Blueprint: EQT Exeter’s $4.9bn fundraise, DFI and Argo’s industrial JV, Generali’s splash acquisition of Pearlmark’s parent

EQT Exeter is eyeing distress for its largest industrial fund to date; DFI and Argo form a joint venture to enter UK industrial; Pearlmark expected to benefit from Generali's acquisition of parent company from Cathay Life; and more in today's briefing, exclusively for our valued subscribers.

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They said it

“We used to talk about cash-out refis. Now it’s cash-in refis”

Lauren Hochfelder, managing director and co-chief executive of Morgan Stanley Real Estate Investing, speaking about the dynamics facing managers with refinancings ahead. Read our full deep dive here.

What’s new

Up-ward: Ward Fitzgerald, Philadelphia-based EQT Exeter’s CEO, sees “distress” coming in industrial. His firm just finished raising its largest industrial fund to date, snagging $4.9 billion in commitments. (Source: EQT Exeter)

EQT Exeter’s power of discretion
EQT Exeter has raised its largest-ever fund, the $4.9 billion EQT Exeter Industrial Value Fund VI, which also is the fifth-biggest industrial-focused vehicle to ever close. But although $4.9 billion is a notable amount of capital to invest in logistics, the real estate business of Swedish private equity firm EQT is not expecting to deploy capital in large-scale deals. “The trades that we’re seeing right now and that we are participating in every day are a lot of 10, 20, 30, 40, 50-million-dollar trades,” Ward Fitzgerald, EQT Exeter’s chief executive, told PERE. “We are not seeing a robust number of billion-dollar trades.”

Fitzgerald added that EQT Exeter’s tendency to not publicize its real estate deals has given the firm an advantage as a buyer. Buyer discretion will become increasingly important to sellers, as more distressed opportunities in the logistics sector are expected to emerge over the next few years. For more on where that distress will be coming from, check out our interview with Fitzgerald here.

Logical timing
London-based non-core manager Deutsche Finance International had felt “priced out” of UK logistics for the past three or four years, but is planning to seize the opportunity to enter the sector following its rapid repricing. Through a joint venture with diversified real estate investment company Argo Real Estate, DFI aims to build a UK urban logistics portfolio of £400 million ($513 million; €469 million) in value.

The firm’s co-founder and chief investment officer, Gavin Neilan, told PERE how the pricing dynamics changed quickly toward the back end of last year. “We started to believe it would be a very interesting entry point for us to invest into high-quality single assets and portfolios through off-market transactions and special situations.” The venture has been seeded with 11 existing assets across London, the Southeast and Manchester, which were acquired through two separate portfolio transactions amounting to £177 million in aggregate value. Check out our full coverage here.

Bought by a firm bought by a firm
What does the Italian insurer investor Generali Real Estate and the private real estate capital manager and advisory firm Pearlmark Real Estate have in common? The answer is the same parent, after the asset manager that owns Pearlmark was acquired by the Generali Group in a deal announced last Thursday.

Pearlmark, which has mustered some 568 real estate equity and debt deals and advised on $5.4 billion of equity commitments since its formation in 1996, was only just blowing the dust off its own majority acquisition by Conning & Company in March. In a matter of four short months, Conning’s own parent, Hong Kong’s Cathay Life Insurance saw through the sale of the $157 billion AUM-manager to the Trieste-based fellow insurer. Senior executives of the firms involved say the latest deal, funded via share swaps, is expected to lead to majority-controlled affiliates, including Pearlmark, to receive “ongoing strategic support” from both Generali and Cathay, “including additional assets to manage, collaboration on opportunities to seed new strategies, and the exploration of other potential investments to support growth in business over time.”

Trending topics

When distress is on trend
Ward Fitzgerald is not the only real estate executive eyeing potential distress in highly favored property sectors. In a white paper published last week, KKR global head of real estate Ralph Rosenberg highlighted how capital constraints are afflicting many borrowers as $1 trillion of commercial real estate loans is due to mature in 2023 and 2024. “The need for liquidity and recapitalization should extend well beyond the office sector, where we have already seen the first significant defaults,” he wrote. “Overlevered capital structures exist across property types. The recent changes in the cost of money have impacted even on-trend sectors.”

Even with rent growth and property values expected to remain attractive over the medium term, cap rates and discount rates have both widened as policy and benchmark interest rates have risen, he noted. Rosenberg added that the firm has begun to see a floor developing on pricing, which is now approximately 10-20 percent lower based on gross asset value compared to before rates began to rise.

New world offices
Jeff Blau, the chief executive of Related Companies, has a contrarian view of the future of the office sector. The New York manager is planning to build 10 new, high-quality towers in US cities, including Austin, Miami and Chicago, as well as London, Blau told the Financial Times last week. The massive development plan has a $6.5 billion price tag and could be a hard sell for lenders and investors, Blau said in the interview. But he also expressed a strong conviction for the potential for best-in-class assets, particularly as CEOs push to have staff back in the office. “Once it becomes about employee talent attraction and retention, then the rent becomes irrelevant,” he said.

Data snapshot

Damsel in distress
Printed in a recent Oxford Economics report, Q1 data from MSCI Real Assets shows that the balance of distress in US real estate is currently $64 billion. The potential distress facing the asset class is more than double that, with office the frontrunner among the sectors. Notably, apartments could see more distress than retail, the data show.

People

CPPI Europe gets a new head
CPP Investments replaced its head of Europe last week. Andrea Orlandi [his Linkedin here], who had been head of Europe and India at the Toronto-based investor, left the role he has held for almost a decade on Friday (7 July). Orlandi originally joined the firm in 2011 and was promoted to the head role in 2014. He is replaced by Tom Jackson [his LinkedIn here], who becomes the head of real estate for the UK and Europe. Orlandi’s next stop has not been announced.

Orlandi began his career as an analyst at investment bank Merrill Lynch in Europe, quickly moving into a vice-president role focused on structured finance and non-performing loans, alongside real estate, in Europe. His most recent stop was a six-year stint at AREA Property Partners. Orlandi served as director and European chief investment officer at the firm until 2011, two years before it was acquired by Los Angeles-based Ares Management.

Investor watch

KTCU to take credit
South Korea public pension fund Korean Teachers’ Credit Union has included credit as one of its key overseas real estate strategies for the next 12 months, according to a PERE report. The investor is rebalancing its portfolio and plans to allocate about half of its new capital invested in overseas real estate in debt, 40 percent in value-add equity investments and the remainder in secondaries. Since April 2023, the pension has already committed to a global real estate fund for investments in both equity and credit, and a US real estate credit fund. Before this, KTCU had paused its alternative investments for 10 months due to interest rate hikes, an overallocation to alternatives because of the denominator effect and a short-term liquidity issue in its portfolio. Read our full coverage here.

This week’s investor meetings

Tuesday, July 11

Wednesday, July 12

Thursday, July 13

Friday, July 14

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