Blueprint: LaSalle’s change in approach to GP co-investment, BVK’s entry into real estate secondaries, the 2021 PERE Awards’ greener hue

LaSalle puts the spotlight on employee co-investment; BVK dives into real estate secondaries; Ares makes a big commitment to the Spanish affordable housing market; the 2021 PERE Awards; and more in today's briefing, exclusively for our valued subscribers.

He said it

“There are unprecedented levels of capital looking to invest in resilient income streams. But the challenge many will face is having access to dealflow and having the market insight and data to extract maximum value”

Brian Welsh, Round Hill Capital‘s head of student housing, on the opportunity set for his firm’s new partnership with CPP Investments.

What’s new?

Whose money is it anyway?
For most institutional investors weighing a fund commitment, manager participation in that vehicle is table stakes. After all, why entrust trust capital to a group unwilling to put its own money on the line? But does it matter where exactly that capital is coming from? Mark Gabbay (pictured above) thinks so. The more employees who participate in a fund’s general partner co-investment, the greater the incentive to perform well, he reckons. That is why one of his first acts as LaSalle Investment Management’s global chief executive, PERE learned, was to make the GP share of the firm’s funds available to as many employees as possible (see our cover story on the topic here).

Others say employee participation does not matter beyond a manager’s principals and investment team. Indeed, LaSalle’s move to ‘democratize’ its general partner share comes at a time when other firms are looking outward to capitalize such participation. General partner recapitalizations are on the rise and there is a growing interest in strategies around investing in GP stakes, which PERE understands often come with more favorable fee structures than limited partner investments. As yet, there is no research on the performance implication of co-invest capital sourcing. That might change now Gabbay has put it in the spotlight.

BVK’s diversification play
There is a surprising new real estate secondaries player in town: Bayerische Versorgungskammer. Germany’s largest pension group is entering the space via a €300 million separate account with StepStone Real Estate, the property business of New York-based private markets firm StepStone Group. Although it intends to remain primarily a direct property investor, the Munich-based institution views secondaries and indirect real estate investing overall as a way of gaining additional exposure to the asset class. BVK expects to diversify its property portfolio – which is about 70 percent allocated to Europe – through the separate account, which will target secondaries investments in private real estate vehicles predominantly in the US and the Asia-Pacific region. Manuel Philippe Wormer, BVK’s head of global real estate investment management, told PERE that although the pandemic has created some real estate secondaries opportunities, the investor expects to be active in the strategy over the long term.

Vive el ESG
Ares Management’s real estate business has made its latest major bet in the European residential space, with the formation of a public-private partnership with the Community of Madrid – an autonomous community of Spain that includes the country’s capital, Madrid – to develop more than 3,600 affordable rental housing units across 13 municipalities. In exchange for investing €400 million in the projects, Ares will receive a concession of a 50-year ground lease from the community. For John Ruane, co-head of European real estate equity at Ares, the partnership is part of the company’s ongoing investment in projects “with a focus on positive social and environmental impact.”

PERE Global Awards

Going green
The 16th edition of PERE’s eagerly anticipated and highly competitive awards are launching this week with our customary call for submissions [more info here]. This year, they have gone green with the introduction of four ESG categories, introduced to reflect the surge in activity on the environmental and social fronts, with carbon-cutting and impact initiatives among investors and managers proliferating rapidly. The 2021 PERE Global Awards also include a a category for proptech, in response to notable advances made by private real estate organizations on both the capital formation and deployment fronts. Our biggest awards yet, with more than 70 categories to enter and vote on, this year’s awards will offer telling indicators about which investors, managers and individuals are outperforming during these still-testing pandemic times.

Trending topics

When a $20bn pipeline isn’t enough
Warehouse giant Prologis is sitting on $20 billion of developable land in the US. But even that will not be enough to meet the evolving demands of the e-commerce sector, chief executive Hamid Moghadam said during a thought leadership event last week (watch it here). Moghadam said the supply chain disruption of the covid-19 era has forced industries of all stripes to shift from a mindset of efficiency to one of resiliency. This means producing a surplus of goods and keeping them readily available to send to customers, be they businesses or consumers. To accommodate this strategy, the warehouse sector will need to increase its capacity by between 10 percent and 15 percent more than previously anticipated. To do so, Prologis will attempt to add density in and around the biggest consumer markets in the country.

On workers and workspaces
US offices are in trouble, according to a report released by the National Association of Realtors (see it here). Despite positive net absorption in recent months, 128.4 million square feet has been turned over to the market since Q2 2020. Add 140 million square feet of new space under construction and it is no surprise NAR projects that rent growth in primary office markets will be less than 2 percent and vacancy levels will be at least 10 percent through next year. Compounding the issue are the sheer numbers of people working away from offices – or not working at all. More than 13 percent of jobs are still being done remotely, per the report, including 44 percent of the critical technology and mathematics fields. Meanwhile, the total US workforce is still 3 million employees off its pre-covid peak, despite job openings outnumbering the unemployed. The labor market disconnect was identified as a top market concern during PERE’s 2021 US Roundtable, which was published this week (read it here).

Data snapshot

Risk on
Investors have preferred value-add and opportunistic strategies so far in 2021, with those two strategies on track for the highest share of annual fundraising in years, according to PERE‘s Q3 Fundraising Report.

People moves

Rackind’s EQT handover
Launching a business line for an established private equity firm, growing a team approaching 30 professionals across offices in Europe, leading the fundraising of almost €1.8 billion over two successive pan-European value-add funds and assisting in the acquisition of a game-changing piece of M&A for his firm. That was six years’ work for Rob Rackind, the former head of real estate at Stockholm-based EQT Real Estate (see his LinkedIn here), who has turned over his responsibilities to Exeter Property Group boss Ward Fitzgerald following the combination of the two firms at the turn of the year. PERE reported his departure yesterday. Looking ahead, Rackind expects to work again in institutional real estate circles. A business grower by nature – before EQT, he founded and grew UK-focused manager Wainbridge – expect to find him at the foot of another growth strategy in due course.

Investor watch

Kim sets his sights on another investor role
Korea’s $750 billion National Pension Service is in the throes of selecting its next global head of real estate after previous incumbent Scott Kim resigned in news PERE reported last week. After some overdue family time, Kim will be considering his next steps. Cue a slew of job offers from managers hoping to hire a man able to provide a conduit to one of private real estate’s fastest growing investors. NPS is aiming to grow its alternative assets from almost 11 percent today to 15 percent by 2025, by which time the total assets are expected to have reached $1 trillion, according to PERE’s exclusive interview with Kim, published in July.

In a call with PERE last week, Kim expressed a preference to work again with an institutional investor, either from Seoul or Singapore, when he returns to employment. Managers keen on courting him should pay heed.

This week’s investor meetings
Wednesday, Nov. 3

Thursday, Nov. 4

Friday, Nov. 5

Today’s letter was prepared by Kyle Campbell, with Evelyn Lee and Jonathan Brasse contributing