Blueprint: Brookfield’s $8bn close for BSREP V, Starwood’s takeover bid for ESR, PGIM’s $2bn data center fund

Brookfield Asset Management reaches over $8 billion in commitments for Brookfield Strategic Real Estate Partners V, bringing the vehicle over halfway to its final target; Starwood forms a consortium of investors, including TPG-spinout credit platform Sixth Street Partners and New York investment firm SSW Partners, to propose a buyout of the Asian industrial giant ESR Group; PGIM Real Estate is targeting $2 billion for a global data center fund; and more in today's briefing, exclusively for our valued subscribers.

They said it

“Everybody’s waiting for Powell to relent… The Fed has the wrong toolkit for this economy”

Starwood Property Trust chief executive Barry Sternlicht, speaking during the firm’s first-quarter earnings call last week on US Federal Reserve chair Jerome Powell’s failure to cut interest rates so far this year

What’s news

Brookfield’s Teskey: the mega manager’s president said Q1 2024 was the best-ever fundraising quarter ever for the firm. (Source: Brookfield)

Still in the lead

Brookfield Asset Management is now more than halfway toward clinching its $15 billion target for its flagship real estate opportunistic fund, Brookfield Strategic Real Estate Partners V. The Toronto-based mega-manager completed the first close for BSREP V, with $2.2 billion of its capital raised during the first quarter, bringing the vehicle’s total equity to over $8 billion, according to its Q1 2024 earnings results last week. BSREP V, which was launched in February 2023, is the largest closed-end real estate fund in market, both in terms of target and current size. By contrast, the fund’s nearest competitors – Blackstone’s Blackstone Real Estate Partners Europe VII and Starwood Capital Group’s Starwood Distressed Opportunity Fund XIII, both of which also launched last year – are targeting $10.84 billion and $10 billion, respectively. Blackstone has raised $7.6 billion for its fund, while Starwood has yet to close on any capital, per PERE data. For more on what Brookfield president Connor Teskey calls “the best Q1 fundraising quarter we’ve ever had,” read our earnings coverage here.

Starwood’s Asia ambitions get bigger

Starwood’s ambitions for ESR Group did not stop with its acquisition of a 10.7 percent equity stake in the Hong Kong-based firm in March. This week, Starwood formed a consortium of investors, including TPG-spin-out credit platform Sixth Street Partners and New York investment firm SSW Partners, to propose a buyout of the Asian industrial giant, according to a filing. Under the privatization proposal, existing shareholders can choose to receive cash or stock in the privatized company. ESR is understood to have become a takeover target partly because of its low share price since the firm went public on the Hong Kong Stock Exchange in 2019. ESR’s closing price stood at HK$8.35 ($1.07; €0.99) per share before the proposal was submitted on April 24. This represented a 50 percent drop from its listing price of HK$16.8 per share.

PGIM powers up fundraising

PGIM Real Estate is targeting $2 billion in capital commitments for PGIM Real Estate Global Data Center Fund, PERE reported this week. Should the fund reach this size, it would be the largest closed-end vehicle ever raised by the New Jersey-based firm, according to PERE data. The real estate investment arm of asset manager PGIM announced a $600 million joint venture with digital infrastructure company Equinix last month to develop and operate a 28 MW data center in Silicon Valley, California – the firm’s first investment on behalf of its dedicated global data center strategy.

Despite the challenges of fundraising in today’s market, data center strategies are gaining momentum among real estate managers. US asset manager PIMCO has also launched its first dedicated data center fund, targeting €750 million to develop and acquire data centers across Europe with a focus on secondary data center markets. But where PIMCO is developing assets in second-tier markets to capture the growth opportunity, PGIM Real Estate is focusing on tier one markets where there is less room for new development. Morgan Laughlin, PGIM Real Estate’s global head of data center investments, told PERE this presents the “best opportunities to put money to work” in the sector. Read the full interview here.

Trending topics

It’s ‘brutal’ out here

London-based manager Patron Capital was more than two-thirds of the way toward a €1.2 billion target for Patron Fund VII and its co-investment side vehicle back in September, PERE previously reported. The vehicle was due to be its largest-ever fundraise at its expected Q1 final close. However, this week, PERE reported the pan-European manager had closed the fundraising with €860 million across the main fund and its side vehicle – having raised no additional capital since that most recent interim close.

For founder and managing partner Keith Breslauer, the experience of being on the road with the seventh offering in Patron’s flagship value-add and opportunistic fund series was “pretty brutal.” Around 76 percent of capital raised for the fund came from Patron’s existing investor base and relationships. But “very little” of the new capital came from the US, Breslauer said; they found much more appetite for European distressed opportunities from investors in Asia and the Middle East. US investors perceive greater opportunity for distress in their home market, although Breslauer does not agree with this assessment himself. Read our coverage to find out why.

Hotel triple dealing

Last week’s big deal announcements included not one, but three, sizeable hospitality buys by blue-chip private real estate managers. In the UK, Ares Management plunked down £400 million ($503 million; €465 million) for a 3,028-key hotel portfolio. With its partner EQ Group, the Los Angeles-based firm bought the 18 hotels from Landsec. Ares plans to reposition some of the assets, which are mostly in city centers, including Edinburgh, Manchester and Birmingham.

