Blueprint: Brookfield and QIA make further repositioning push in Canary Wharf, Bain’s $1bn hospitality lending platform, BGO names new capital raising heads

Brookfield and Qatar Investment Authority commit £400 million to the life sciences- and residential-focused repositioning of London’s Canary Wharf; Bain Capital teams up with Smith Hill Capital to form $1 billion US hospitality lending platform, with an initial focus on new loan originations and refinancings; BGO makes promotions in global capital raising team; and more in today's briefing, exclusively for our valued subscribers.

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They said it

“There’s so much complexity there before we get to black-and-white, yes-or-no decision-making”

Craig Morey, climate lead for real estate at Schroders Capital, speaking on a ULI Europe webinar about the challenges of assessing physical risk for property investments. Read our coverage of the webinar here.

What’s new?

Brian Kingston, Brookfield Real Estate

Brookfield and QIA’s big life sciences bet

Brookfield and the Qatar Investment Authority are betting on life sciences to help transform Canary Wharf, the London business district that has recently seen the exodus of large office tenants such as HSBC. The Toronto-based manager and Qatar’s sovereign wealth fund have committed £400 million ($485 million; €460 million) to Canary Wharf Group, the commercial and residential property company that the two parties jointly own and is redeveloping 128 acres of the Docklands district. The commitment – which comprises a £300 million equity subscription and a £100 million revolving credit facility – will be used to complete the strategic repositioning of Canary Wharf and build out additional residential and life sciences projects on the estate.

“Canary Wharf continues to evolve into a vibrant and diverse estate well-positioned to meet the needs of the future,” said Brian Kingston, chief executive at Brookfield Real Estate.

The repositioning will include creating what Brookfield calls “Europe’s largest and most technologically advanced life sciences property” at North Quay. “By 2040, our aim is that 50 percent of the estate will be new or transformed,” said a spokeswoman for Brookfield, which will be making its commitment with balance sheet capital.

Bain’s world

Hotel owners looking for financing options now can add a hospitality-focused lending platform by Boston-based Bain Capital and New York’s Smith Hill Capital to the mix. The partnership between Bain’s special situations business and the affiliate of privately-held investment firm Procaccianti Companies aims to deploy $1 billion of gross capital “over the next several years” in US primary and secondary markets, according to a joint statement last week.

The partners said the venture will initially focus on new loan originations and refinancings but could also include stressed capital situations whereby debt can be purchased or so-called “rescue capital” deployed. “Rising interest rates coupled with lender pullback in the real estate debt capital markets has created a significant opportunity to deliver flexible financing solutions to high-performing, growth-oriented hospitality borrowers,” said David DesPrez, a managing director at Bain Capital Special Situations.

Bain has been busy forming partnerships as of late, having also announced a joint venture in China with DNE Group last week to invest in modern manufacturing parks in the country. That venture has a total equity commitment of $250 million.

Gangnam-style exit

US real estate manager Invesco has sold Majestar City Tower B, an office tower in Seoul, to Korean real estate company Koramco as the former seeks to rebalance the portfolio of its Asia core fund. A REIT managed by Koramco purchased the property, located in Seoul’s Gangnam business district, for $385 million, according to a statement last week. The sale price is almost double that of Invesco’s original purchase price six years ago, and PERE understands the sale proceeds will be used to invest in more “beds and sheds.”

Despite Majestar’s previously “fringe” location, “we identified strong growth potential in the area due to the expansion of the Gangnam business district office market and significant shortage of future office supply,” Gideon Lee, head of Korea for Invesco Real Estate, said. Meanwhile, Blackstone is reportedly in talks with Koramco to sell another Seoul office building, Arc Place, for around $553 million, having owned the building since 2016.

Trending topics

Holding steady on allocation targets

For the first time in 10 years, institutional investors did not increase their target allocations to real estate in 2023, according to New York-based capital advisory firm Hodes Weill’s 2023 Real Estate Allocations Monitor. Investors held their allocation targets at 10.8 percent this year, after raising targets from 2013 to 2022, according to the 11th iteration of the annual survey.

