also invested like Hong Kong, Singapore, Seoul, Shanghai and Sydney.

“Beijing and Shanghai are the two top-tier global institutional cities and that is where our China exposure would be,” he explained. “We see cyclical opportunities in Melbourne where there is no new space for development. The state of Victoria, and Melbourne will overtake Sydney in terms for population and it is a very attractive place for corporates to be located and see potential for rental growth.”

Schaefer sees obvious differences in geographical focus from Fund II to Fund III.

“We like office in Singapore right now, for instance, but we did none of that for Fund 2. In Fund 2, we had one asset in Sydney, but we already have three assets for this fund,” says the Asia head.

Schaefer did not specify the exact IRRs target for VIA III, but said the firm would look to generate value-add returns. However as PERE reported earlier, AEW’s value-add fund series have an IRR target of 13 percent to 15 percent and a 1.5x to 1.8x equity multiple.

As of March 31, 2018, AEW and its affiliates managed over $73 billion of property and securities from its offices in Boston, Los Angeles, London, Paris, Hong Kong, Singapore and Sydney, as well as additional offices in nine European cities.