US asset manager Barings’ quest to build a global real estate platform took a major leap forward with the hire of John Ratcliffe, who joined in the newly created position of head of Asia-Pacific real estate in June. He will primarily be responsible for sourcing investment opportunities in the region, with an initial focus on Australia and Japan.
Joining from Challenger Real Estate, Ratcliffe reports to Charles Weeks, head of Europe and Asia-Pacific real estate equity, who noted that Ratcliffe’s arrival would now give Barings the capability to invest locally in Asia. “With well-established businesses covering Europe and the US, building out Asia-Pac represents the final piece of the jigsaw in terms of creating a truly global platform,” Weeks told PERE.
Four months on the job, Ratcliffe sat down with PERE to discuss both the challenges and the opportunities that covid-19 has presented for his new role.
PERE: What has the key impacts of covid-19 been on your real estate business so far?
John Ratcliffe: Australia has been lucky in that we have been so lightly touched by the impacts of covid, giving us the freedom and flexibility to continue on our normal work in a way than many other markets can’t. Looking back at the late stages of 2019, asset prices in some sectors [across Asia-Pacific] appeared stretched. Competition for assets and for talent was tight, but some of that has now abated. We see value and opportunity emerging albeit with the unprecedented challenge of travel restrictions and quarantine. Aside from the obvious challenge of access, and the opportunity to meet our clients in person, one of the largest challenges has been to assess the impact of stimulus support on tenant demand, and which of the current trends that will become the norm in the post-pandemic environment.
PERE: Has the pandemic opened up any opportunities that were not there before?
Ratcliffe: Australia’s major banks have had a near stranglehold on commercial property debt for the past decade. There has been a sharp pullback on commercial property lending by the big four banks here while they focus on other sectors of the economy. This creates a great opportunity to be involved in commercial real estate debt and to lend into high quality assets where a funding gap is emerging and at returns that were just unthought of pre-covid. The banks have pulled back across all sectors, however on a risk-adjusted basis the best opportunities have been emerging in prime office and logistics.
PERE: What is your investment strategy for APAC?
Ratcliffe: Barings will take a very cautious approach to investing over the next six to 12 months. While the long-term goal is for a pan-Asian platform, we are conscious that there will be bumps in the road to recovery. We remain optimistic about the opportunities driven by an early recovery of the Asian region. Real estate debt is an obvious focus for Barings in Australia and New Zealand, while we will continue to target core and value-add opportunities in Japan.
PERE: Are you looking at any new products?
Ratcliffe: Given the cautious approach we are taking in the near term, we will primarily look to do separate accounts on behalf of specific clients. Rather than launching a pooled fund vehicle with multiple investors, we will look to partner with current investors of the firm where they already have strategies aligned with our capabilities.
PERE: Where is the capital raised mostly coming from?
Ratcliffe: Most of this currently comes from US, European and Middle Eastern investors. We also attract some Asian capital looking to invest in Europe and the US. Our aim is to both increase capital flows out of Asia, while at the same time source investment opportunities in the region for capital coming the other way.
The quality of capital that’s chasing assets in Australia and Japan is incredibly high. Many sovereign funds, pension funds and institutional capital are taking the view that APAC is very well-positioned to lead growth and the recovery phases of the pandemic. Australia and Japan are good, safe and transparent markets, reflected in some of the transactions involving high quality assets that would not be available or would have been at incredibly tight bids in normal times.
A good example of this was the widely reported China Investment Corporation purchase of a 50 percent stake in the premium grade Grosvenor Place tower in Sydney, for close to $1 billion. Similarly, a German fund has utilized the period to purchase 452 Flinders Street in Melbourne, with the $450 million purchase price reflecting an 11 percent premium to book value. This demonstrates the recognition by global investors that Australia has managed the crisis well and is well positioned for recovery.
PERE: What is your pipeline looking like?
Ratcliffe: There are many opportunities in, firstly, commercial real estate debt in Australia and New Zealand, particularly in logistics and office; and secondly, long-leased income-producing logistics and office assets in Australia and Japan. These must be high quality with strong contracted cashflows that create a secure return for investors who are focused on income at a time when bond yields are falling and other asset classes are more volatile.