Blueprint: Blackstone’s Industrials REIT take private, Barings’ first niche value-add fund, Keppel’s new CEO

Blackstone takes UK industrial REIT private for a 42 percent premium, making some onlookers nervous about pricing; Barings raises first US niche fund focused on office as it eyes franchises of funds; Keppel's Mah retires, paving the way for Lee to take over as CEO; and more in today's briefing, exclusively for our valued subscribers.

They said it

“One industrial investor said to me, ‘In the last 60 days we’ve gone from crickets to our hair on fire.’”

Todd Henderson, DWS’s co-global head of real estate, relaying feedback on investment activity from one of the firm’s institutional investors last week.

What’s new?

The REIT move
The terms are now agreed for global behemoth Blackstone to take Industrials REIT private. With a final offer price of 168p per share, the deal values the UK urban multi-let industrials real estate investment trust at approximately £511 million ($632 million; €579 million), representing a premium to market capitalization of around 42 percent, according to an announcement. Capital values in the UK industrial sector may have declined by 21 percent in 2022, according to CBRE, but Blackstone’s offer puts the REIT closer to its declared value in September 2022.

“That Blackstone deal has scared everyone, because all of us were looking at metrics that were much cheaper,” says Keith Breslauer, managing director of London-headquartered Patron Capital. To what extent the privatization of a public REIT accurately reflects private trading values is debatable, but for would-be buyers, there is also the question of timing. Last week, CBRE’s Monthly Index showed capital values for UK industrial properties increased by 1.7 percent in March, leaving Q1 2023 flat in terms of value growth.

Barings due Niche
Charlotte-based Barings has loudly entered a new phase of North American fund operations. The firm raised $680 million for its Innovation and Growth Fund, a vehicle focused on life sciences and STEM-tenanted creative office. Barings initially targeted $500 million for what amounts to its first niche-focused value-add fund in the US, Joe Gorin, head of US real estate equity acquisitions and portfolio management, told PERE. Barings’ last value-added fundraise in the US was in its Cornerstone series of funds, of which Fund X most recently closed in 2016 with $170 million in commitments. The fund is likely to be the first of many. “We look at this being a franchise series of funds for the firm,” Gorin said.

Keppel names CEO for private fund business
Keppel Capital’s private real estate fund business, Alpha Investment Partners, has appointed its next leader. The Singapore-based manager promoted its head of investments Galen Lee to chief executive officer after its long-serving CEO Alvin Mah retired from the role, according to an announcement. Prior to joining Alpha in 2018, Lee was head of capital markets at Singaporean landlord City Developments. During their tenure at Alpha, Lee and Mah worked closely together, playing key roles in launching funds and business initiatives, including the Keppel Vietnam Fund and an Indonesian logistics joint venture with Canadian insurer platform Manulife Investment Management. While Mah will remain on the investment committee for a few of Alpha’s funds, Lee will take on the lead managing the firm’s portfolio.

Trending topics

Mapping to market
At an INREV seminar on ESG in real estate held in Cannes last month, one panelist likened the desire for regulators to synchronize and align their reporting requirements to “wishing for world peace.” While ESG processes are unquestionably set with good intentions, the frustration and confusion involved in navigating the labyrinth of ESG regulations, certifications and standards is palpable in the real estate industry, and precludes meaningful impact. A global study published last week by industry bodies INREV, PRI and ULI aims to help demystify the complexities. Mapping ESG: A Landscape Review of Certifications, Reporting Frameworks and Practices claims to streamline and simplify the ESG reporting challenge through case studies, best practices and self-assessment questions. In a statement, ULI Europe CEO Lisette van Doorn said the report would help organizations “to choose the standards and metrics appropriate to their ESG strategy and their stakeholders. With this approach, there might well be an opportunity to reduce the ESG reporting burden.”

