Blueprint: PERE Global Awards 2023 launch, Blackstone’s European fundraise, Goldman’s write-downs

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They said it

“I think sellers are having a very tough time coming to terms with the new prices.”

Cathy Marcus, PGIM Real Estate co-chief executive officer and global chief operating officer, speaking on Bloomberg TV’s Wall Street Week about the state of real estate transactions market

What’s new

PERE Global Awards are live: We look to celebrate the achievements of a sector reeling from one of the most challenging years in living memory

PERE Global Awards 2023 are here

Launching today, the PERE Global Awards recognize the most significant and notable activities in the private real estate market globally in the last year. Given how challenging market conditions have been, this year’s awards should have even greater value to their winners. Over 67 categories, we aim to highlight the investors, managers, advisers and individuals that made significant marks during one of the most challenging 12-month market periods in living memory.

Despite the sector-wide difficulties with fundraising and deploying equity in the period, capital formations and transactions have still happened. The sector has also become more innovative in the process. As such, the most notable difference in this year’s PERE Global Awards is the introduction of the Innovation Investor of the Year category in which we celebrate new or unique approaches to operating in today’s environment. Review PERE’s submission guidelines here for more information on the category alongside the others. Today’s call for submissions officially starts the most eagerly anticipated annual awards in the industry.

Want to enter? Reference the guidelines and then use the submission form HERE. The deadline for submissions is close of business Pacific Standard Time on Friday, November 17.

Fast fundraising, slow deployment

After launching the vehicle earlier this year, Blackstone is nearly halfway toward meeting the fundraising target for its seventh European opportunistic real estate fund, Blackstone Real Estate Partners VII, the New York-based mega manager disclosed during its Q3 2023 earnings call last week.

But while the firm has been raising capital at a steady clip, Blackstone has been notably slower on the deployment front. Although the manager began the investment period for BREP Europe VII last month and Europe has accounted for more than half of Blackstone’s real estate transaction activity this year, the fund is still largely uninvested, president and chief operating officer Jon Gray said.

He also noted that Blackstone had invested less than 5 percent of its $30-plus billion global opportunistic real estate fund, BREP X, and had yet to invest the vast majority of its latest Asia real estate fund, BREP Asia III. For more on the BREP Europe VII fundraise and Gray’s thoughts on the real estate transaction market, read the full story here.

Goldman reduces commercial property balance sheet holdings

As the one of the world’s largest investment banks, Goldman Sachs has a sizable commercial real estate portfolio it is actively trying to get off its books. As part of the on-balance sheet alternative investments of its asset and wealth management division – which includes Goldman Sachs Asset Management, the unit that houses its real estate investment management business – Goldman had a $15 billion commercial real estate portfolio at the beginning of the year. However, the value of those holdings have now been reduced by a third, according to chief financial officer Denis Coleman.

“Three-quarters of that was either through paydowns or dispositions, the balance through marks and impairments,” he said on the company’s Q3 2023 earnings call. “So we’re making very, very significant progress against those exposures.”

The business’s equity investments had generated $212 million in net losses during the third quarter, driven largely by markdowns in its commercial property investments, Coleman said. Prior to Goldman Sachs merging its merchant banking and special situations divisions under its broader asset management umbrella in 2019, the former unit had invested in real estate equity using the bank’s balance sheet capital. Read more of PERE’s coverage on Goldman’s earnings results here.

The premium for a bargain

TPG Real Estate Partners has offered to acquire Brussels-listed REIT Intervest Offices & Warehouses as the private equity giant finds value in the latter’s logistics portfolio. While TPG is paying €21.00 per share, a 52.2 percent premium over the REIT’s closing price on October 5, the offer is notably lower than its last peak of €28.25 per share in April 2022. TPG noted Intervest’s “more modest scale” of non-core offices and higher debt ratio than its peers have affected its stock market valuation despite its “highly attractive” logistics portfolio, according to a statement.

The acquisition by the private equity firm will provide long-term capital, expertise and resources for the platform to “execute its strategy plan” and to grow. Michiel Celis, business unit partner with TPG Real Estate, said in the statement that the firm is looking to offload Intervest’s “small, non-core office portfolio” and strengthen the company’s position as a “leading operator of high-quality logistics real estate.”

Trending topics

Read between the scores

Last week, global ESG benchmark GRESB released the results of its 2023 assessment, which showed participation in the Real Estate Benchmark has increased by 15 percent on the previous year. Property owners with $7.2 trillion in aggregate gross asset value are now reporting on the sustainability of their assets, and average scores have also increased for both standing assets and developments.

But while some would say this year’s results signal the industry is making tangible progress in decarbonizing the built environment, others are doubtful how much the benchmark is really moving the needle. Paul Sutcliffe, co-founder and chief operating officer of sustainability services company Evora Global, finds GRESB to be inaccurate as a measure of sustainability. In a comment, he said the industry benchmark “needs to change,” arguing an investor would be “wrong to assume” a five-star rating denotes a manager’s portfolio is highly sustainable.

Instead, he said, managers keen to score highly on GRESB will focus their efforts on gaining points where they can, meaning “funds with access to data and strong systems in place do better than those without.”

End of the open era?

The relative illiquidity of real estate as an asset class has proved its Achilles’ heel during the past few years of macroeconomic turbulence. As the effects of this continue to work through the market, open-ended property funds are emerging as the latest casualties. Last week, London-headquartered M&G Investments announced it would close its M&G Property Portfolio fund due to “declining interest in open-ended daily dealing property strategies from UK retail investors.” The firm expects to take around 18 months to sell off the majority of the fund’s portfolio, which is currently sized at £555 million ($676 million; €638 million), down from £2.1 billion as recently as the end of 2020.

And M&G is not alone. In the week prior, manager Canada Life Asset Management announced it had begun winding up its WS Canlife UK Property fund. But was it the downmarket that caused these funds’ demise, or is the open-ended daily liquidity fund inherently unsuited to real estate investing? In a post on LinkedIn, Richard Peacock, European head of real assets equity for Netherlands-based manager Aegon Asset Management – which sold the final assets from its own UK open-ended property fund last week – said balancing the return requirements of long-term investors against their need for daily liquidity is “impossible” to manage. “Sadly,” he wrote, “I don’t think they are fit for purpose anymore and don’t deliver acceptable outcomes to investors.”

Data snapshot

Self-storage is the only asset class that recorded an uptick in year-on-year transaction volume among alternatives in the US. With total sales of $11.3 billion, the asset class saw a 137 percent year-on-year increase in deal volume, according to MSCI Capital Trends Q3 2023. Having said that, the volume was driven largely by Public Storage’s purchase of Simply Self Storage REIT. Without that, the sale of individual self-storage assets dropped 74 percent from the year before.

Investor watch

More boots on the ground for Ivanhoé Cambridge

Ivanhoé Cambridge has established its first US office presence in New York as the firm wants to be closer to its investments. It is joining CDPQ and its subsidiary Otéra Capital in their existing office space. The investor has hired former Tishman Speyer executive Michael Caracciolo to take on the newly created role of head of the New York office and vice-president of US asset management, according to a statement.

Caracciolo spent 18 years at Tishman Speyer where he was most recently the head of asset management for the firm’s flexible office platform Studio. In his new role, he will become the “key representative” of the investor in the market where he will work closely with operating partners and the team in Montréal to optimize Ivanhoé’s asset management activities in the country. With an AUM of $28 billion in the US, the setup of the new office is “in sync” with the firm’s strategy to benefit from the proximity to its assets.

This week’s investor meetings

Tuesday, October 24

Wednesday, October 25

Thursday, October 26

Friday, October 27