They said it
“Don’t just go risk off. Don’t hide in a shell. If you just look historically, these sorts of phases are real opportune times to potentially go risk on.”
Kieran Farrelly, head of global solutions, real estate at Schroders Capital, speaking at PERE’s first virtual Global Passport event. See our coverage here.
What’s new?
Smart sellers
You may remember the blockbuster sales that EQT Exeter, the real estate arm of Swedish private equity firm EQT, made late last year of a $6.8 billion US logistics portfolio and a nearly $3.6 billion European industrial portfolio to Singaporean sovereign wealth fund GIC. For one of the firm’s longtime investors, New York State Teachers’ Retirement System, these types of transactions stand out even more as recapitalizations become increasingly common for large and small managers alike. NYSTRS’ head of real estate David Gillan has concerns about firms holding onto assets too long, which can put the manager at risk for losses in the event of an unexpected downturn. “There’s the old saying, ‘pigs get fed, hogs get slaughtered,’” Gillan says in PERE’s cover story featuring an interview with EQT Exeter chief executive Ward Fitzgerald. “You want a general partner who is as good at selling as they are at acquiring assets.” Check out the story here.
PGIM’s women lead AUM majority
Joanna Mulford has become the latest senior woman in an investment role at PGIM Real Estate. Mulford, a 25-year veteran of the Madison, New Jersey-based firm, is the second woman to lead the firm’s signature core open-ended real estate fund PRISA since 1998, after Cathy Marcus, PGIM’s current global chief operating officer and head of US equity. Her promotion means that almost two-thirds of the firm’s $65 billion US equity platform is managed by women, as both PGIM Real Estate’s US value-add fund series and US impact fund also have female senior portfolio managers. The firm is deliberate about fostering an environment where women serve in investment roles, Marcus told PERE. It especially wants to avoid the inherent bias of putting women in leadership positions they traditionally end up in. “People often will talk about their gender diversity, but when you really look behind it, they’re in marketing. They’re in law. They’re in other support functions that are not investment functions,” Marcus said. Keep an eye out for the full story this week.
ESR, M&G make it official in Japan
Hong-Kong-based logistics specialist ESR has strengthened its relationship with London-based insurer platform M&G Real Estate , this time forming a joint venture focused on Japan logistics properties. M&G has committed capital from Asia’s largest core fund, the M&G Asia Property Fund . The partners will each invest up to $350 million in equity to develop a portfolio of logistics assets expected to be valued at more than $1 billion when completed. The partnership has broken ground on its inaugural project, the Nagoya Minami 2 Distribution Centre. M&G will hold a majority interest in the development project in Japan’s fourth largest city; ESR will manage the facility upon completion. The firms teamed up on logistics properties in Ichikawa and Nagoya prior to this, essentially testing the waters before entering into a longer-term relationship.
Trending topics
Vocation, location, conversation
More than two years after working life changed for many people following the start of covid-19, there is still much consternation about the future of office properties. One factor puzzling investors is location, according to the panelists on PERE’s Workplace roundtable, published this week. Live occupancy numbers vary depending not just on country, but also region or even submarket. Somewhere between 50-75 percent of workers are appearing in offices in continental Europe, according to what Zachary Gauge, head of research and strategy EMEA ex-DACH at UBS Asset Management, is hearing from brokers. That compares with around 25-30 percent in the UK. In the US, Sun Belt employees are returning faster than in coastal markets because of reliance on public transport, Sondra Wenger, head of Americas commercial operator division at CBRE Investment Management, said. While the roundtablers were hopeful some clarity will emerge, it could take another two years for any meaningful evidence, they agreed. Read the full coverage here.
Unexpected flood warning
Rising sea levels continue to worry investors. Unsurprisingly, most of the chatter emanates from desirable coastal markets. However, flooding risk from rivers poses a more significant threat to real estate owners moving forward, according AEW’s latest report Next Wave of Physical Climate Risk. The European-focused report found most major cities in the continent are likely to suffer more losses in value between now and 2050 via river flooding than by sea-induced floods. More than three-quarters of markets analyzed – 148 out of 196 – have exposure to river flooding risk. Only 10 markets were solely exposed to sea level rising, versus 111 solely exposed to river flooding. The overall risk average remains low based on the models, meaning outlier markets like Lyon, Barcelona, Rome and Paris face higher than average risks relative to their peers and therefore could face serious investment ramifications sooner.
Data snapshot
NPS grows real estate allocation
National Pension Service of Korea continues to grow its real estate allocation, increasing its portfolio by five trillion won ($3.6 billion; €3.7 billion) in the first half of 2022. The South Korean investor’s increase to alternatives overall is a likely reaction to that segment of the portfolio being the only one to produce positive returns so far this year. For more, see our full coverage of the investor’s quarterly update.
People moves
GLP’s ESG push
Singapore-based industrial manager GLP is taking steps to increase its newly formed renewable energy division in Europe with the appointment of Stefano Fissolo as a senior director. Fissolo, previously an investment director at infrastructure specialist SUSI Partners, is charged with expanding the firm’s efforts to decarbonize its portfolio via rooftop solar arrays, battery storage and EV infrastructure in the UK and Europe. In addition to reducing the carbon in its portfolio, GLP wants to be able to sell clean energy back to the grid.
Investor watch
GIC bets on remote working with Workspace
GIC is betting on suburban office as the investor is reportedly shelling out for a $1.1 billion portfolio, according to the Wall Street Journal. In partnership with office and industrial real estate investment trust Workspace Property Trust, the Singapore sovereign wealth fund is the equity partner in a deal acquiring 53 properties from Griffin Realty Trust, a net-lease REIT. Griffin will maintain a minority stake in the properties. Many of assets in the portfolio are understood to be located primarily in Atlanta, Dallas and the Bay Area. A CBRE report from June found that US suburban office properties have a higher vacancy rate than downtown offices, a phenomena not seen for decades. Thomas Rizk, co-founder and chief executive of Workspace, said in a statement he has seen a “demographic shift” to suburban office led by millennials who “appreciate the benefits of the suburbs and suburban offices”.
This week’s investor meetings
Wednesday, September 7
Thursday, September 8
- Teachers’ Retirement System of Louisiana
- New Mexico State Investment Council
- Washington State Investment Board
Friday, September 9
Sunday, September 11
Today’s letter was prepared by Peter Benson, with Jonathan Brasse, Evelyn Lee, Samantha Rowan and Christie Ou contributing
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