Clearing up confusions
Anyone reading headlines about commercial real estate and giving the REIT sector a wide berth should think again, according to CenterSquare Investment Management. In a research note published last week, the Plymouth Meeting, Pennsylvania-based manager illustrated how sector concerns were primarily focused on the office sector, a property type largely unrepresented by listed real estate investment trusts at just 3 percent of total assets. This compares with a 22 percent representation in private markets. Indeed, the firm said office exposure among REITs has declined since the global financial crisis when it peaked at 16 percent, while more popular alternative assets have dominated. The firm also said the quality of offices in the remaining 3 percent are of comparably higher quality than that held in private vehicles. “Many [troubling] assertions are based on investment pundits wrongly conflating the listed real estate market with the office sector,” the firm said.

Credit worthy regulation
Industry bodies NCREIF and PREA have updated their reporting standards 2023 handbook to include debt fund-specific guidance. As the market focuses more closely on private debt as a solution to the liquidity crunch, those private managers with pools of capital looking to be part of the solution are now required to include more specific details about loans originated or purchased. The simplest of changes comes in disclosing the type of debt in a portfolio –such as senior mortgages, B-pieces and mezzanine loans – and the interest rate type: fixed-rate or floating-rate. Debt funds specifically also must now include the financial leverage ratio – how much leverage the debt funds are using to provide loans – and the external value of the collateral at loan origination.

The reasoning behind the additions to the guidance is that AUMs in private debt funds have been rising without there being an evolution in terms of industry best practices on topics such as performance and risk metrics, the updated guidance stated. Further research is being undertaken on structural and financial leverage and fund level leverage, among other things so expect further guidance in due course.

Data snapshot

The right small bank proportion
MSCI Real Capital Analytics published a white paper last week to clear up confusion about the extent to which smaller US banks are lending to commercial real estate in the country. Contrary to “recent industry chatter,” they are not behind 70 percent of it, the research firm said. “That figure… is likely a misread of Federal Reserve data showing smaller banks are behind roughly 70 percent of the existing stock of bank loans to commercial real estate. The key words here are ‘of bank loans’”, the firm added while demonstrating what it felt was a truer representation of smaller bank lending to the asset class.


BGO secondaries ace goes boutique
BentallGreenOak’s managing director and co-head of BGO Strategic Capital Partners Sarah Schwarzschild [her LinkedIn here] is leaving to become chief operating officer of Mavik Capital Partners, a New York-based distressed credit investment manager that has just raised its first private institutional fund. Schwarzschild moves after more than a decade focused on real estate secondaries. After beginning her real estate career at former Deutsche Bank real estate platform RREEF during the financial crisis of 2008, she spent three years at Zug, Switzerland-based alternatives manager Partners Group in secondary acquisitions. She then joined Metropolitan Real Estate as global head of secondaries while it was owned by Carlyle Group. When Metropolitan was bought by BGO in 2021, Schwarzschild became co-head of the firm’s secondaries real estate operation. Read our full story about the move and Mavik’s plans for Schwarzschild here.

Investor watch

Bouwinvest’s returns hit five-year low
2022 was far from a stellar year for Bouwinvest Real Estate Investors’ performance. The Dutch pension fund manager’s overall portfolio generated a total return of 0.1 percent last year, compared with 13.2 percent in 2021, according to Bouwinvest’s 2022 annual report. In fact, the 2022 return is the investor’s lowest over the past five years, with Bouwinvest-managed funds and mandates delivering a weighted annual return between 0.1 percent and 13.2 percent from 2018 to 2022. “This is driven by the deteriorating economic circumstances in 2022 caused by, among others, geopolitical developments,” Bouwinvest stated. “This has also affected the real estate markets,” the impact of which can be seen particularly in the investor’s listed international portfolio. On a positive note, Bouwinvest outperformed five of its key seven investment market benchmark indices last year, compared with three out of six in 2021, according to the report.

This week’s investor meetings

Tuesday, April 18

Wednesday, April 19

Thursday, April 20

Friday, April 21

Today’s letter was prepared by Peter Benson with Jonathan Brasse, Evelyn Lee, Charlotte D’Souza and Christie Ou contributing