Blueprint: Blackstone’s aborted SOHO China bid, Apollo’s stake acquisition in Aussie lender, MSREI’s big G10 raise

Blackstone’s massive China real estate estate deal falls apart, Apollo sees growing opportunity for non-bank lending in Australia, MSREI’s fund series continues slow and steady regrowth, and more in today's briefing, exclusively for our valued subscribers.

He said it

“With real estate becoming more operational, it’s becoming more of a risky investment, but if this is what customers want today, then not being operational becomes a risky investment”

James Lass, head of special transactions and fund manager at Mayfair Capital, a real estate subsidiary of Swiss Life Asset Managers, speaking about the changing risk profile of office buildings on the WorkBold podcast.

What’s new?

SOHO is a no-go
Blackstone has abandoned its $3 billion bid to buy a controlling stake in Beijing-based developer SOHO China after an 18-month struggle. Last Friday, the New York-based private equity giant and the Hong Kong Stock Exchange-listed developer jointly announced that the deal has been scrapped due to “a lack of progress.” It is understood that China’s State Administration for Market Regulation had not yet approved the transaction. Reuters first reported in March 2020 that Blackstone was in talks to acquire SOHO China for $4 billion. But the plan had stalled by May 2020 when the developer said it had “terminated discussions with various investors” due to market conditions. In June, Blackstone revived its privatization bid with a $3 billion offer. But its second takeover attempt has also now failed amid Beijing’s crackdown on large business deals to limit monopolies in sectors including financial services and education.

A loan Down Under
Where can you expect to see more Apollo Global Management men (and women) at work? Australian real estate debt. The New York-based private equity firm announced last week that it has agreed to acquire up to a 50 percent equity stake in MaxCap Group, a Melbourne-based commercial real estate lender. While Apollo has previously made real estate equity investments in Australia, the New York-based private equity firm has not historically been active in commercial real estate debt in the continent. One of only two Australia-focused managers featured in our Real Estate Debt 50 ranking, MaxCap already has a strong foothold in the approximately $300 billion Australian commercial real estate debt market. PERE understands that Apollo expects MaxCap to win more market share as non-bank commercial real estate lending continues to grow in the region.

Slowly but surely for MSREI
Now beyond a comeback tale, Morgan Stanley’s real estate investment business, Morgan Stanley Real Estate Investing, is quietly going about re-growing its once legendary opportunistic fund series. Since rebranding from Morgan Stanley Real Estate Funds to North Haven Real Estate Funds, the New York-based investment bank has achieved two successively higher fundraisings. With the latest, announced last Thursday, MSREI has raised $3.1 billion for Fund X (also known as G10). The equity haul is almost 15 percent more than the $2.7 billion amassed for Fund IX in 2018 and 81 percent up on the $1.7 billion collected for Fund VIII, the fund that effectively constituted a re-set for the series following the poor performance of its largest vehicle, the $8 billion G6. Returning investors made up 80 percent of the new fund’s equity.

Trending topic

The pandemic disconnect
One might assume a strong correlation between employment and real estate occupancy trends. But there has been a notable disconnect between the two during the pandemic. This is particularly the case for office, where employment has outperformed the broader labor market, but fundamentals are weaker than in other real estate sectors, according to a Cushman & Wakefield report published last week. Most office markets have recorded negative net absorption since the start of the pandemic, even those where employment has exceeded their pre-covid peak, the report showed. “Normally office employment changes are 80 percent to 85 percent correlated with demand patterns; this connection has broken down temporarily,” Cushman & Wakefield stated. By contrast, education and healthcare have been resilient property types, but remain among the hardest hit from an employment perspective. Hospitality likewise has suffered more in terms of jobs than occupancy.

People moves

Sharpe shooter
HSBC Asset Management is putting boots on the ground for its real estate investments in Asia-Pacific. The London-based bank has hired Vicky Sharpe [her LinkedIn profile here] to lead its real estate business in the region as part of a larger initiative to grow its alternatives exposure. Based in Singapore, Sharpe will be charged with building the firm’s property platform across the region and report to Joanna Munro, CEO of HSBC Alternatives. Sharpe previously was the Asia-Pacific real estate head for both German asset management company DWS, where she worked for five years, and PGIM Real Estate, where she spent 16 years. Also joining the team are managing principals Lionel Low [his LinkedIn here] and James Bartlett [his LinkedIn here], formerly of Ascendas Asia Real Estate Fund Management and DWS, respectively. HSBC consolidated its alternatives business under a single unit called HSBC Alternatives in June.

Data snapshot

Where Europe’s logistics occupiers expect to expand
Among warehouse tenants, 46 percent predict their space requirements will rise in the region’s countries, with France and Germany leading the way, according to a report by listed logistics firm Tritax EuroBox and broker Savills. Only 4.8 percent expect to make a reduction.

Investor watch

What to know about ADIA’s annual report
The Abu Dhabi Investment Authority, one of the world’s largest investors in private real estate, published its latest annual report last week. While scant on hard facts, the document had a few interesting takeaways on the asset class:

  • The sovereign wealth fund’s real estate division believes global office markets should benefit from the easing of covid-related economic hardship and social restrictions in 2021. “The recession of 2020 has created a meaningful economic output gap that is expected to be filled, further supporting real estate market fundamentals,” ADIA stated.
  • The investor also said accelerated remote working and online shopping trends represent permanent changes that will require real estate owners to develop more flexible multi-use spaces and to meet increasing tenant demands around amenities and health and safety.
  • ADIA anticipates more “tactical investment opportunities” to emerge over the coming years in hospitality, which has rebounded in Asia-Pacific, but remains under stress in Europe and the US.
  • The division expects to continue to focus on platform investments “in areas backed by positive structural trends.”

This week’s investor meetings
Tuesday, September 14

Wednesday, September 15

Thursday, September 16

Friday, September 17

Today’s letter was prepared by Evelyn Lee with Jonathan Brasse and Christie Ou contributing