Also in the UK, KKR nabbed the 132-room Park Grand London Kensington, which it will reposition as a boutique lifestyle hotel, for an undisclosed price. The firm made the purchase through its Real Estate Partners Europe II fund alongside local partner Amante Capital, which will operate the property under Marriott International’s Tribute Portfolio flag. Meanwhile, over in Asia, KKR finalized its purchase of the Unizo Hotel Company and simultaneously closed on a portfolio of 14 midscale hotels in Japan from Unizo Holdings. KKR plans to convert the hotels to the Four Points Express by Sheraton brand, also a Marriott flag.

MSREI sees tremendous demand for Texas warehouses

Morgan Stanley Real Estate Investing has sold four warehouses in Texas on the US border with Mexico for a total of $178 million. The total sale price for the properties, which span more than 1.2 million square feet, exceeded the firm’s original underwriting, MSREI co-CEO Lauren Hochfelder told PERE, adding that nearshoring, onshoring and friendshoring are trends her firm will continue to invest in. The buyers of the warehouses, two of which were in El Paso and the other two in Laredo, were purchased by two undisclosed institutional investors. “We’ve been focused on the realignment of the global supply chain for quite some time. We’re believers that the supply chain of the last 20 years will not be the supply chain of the next 20 years,” Hochfelder said. “We are doing a U-turn on globalization. My entire adult life was about globalization. It’s now about de-globalization and a China-US decoupling.” Read more here.

Investor watch

Topping up over adding in

Connecticut Retirement Plans and Trust Funds has reduced its active fund managers from 35 to 28 as it focuses on increasing its allocation through re-ups and additional allocations with existing managers, according to documents from its investment advisory commitee meeting last week. The investor plans to increase its exposure to industrial, retail and niche sectors while maintaining its weighting to multifamily/residential and remaining underweight in office. The reduction in managers is also a result of the pension plan’s reduction in non-strategic open-end fund relationships as it increases its non-core real estate exposure. With a real estate allocation target of 10 percent by 2027, Connecticut had 6.6 percent of its total portfolio market value invested in the asset class at the end of 2023.

This week’s investor meetings

Tuesday, May 14

Montana Public Employees’ Retirement Administration
Bay County Retirement Board
City of Southfield Employee Retirement System
Davie Police Officers’ Pension Plan
Delaware Public Employees’ Retirement System
Development Bank of Japan
Dyfed Pension Fund
Employees’ Retirement Fund of the City of Dallas
Employees’ Retirement System of the State of Hawaii
Los Angeles City Employees’ Retirement System
New Mexico Public Employees Retirement Association
Ohio Public Employees Retirement System
Shelby County Retirement System
UC Investments

Wednesday, May 15

Arkansas Public Employees Retirement System
Boston Retirement System
Chicago Firemen Annuity & Benefit Fund
City of Atlanta Pension Investment Board
City Of Austin Police Retirement System (CAPRS)
City of Grand Rapids Police and Fire Retirement System
Detroit General Retirement System
DIC Corporation Pension Fund
Japan Post Insurance
Memphis Light, Gas and Water Retirement and Pension System
Minnesota State Board of Investment
Mizuho Bank
New York City Board of Education Retirement System
New York City Employees’ Retirement System
Oklahoma Police Pension and Retirement System
Sacramento County Employees’ Retirement System (SCERS)
St. Paul Teachers’ Retirement Fund Association
University of Houston System
West Virginia Consolidated Public
Louisiana Municipal Police Employees’ Retirement System

Thursday, May 16

City of Baltimore Employees’ Retirement System
City of Miami Firefighters’ and Police Officers’ Retirement Trust
Allegheny County Retirement System
Chicago Municipal Employees’ Annuity and Benefit Fund
Chicago Teachers’ Pension Fund
District of Columbia Retirement Board
Kansas Public Employees Retirement System
Los Angeles Fire & Police Pension System
Municipal Employees Retirement System of Louisiana
Oklahoma City Employee Retirement System
Pembroke Pines Firefighters & Police Officers Pension Fund
Police & Fire Retirement System of the City of Detroit
Resona Bank
San Bernardino County Employees’ Retirement Association (SBCERA)
San Diego County Employees’ Retirement Association
School Employees’ Retirement System of Ohio
Southeastern Pennsylvania Transportation Authority
University of Michigan
Utah Retirement Systems
Miami Beach Firefighters’ and Police Officers’ Pension Plan
Public Employees’ Retirement System of Nevada

Friday, May 17

Asian Infrastructure Investment Bank
Denver Employees Retirement Plan
Educational Employees’ Supplementary Retirement System of Fairfax County (ERFC)
Kansas Public Employees Retirement System
London Borough of Redbridge Pension Fund
Mitsui Sumitomo Insurance Co.
Montana Teachers’ Retirement System
North Dakota Retirement and Investment Office
Oklahoma Firefighters Pension & Retirement System
Sumitomo Mitsui Banking Corporation
University of Vermont
Sumitomo Mitsui Trust Bank

Today’s letter was prepared by Miriam Hall, with Evelyn Lee, Charlotte D’Souza, Christie Ou and Guelda Voien contributing.