They said it
“Property taxes are rising as municipalities need to fill in budget holes. Rents are moderating now, and not keeping up with cost increases any more. So, landlords’ net income is getting squeezed from both sides”
Tom Shapiro, president of GTIS Partners, told PERE about the rising cost environment facing real estate managers today. Read our full coverage here
What’s new
PERE’s 100 & 200 have landed
PERE’s eagerly anticipated annual rankings of managers by capital raised for discretionary investments is back and, once again, they are bigger than ever. The PERE 100 ranking, the largest collection of private equity real estate firms in the world, has collected $722.2 billion for closed-end funds and associated vehicles over the last five years, as per our methodology – some 13.3 percent more than the aggregate haul of last year.
The PERE 200 ranking, meanwhile, the second tier of managers, also saw an increase, albeit more moderate, of 9.8 percent. Managers ranked 101-200 collected $121.8 billion. While the two-tiered ranking continued an overarching growth theme and the year’s promotions and relegations will undoubtedly draw attention, our analysis of the two lists revealed some interesting takeaways besides. These include how New York is losing its grip as the fundraising epicenter of the private real estate universe in favor of a notable dispersion of locations, especially in the US; and how the fundraising dominance of mega-managers Blackstone and Brookfield is masking another reality in the sector’s capital marketplace.
While for some investors, the two firms are considered proxy plays for the entire asset class, the allure of complimentary offerings by other managers is looking more pronounced nowadays.
To see which firms ranked where, click here.
Diamond in the rough
Conversations with the industry last week kept including the surprise sale of a 49.9 percent stake in New York office building 245 Park Avenue by office-focused public real estate investment trust SL Green to Japanese developer Mori Trust. Under the microscope was the pricing. Mori Trust’s purchase of almost half the equity in the building valued the property at $2 billion, or $1,120 per square foot, 15 percent higher than SL Green’s ascribed net asset value, according to research from Green Street.
Part of the value came from the assumable debt, Green Street argued. A below-market, fixed-rate loan at 4.2 percent with terms through 2027 is predicted to have added 5-10 percent to the price, the data firm reported.
“The formation of this new partnership with Mori Trust reflects the continuing allure of investing in trophy midtown New York assets and resilience of the Park Avenue corridor as New York’s most desirable office market,” Harrison Sitomer, chief investment officer at SL Green, said in a statement.
Debt the difference for Gaw Capital
Gaw Capital Partners has included private credit investment for the first time in its flagship Asia Pacific real estate fund. Reflecting a rising interest rate environment, real estate debt has taken up around 30 percent of Gateway Real Estate Fund VII’s existing investments, including several deals in Hong Kong and mainland China. Last week, the firm closed on more than $2 billion for Gateway Real Estate Fund VII and raised a further $1 billion in associated sidecar vehicles.
Having completed most of its fundraising during the pandemic, Christina Gaw, managing principal, global head of capital markets and co-chair of alternative investments, said the firm remains “optimistic about the post-pandemic real estate market and are well-positioned to seize opportunities that arise”. Read our full coverage on the fund here.
Trending topics
Canary (wharf) in the coal mine
The fact that HSBC did not renew its tenancy at the 1.7 million square foot 8 Canada Square office tower in London’s Canary Wharf was hardly a surprise, PERE hears. As with many other corporate occupiers reviewing their workspace needs following the pandemic, news emerged last week that the bank has decided to downsize its space when its lease expires in 2027.
Critically, however, it has also decided to relocate to London’s City financial district. That had commentators declaring doom for the Docklands cluster.
As an executive at the building’s former owner, Korea’s National Pension Service, told PERE in 2021, the market had become a re-leasing risk given its dedication to offering large organizations large buildings to be used as headquarters. HSBC follows law firm Clifford Chance out of Canary Wharf into the City, and with Credit Suisse, another major bank tenant in the area, soon to lose half its workforce following its merger with fellow Swiss bank UBS, its occupational prospects are looking increasingly darker. Read analysis of the subject by affiliate publication Real Estate Capital Europe (registration required).
