Blueprint: Carlyle CEO’s optimism on real estate, the impact of the US credit downgrade, EQT Exeter’s non-traded REIT IPO, KKR’s Los Angeles office opening

Carlyle chief executive Harvey Schwartz shows optimism for the firm’s fundraising and investment prospects in real estate; the US's second credit downgrade raises questions about longer-term investor allocations to the country; EQT Exeter launches a $5 billion non-traded REIT to primarily focus on real estate assets with business tenants; KKR installs real estate executives in Los Angeles; and more in today's briefing, exclusively for our valued subscribers.

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They said it

“All our plans in terms of the destination for this business remain completely intact”

Jeff Fine, global head of real estate client solutions at Goldman Sachs Asset Management, on how the bank’s real estate leadership changes have impacted the business, in last week’s PERE Friday Letter.

What’s New

Reason to smile: Carlyle chief executive Harvey Schwartz is feeling optimistic about the firm’s fundraising and investment activity in real estate going forward (Source: Carlyle)

Mr Brightside
Like other top executives this earnings season, Harvey Schwartz, chief executive at Carlyle, spoke about the negative impact of interest rate hikes and higher inflation on deployment and fundraising activity during the Washington, DC-based firm’s Q2 2023 earnings call on Thursday. However, Schwartz was notably more optimistic than many of his peers about the firm’s investment and capital raising prospects going forward. On dealflow, he pointed to “a marked improvement in sentiment” while also seeing “a lot of momentum in real estate” in fundraising. In fact, Carlyle’s real estate strategy accounted for $1 billion of the $1.8 billion of the capital deployed through the firm’s global private equity platform, according to the firm’s Q2 2023 earnings presentation. For more on Schwartz’s earnings call remarks, read the full story here.

To be continued
A few months after Bridge Investment Group closed Bridge Multifamily Fund V, the largest-ever dedicated multifamily fund with $2.26 billion raised, the Salt Lake City-based manager has closed on its first continuation fund, Bridge Multifamily CV. In conjunction with the fund close, Bridge has completed a recapitalization involving the sale of a portfolio of assets from the third fund in its flagship value-add series to the continuation vehicle for approximately $550 million, according to an announcement. Investors in Fund III were given the choice to cash out or to continue investing in the new fund. Bill Thompson, co-head of the real estate capital advisory business at investment bank Evercore, which served as financial advisor to Bridge on the transaction, told PERE earlier this year that LP sell rates in real estate were higher than ever in the second half of 2022, with fewer asset sales creating “more interest in selling in a recap situation.”

Another day, another downgrade
Fitch Ratings last week downgraded the credit rating of the US by one notch to AA+, becoming the second ratings agency – after Standard & Poor’s in 2011 – to lower its opinion of the country’s ability to repay its debt in a timely manner. While the public markets declined and then recovered after the news came out, the bigger question for the real estate market is what this means for institutional investor allocations to the US over the longer term. From a capital markets perspective, the downgrade passed with little fanfare. “S&P did this ages ago and it was met by a collective yawn,” one market participant told affiliate title Real Estate Capital USA. But bigger picture, does a combination of the recent volatility in the banking sector, the potential for political instability and another debt downgrade mean the US will become a less attractive option for institutional capital?

Trending topics

Another non-traded REIT launches
EQT Exeter is the latest top 10 manager in the PERE 100 to expand into the retail capital space, following BGO’s foray last month. The real estate business of Swedish private equity firm EQT has launched its non-traded real estate investment trust, EQT Exeter Real Estate Income Trust (EQRT), targeting up to $5 billion. With the vehicle, EQT Exeter will invest primarily in stabilized, income-oriented commercial real estate in the US. Approximately 80 percent of EQRT’s capital will be deployed in properties with business tenants, such as industrial or life science assets, while the remainder will be invested in assets with consumer users, such as multifamily or self-storage properties. Overseeing EQRT is president and portfolio manager is Ali Houshmand, who joined EQT Exeter in June 2022 as global head of non-traded REITs for EQT Exeter and previously was senior portfolio manager at Texas Permanent School Fund.