Doug Weill, founder and co-managing partner at Hodes Weill, says one reason for the unchanged target allocations is market uncertainty. Another reason is nearly 40 percent of this year’s survey respondents reported being overallocated in 2023, up from 32 percent in 2022. But overallocation is expected to become less of an issue going forward, partly because “the denominator effect is abating,” said Weill. For more on the waning denominator effect and other findings from the survey, check out our coverage here.

The indefinite Article 9

Fidelity International has launched Fidelity European Real Estate Climate Impact Fund, its first Article 9 fund under the EU’s Sustainable Finance Disclosure Regulation. The announcement accompanied news of the fund’s first investment, the acquisition of Central London office building 99 Queen Victoria Street, which the manager plans to fully refurbish in line with its objective to reposition assets into high-quality sustainable offices.

The firm did not disclose details of the fund’s target size, but as a brown-to-green real estate vehicle reporting as Article 9, Fidelity’s fund stands out. Indeed, data from affiliate title New Private Markets shows that only eight real estate funds classified as Article 9 under SFDR have closed in the past five years, raising $3.1 billion between them. Confusion around whether a transition-focused fund can indeed disclose under Article 9, as outlined in a report published by INREV in January, is a likely reason why. Look out for PERE’s analysis later this week for a deeper dive into the tensions surrounding Article 9.

Facing up to 2.6 degrees

“Is the institutional real estate industry set up to cope with the changes a 2.6-degree climate scenario could bring? Against the backdrop of escalating temperatures, it is more important than ever to examine it – before we are quite literally burnt.” Those words of foreboding start PERE’s guest commentary from Jessica Pilz, head of sustainable investing, private markets at Canadian manager Fiera Capital. Pilz joins the ranks of private real estate managers questioning the rationale behind strategies squarely focused on decarbonizing assets as part of an industrywide effort to meet the 1.5C global warming target set by the 2015 Paris Agreement. With too many factions – particularly government – failing to provide consistent support to achieve that goal, it is the private sector that must take most of the accountability, she argues, to ensure assets are resilient in a 2.6C scenario.

Data snapshot

The average interest coverage ratio for private real estate has fallen to a five-year low, according to Green Street’s Debt Insights report published last week. Having ranged between 2.6 and 2.7 from 2019 to 2022, the ICR for private real estate dropped to 2.1 in 2023. Meanwhile, the ICR for REITs stayed above 5.4 since 2019.

People

BGO makes capital raising promotions

New York-based manager BGO has made two promotions in the firm’s global capital raising and investor relations team following the departure of managing director Richard Price over the summer, as revealed by PERE. Ajay Sharma, previously head of capital raising and investor relations for the firm’s Europe division, has succeeded Price as head of global capital raising and investor relations. Based in London, Sharma now reports to Julie Wong, managing partner, chief client and product development officer, who oversees BGO’s capital raising and investor relations activities globally. Meanwhile, Samuel Walser has been elevated to take over Sharma’s former role. Also based in London, Walser joined BGO in September 2021 as principal, overseeing the capital raising and investor relations activities in select markets including Germany, Switzerland and Austria.

Investor watch

Staying negative

Norges Bank Investment Management, which oversees Norway’s Government Pension Fund Global, continued to report weak performance for the sovereign wealth fund’s unlisted real estate holdings, which generated the lowest return among the investor’s asset classes during the third quarter, according to the fund’s Q3 2023 results. With a return of -3.3 percent in Q3, the asset class has recorded negative quarterly returns since September 2022. In the face of headwinds affecting the sector, unlisted real estate delivered an annual return of -6.53 percent as of June 2023, the lowest annual return since the sovereign wealth fund started investing in the asset class in 2011. Currently, unlisted real estate accounts for 2.2 percent, or NKr325 billion ($29 billion; €27.4 billion), of the fund’s NKr14,801 billion market value.

This week’s investor meetings

Tuesday, October 31

Wednesday, November 1

Thursday, November 2

Friday, November 3

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