Canary Wharf does not suffer in isolation. The downsizing theme is impacting London’s offices more generally too, including in the City. Also last week, Dentons, the world’s biggest law firm by lawyer headcount, announced it was downsizing in the area. The firm is shedding some 32,500 square feet on assuming residence at Aviva Investors’ One Liverpool Street when it completes in 2026.
Leading by example
This week, we revealed the 10 private real estate professionals chosen as PERE’s 2023 Women of Influence. Common among many of them is leadership pedigree, enviable track records, a penchant for making bold moves and a desire to promote diversity in the industry. Less common among the women on this year’s list, however, is being an owner of a business. As co-founder of Artemis Real Estate Partners, Deborah Harmon is one of three founders on the list, a rare breed in real estate.
Why the pool of female founders in the industry is so small is a hard question to answer when one considers the progress of diversity, equity and inclusion over the years – of which the Women of Influence are themselves proof. Studies show women represent 37 percent of the real estate industry, but only 2 percent of capital raised is managed by female-founded firms or those co-founded by women. Read PERE’s deep-dive analysis to hear from Harmon and other female founders on the dynamics supporting and hindering the next generation.
Pac again
Beverly Hills, California-based PacWest Bank continued an ongoing loan sales program this week by offloading a $3.5 billion portfolio of specialty finance and commercial real estate loans to Los Angeles-based alternatives manager Ares Management. Affiliate title Private Debt Investor reported Ares is paying $2.01 billion for a portfolio of loans with an outstanding principal balance of $2.21 billion. With transaction costs, the sale price is $2.07 billion.
The portfolio includes commercial and residential real estate loans as well as asset manager and fund finance loans. The sale is the third of its kind for PacWest this year, with the bank also selling $2.6 billion of construction loans to a unit of Kennedy-Wilson Holdings in May and $1.2 billion of construction loans to a partnership between Cain International and Security Benefit Life this month. So far, the discounts have largely been less than expected, market participants told affiliate title Real Estate Capital USA last week (registration required).
Data snapshot
Weathering the storm
Mortgage loans make up 13 percent of US life insurance portfolios, according to research from rating agency Fitch Ratings, above historic levels of between 8-12 percent. Insurers keep continuing to de-emphasize office and retail mortgages due to suspected valuation drops.
People
Lead green
Paris-based AXA IM Alts, one of the top 40 managers in this year’s PERE 100 – released today – has reshaped its leadership in relation to ESG. Laurent Lavergne [his LinkedIn here] has been appointed global head of sustainability at the insurer-backed manager. With a tenure of almost 30 years at AXA IM Alts, Lavergne will oversee the firm’s sustainability strategy across all business lines, which include real estate, infrastructure, alternative credit, natural capital and impact investing.
He was previously global head of asset management and development within the real estate segment of the business. Lavergne will also assume the responsibilities of outgoing global head of responsible investment Justin Travlos [his LinkedIn here], whose role focuses primarily on real estate and infrastructure. Global head of AXA IM Alts Isabelle Scemama said in a statement that the appointment “marks a critical point in the acceleration of our decarbonization strategy across our business lines.” The firm targets net-zero emissions by 2050, in line with the Net Zero Asset Managers Initiative, of which it is a member.
Investor watch
Ivanhoé Cambridge helps itself to storage
Ivanhoé Cambridge, the real estate investment arm of Caisse de dépôt et placement du Québec, has made its debut in self storage. The Montreal-based firm is forming a strategy partnership with another unnamed global investor and US self storage specialist Safely Store Self Storage, the storage platform of Iron Point Partners and Taylor/Theus Holdings. The trio will commit an initial $400 million equity to invest in the US, according to an announcement.
The group is targeting value-add returns with a mix of ground-up developments, redevelopments and acquisitions of lease-up projects and undermanaged operational assets in tier one and two markets in the country. Michael Neuman, head, industrial, US and Latin America, said the sector has “proven its resilience throughout economic cycles, outperforming almost all other sectors over the short and long term.”
This week’s investor meetings
Wednesday, July 5
Thursday, July 6
Today’s letter was prepared by Peter Benson, with Jonathan Brasse, Evelyn Lee, Charlotte D’Souza and Christie Ou contributing
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