More money from the families
Family offices are increasingly becoming the managers, rather than investors, in real estate funds. The latest example is BDT & MSD Partners, a merchant bank backed by the family office of tech billionaire Michael Dell, which has raised $933 million for its second real estate credit fund, MSD Real Estate Credit Opportunity Fund II, according to SEC filings. The first fund in the series – which is focused on structured credit investments secured by high-quality real estate – was closed in 2020 on $1.1 billion in commitments, including around $300 million from Dell and his family. The closing follows the launch of Asian multifamily office Raffles Family Office and New York-based manager Tishman Speyer’s inaugural Asia-Pacific opportunistic fund, for which the pair is targeting $500 million from private wealth investors, PERE reported last week.

KKR’s Golden State of mindKKR’s California dreamin’ just got bigger. The New York-based mega manager has opened its third office in the Golden State, where the firm already has operations in San Francisco and Silicon Valley’s Menlo Park. The new Los Angeles location will initially support the firm’s real estate, private equity, private wealth and institutional client relationship teams. KKR first expanded its US real estate operations to the West Coast in 2016, when the firm moved three members of its real estate team – including Justin Pattner, now head of real estate equity, Americas – from New York to San Francisco.

“If you look at the major West Coast markets – notably the Bay Area, greater Los Angeles and the Puget Sound – you have very significant contributors to US GDP,” said Pattner, who will remain in San Francisco. “We’ve scaled our team and footprint over the past seven years to 20 executives to access this large opportunity set.” Senior real estate leaders in Los Angeles will include Dan Palmieri, managing director leading real estate equity investments on the West Coast; Corey Hall, director leading real estate credit originations in Southern California and other parts of the Western US; and Lawrence Ou, director leading institutional real estate client relationships on the West Coast.

Data snapshot

Japanese buying spree
Japanese investment in overseas commercial real estate has reached a 10-year high over the past four quarters, totaling $6 billion, according to broker Knight Frank. The sharp increase in Japanese outbound capital is associated with the yen’s decline to a 20-year low against the dollar. This has led to a notable shift away from US Treasuries and toward real estate assets.

People

Asoka flies solo
Last week marked the start of Asoka Wöhrmann’s tenure as sole chief executive officer of Augsberg-based real estate investment manager Patrizia following the retirement of founder Wolfgang Egger. “Wöhrmann assumes responsibility for the development of Patrizia’s global real assets platform, the execution of its mid-term growth strategy, driving platform efficiencies, and the expansion of its global presence to deliver profitable growth,” the firm posted on LinkedIn. The handover, which was formally announced in May, also saw former co-CEO Thomas Wels assume an advisory role aimed at growing the firm’s business interests in Asia. Check out PERE’s prior coverage for more on the leadership change. For the outgoing Egger, Wöhrmann’s ascension is the culmination of the former’s human capital investment in the firm in getting the right people into the right roles. In an interview with PERE in 2017, he said: “For the first five years after I started the business, I only invested in real estate. But since then, I’ve only invested in people.”

Investor watch

Dutch courage in the US
Earlier this year, Dutch investor MN told PERE its two largest clients, Pensioenfonds Metaal & Techniek and PME pensioenfonds, were significantly increasing their commitments to residential real estate in a reflection of their increased confidence in the sector. Until now, the large commitments from PMT and PME have focused exclusively on European residential funds. Last week, however, it was announced that MN had committed around $450 million on behalf of the two pensions to an exclusively US-focused fund. The beneficiary was Nuveen’s US Cities Multifamily Fund, an open-ended core vehicle that launched in 2019 and is currently sized at approximately $2 billion. Through the fund, the manager targets multifamily assets in US cities, and looks to capitalize on the growth of the ‘MiMi’ market of millennials and middle-income renters. Other known investors in the fund include Australian superannuation fund Hostplus, and US public pension funds the State of Wisconsin Investment Board and the Wisconsin Board of Commissioners of Public Lands.

This week’s investor meetings

Tuesday, August 8

Wednesday, August 9

Thursday, August 10

Friday, August 11

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