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Blueprint: ESR, ARA team up to take on the future; Blackstone’s acquisition streak continues; PSP, Cadillac Fairview are UK-bound

ESR acquires ARA with an eye toward logistics, data center dominance; Blackstone scoops up another industrial platform; PSP doubles down on UK build-to-rent and brings Cadillac Fairview along for the ride; KKR climbs the fundraising ranks; and more in today's briefing, exclusively for our valued subscribers.

He said it

“We are currently witnessing a ‘once in a generation’ change in real estate where leading global investors are seeking to rebalance their portfolios by divesting institutional quality assets in order to redeploy that capital back into new economy real estate where they have been meaningfully underweight.”

ESR chairman Jeffrey Perlman on the changing dynamics in the real estate industry.

What’s new?

Jeffrey Perlman
Perlman: ESR ready for a generational shift in real estate allocations

Digitally driven

A dominant platform has emerged in Asia-Pacific’s future-focused real estate sectors. Hong Kong-headquartered logistics specialist ESR will buy Asian multi-asset manager ARA Asset Management to create APAC’s largest real assets fund manager focused on logistics and data centers [our coverage here]. ESR will pay $5.2 billion to acquire 100 percent of ARA. Together, the groups manage a collective $129 billion of assets. The deal is complicated, given ARA’s interests in various associate companies, but even without those factored in, half of its AUM – roughly $50 billion – is in new economy properties, with the other half consisting of traditional real estate assets, real estate credit and infrastructure businesses. All aspects of ARA’s business will be evaluated as the newly combined firm looks to grow in key areas and divest from others. Even the name of the new entity remains up for grabs.

M&A marches on

Add another firm to Blackstone’s growing list of M&A targets this year. This time around it is Toronto-based logistics operator WPT Industrial REIT [see the release here]. Blackstone is acquiring the firm for $3.1 billion, which includes the assumption of debt. Blackstone is tapping its non-traded BREIT vehicle for the transaction, which will net it a 109-property portfolio that consists of 37.5 million square feet across 19 US states. Other acquisitions this year include the $10 billion take-private of data center specialist QTS Realty Trust [our coverage here], its takeover of Extended Stay America alongside Starwood Capital Group [coverage here] and its purchase of single-family rental platform Home Partners of America [coverage here]. The firm is also less than two years removed from the biggest logistics portfolio acquisition on record, its $18.7 billion purchase from GLP [coverage here].

Back for more

Two of Canada’s biggest pension funds are teaming up for a major investment into the UK’s rental housing market. Cadillac Fairview, the investment firm for the Ontario Teachers’ Pension Plan, has joined a joint venture between the Public Sector Pension Investment Board and London-based developer Long Harbour to pursue a build-to-rent strategy [see the release here]. Cadillac and PSP together have invested £650 million ($901 million; €769 million) of new equity into the joint venture, which Long Harbour and PSP established in 2019 with £500 million of initial capital that is now almost fully committed. The platform now has more than £1.5 billion of capital to deploy into build-to-rent assets primarily in London and southeast England.

Tripling up

KKR had a strong fundraising second quarter, resulting in its real estate assets under management increasing to $32 billion from $11 billion just 12 months ago. The New York-based firm’s head of investor relations, Craig Larson, said during the earnings call that the firm has now become a “clear top-five opportunistic real estate manager” after aggregating its three regional vehicles [our coverage here]. Of these, KKR Real Estate Partners Europe II, a 2019-vintage vehicle, closed on $2.1 billion during the quarter. Additionally, KKR’s US-focused fund Real Estate Partners Americas III also hauled fresh capital, resulting in an aggregate $2.9 billion in total capital so far.

Trending topic

Harsh rating

The office sector continues to face headwinds in the covid era. The emergence of covid-19’s Delta variant has forced companies such as Amazon, Lyft, Dell Technologies and Wells Fargo to join the likes of Google and Apple in delaying their grand returns. But office owners big and small project confidence about the prospects of their property type. So, what should institutional capital make of this? German asset manager DWS Group is targeting a “strong underweight” to US office, according to its mid-year strategic outlook. That is a harsher rating than even the one for the long-suffering retail sector, which gets merely an “underweight.” Citing weak absorption and concerns about long-term remote working, DWS is one of the few groups to publicly express bearishness toward the property type.

Data snapshot

On the mend

Global transaction volumes were up 98 percent year-over-year last quarter, marking a significant bounce back from the lull of the pandemic.

People move

Sera steps up hiring spree

After rebranding in February with a raft of new hires, Brookfield-backed real assets advisory firm Sera Global is continuing its recruitment drive by bringing aboard five new partners and one executive director for its real estate business. In New York, Bailey Puntereri [his LinkedIn profile here] formerly a principal at PJT Park Hill, and ex-Evercore managing director James Park [LinkedIn profile here] have joined as partners in private capital advisory and investment banking, respectively. Over in London, ex-Threadmark partner Patricia Wilkinson [LinkedIn profile here], former Atlantic-Pacific capital raiser Alexandra Cromer [LinkedIn profile here] and former UBS executive Eoin Bastible [LinkedIn profile here] are all partners in private capital advisory, while Ian Currie [LinkedIn profile here], previously of MEC Global Partners, is an executive director in the group.

Investor watch

A check-up on medical office

Allianz Real Estate has put together a $234 million loan for a 27-property US medical office portfolio owned by Nuveen Real Estate and another firm. Drawn from several of Allianz group companies, the loan is separated into a $164 million fixed-rate tranche and a $70 million floating-rate tranche. Mike Cale, co-head of US debt at the German insurer, said covid-19 highlighted the need for better healthcare facilities.

This week’s investor meetings

Tuesday, August 10

Wednesday, August 11

Thursday, August 12

Friday, August 13

Monday, August 16

Today’s letter was prepared by Kyle Campbell with Evelyn LeeArshiya Khullar and Christie Ou contributing