Blueprint: GLP’s first discretionary fundraise in China, Schroders’ real estate impact fund launch, Oaktree’s views on volatility

GLP's latest value-add fund for China demonstrates investor appetite for the firm to have discretion on investments; Schroders emphasizes a scorecard to measure up real estate impact for an incoming fund; Oaktree’s real estate team talks volatility; and more in today's briefing, exclusively for our valued subscribers.

They said it

“We signed a contract to buy this particular office building and we sent out a proposal to all 66 of our lenders. We got back one counterproposal”

Robert Morse, executive chairman at Bridge Investment Group, illustrated the distress in the office market at the PERE America Summit last week

What’s new?

At its discretion: GLP’s China industrial real estate business, co-led by Tim Wang, is raising its first vehicle not fully seeded prior to fundraising

Partial discretion
Industrial heavyweight GLP has broadened its product offerings in China by introducing its first semi-discretionary value-add fund in the country, GLP China Value-Add Partners IV, PERE has reported. Unlike with its predecessors in the value-add series, which were fully seeded prior to fundraising, the firm can acquire new assets in addition to the five seed assets with its latest fund.

The firm closed on $1.2 billion of equity for the fund, which has a $1.6 billion hard-cap, from four institutional investors including Dutch pension manager APG Asset Management and GLP itself. Tim Wang, co-president of logistics and industrial real estate of GLP China, told PERE that its approach allows the firm to capture opportunities arising from ongoing deleveraging initiatives in China and the growth in the country’s cold storage segment.

Schroders keeps score on impact
Schroders Capital has launched its first diversified real estate impact fund, focused on addressing both social inequality and climate change. The firm has developed its own scorecard to measure the change generated by each fund investment, based on what it calls a “context report,” or a geospatial analysis of an asset using multiple metrics. Some of the fund’s core key performance indicators include the value of the assets located in areas of above-average deprivation; the amount of workspace to voluntary community and social enterprises and small and mid-size enterprises; and the number of affordable and social housing units created.

However, “there also needs to be qualitative measurement and understanding as well,” points out Chris Santer, impact fund manager at Schroders Capital’s real estate business. “Sometimes the things we can measure don’t always capture everything and don’t always go to the heart of everything that’s been achieved by investing in a deprived area.” Read more about the new fund here.

Investing in a new, volatile normal
Predictable real estate outcomes may be a thing of the past. Historically, “asset classes performed in a very tight band, growth was predictable and there wasn’t a lot of variation in outcomes,” John Brady, head of the global real estate group at Oaktree, recalled in a video roundtable published last week. Now performance has widened significantly between “darling” sectors like industrial and multifamily and “not darling” categories such as retail and office.

Consequently, “it is going to be harder to pick the winners and losers in a world of accelerating change,” he said. “I think we’re entering a period where investing is going to be more difficult and you have to be discerning and willing to accept that there’s significant risk.” For Brady’s colleague Justin Guichard, co-portfolio manager of real estate debt, the best path through this period of volatility is to make less risky bets, or “focusing on singles and doubles rather than trying for home runs and tolerating strikeouts.”

Trending topics

Capital markets decelerate… but not everywhere
Widespread sentiment in the private real estate industry will tell you that the capital markets have experienced a slowdown. Third quarter data, however, paints a more nuanced picture. Debt origination activity is down 12 percent year-over-year, according to commercial real estate services firm Newmark’s Q3 2022 capital markets report. However, in two segments of the market – asset sales, and mergers and acquisitions – activity has proved resilient, both compared with the same period last year and the three years prior to covid. In fact, debt issuance for real estate M&A is up 114 percent versus last year and 248 percent versus the average yearly figures between 2017 and 2019. However, both construction and refinance activity are down 20 percent and 22 percent, respectively, versus Q3 2021, highlighting the areas of the market where the pullback in financing has hit hardest.

BTR on both sides of the pond
One area of the market that has remained active is build-to-rent housing. Both US and UK investors are betting on the sector as the high interest rate environment has caused many would-be home buyers to look to the rental market instead. In the US, Los Angeles-based manager Have Capital has formed a joint venture to build communities across the country with JPMorgan Global Alternatives. The JV will be backed by $415 million of equity and target the acquisition and development of more than $1 billion worth of assets, per an announcement.

In the UK, similar ambitions are afoot. London-based property developer Godwin Developments is partnering with an unnamed institution to build a portfolio valued in excess of £1 billion ($1.19 billion; €1.15 billion). This venture will look to provide housing primarily in London, Bristol and Birmingham but will also target Oxford and Cambridge. Brokerage firm Savills, in conjunction with the trade body the British Property Federation, estimates the BTR sector in the UK alone will be worth £170 billion by 2032. Godwin and its investor are planting their flag now.

Data snapshot

Retail bounces back in Europe
Investment volume for retail assets in Europe has rebounded by 20 percent to €44.2 billion over the past 12 months as investors sought to diversify outside of offices, according to a BNP Paribas report. In France, for example, the €4.3 billion investment volume in retail in the first nine months of 2022 is already 38 percent higher than the full-year figure in 2021.

People moves

Under Nootens’ law
CP Capital US, the multifamily-focused manager formerly known as HQ Capital Real Estate, will now have two co-heads sharing the helm following the elevation of Kristi Nootens to the role. The 15-year veteran – including a decade at CP Capital where she secured almost $1 billion of investments across multiple funds and geographic regions – will lead the manager alongside 30-year veteran Paul Doocy.

She adds to the thinly populated ranks of top-level female executives in private real estate, an element noted in a message to PERE about the promotion. “Nootens’ appointment is a testament to her success in a typically male-dominated industry,” a company spokeswoman said. In the role, Nootens will both manage the day-to-day operations of CP Capital and lead the firm’s investment strategies alongside Doocy. CP Capital was founded in 1989 and has invested in more than $15 billion of US real estate on behalf of a variety of investor types.

Investor watch

Border to Coast’s latest real estate mandate
In October, Border to Coast Pensions Partnership, one of the UK’s largest local government pension schemes, appointed Cleveland-based consultancy Townsend Group to support the buildout of its £5 billion ($5.7 billion; €5.79 billion) global private real estate strategy, and said a search for a manager to work on its UK property holdings was forthcoming. The announcement on that search came at the end of last week. The initial UK fund is likely to comprise £1.75 billion of properties at the time of its launch but is intended to grow to more than £3 billion with further investments from Border to Coast’s partner funds “over time.” Keeping with its custom of stapling news of one vehicle to news of another, the investor also said it was launching a second ‘Gateway Fund’ to hold indirect assets, including REITs and fund positions to supplement its main, direct fund.

This week’s investor meetings

Tuesday, November 22

Wednesday, November 23

Thursday, November 24

Today’s letter was prepared by Evelyn Lee with Jonathan BrassePeter Benson, and Christie Ou contributing