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Blueprint: Pike leaves Blackstone, Phoenix behind on bridge loans, CalPERS names new real assets boss

A deep dive into the new realities of office investing; one-time Blackstone boss retires from the firm; CalPERS' new real estate head; and more.

She said it

“We’ve made a commitment that we are not adding a new name to the portfolio unless there is a meaningful diversity component. This is no matter how strong the investment opportunity is”

Alisa Mall, managing director of investments at Carnegie Corporation of New York, on her foundation’s commitment to inclusiveness

What’s new?

Chad Pike
Chad Pike: Blackstone’s senior managing director, vice chair of tactical opportunities

The Pike that got away
Yesterday we broke the news that Chad Pike, the man who alongside Jon Gray built Blackstone into the world’s pre-eminent private real estate manager, would be retiring at the end of this week. Pike has been a giant of the space, driving some of BX’s most notable transactions (more on that here). Since Gray took sole charge of real estate (before he was appointed company president) Pike has been the joint lead on the firm’s Tac-Opps team. He is now going to focus on his family office investments (and presumably his fishing). We hope we will see him again.

Known unknowns
Private real estate’s stalwart property type has been tossed into uncertainty by the coronavirus pandemic. During the first quarter, 37 percent of contracted US office deals fell through, liquidity in the sector dropped 18 percent and, suddenly, investors and managers were left to wonder if their properties would ever fully recover, as top occupiers embraced remote work.

We took a deep dive into the office market and how it is likely to emerge from this current crisis. Our full report will be published later this week, but in the meantime, here are our top findings:

  • Underwriting will change. Rental growth will be considerably slower in the near-term, owners will have to increase capex spending and, overall, tenants will cut their real estate costs – as much as 30 percent, McKinsey & Company reckons.
  • Changes vary by country. South Korea, for example, which had one of the most robust responses to the virus, saw little disruption to its office working habits. This is, in part, because of a business culture that discourages working from home.
  • Sales and leasing are still happening. In May, makers of the popular Chinese video-sharing app TikTok leased 232,000 square feet at One Five One, a 48-story building in New York’s Times Square. A month later, Gaw Capital bought Hangzhou’s 46-story Euro America Financial City Tower 6.

Triple threat
Current and prospective investors face a trio of calamities in China’s office markets: overbuilt supply, pandemic-hampered demand and capital constraints from the trade war with the US. Phoenix Property Investors, for one, is nearing default on a pair of offshore bridge loans used to secure prime in Shanghai, according to a report from the South China Morning Post. Fund investors have resisted committing more capital to the project as well as a distress sale, meaning the Hong Kong firm must either walk away from the $562 million transactions or find a new co-investor. That’s a hard sell given the tenancy is nearly 30 percent off expectations. Neither scenario bodes well for returns.

Data snapshot

Downsize Manhattan
In a survey of alternative asset managers – hedge funds and private equity firms – conducted by the law firm Seward & Kissel, New York-based shops were six times more likely to say they would reduce office space post-covid.

Trending topics

Taking action
Managers seeking to improve diversity within their ranks now have two new models to look to. Blackstone committed to recruiting more candidates from historically black and women’s colleges and CBRE named Tim Dismond, an executive in its Global Workplace Solutions group, to the newly minted role of chief diversity officer. These moves come after a month of global protests for racial justice and equality following the police killing of George Floyd, an unarmed African American man in Minnesota. During this moment of reckoning, black real estate executives, such as Goldman Sachs’ Margaret Anadu and Clarion Partners’ Onay Payne, have spoken out about their experiences with systemic racism.

What to expect when you are expecting (disrupted cashflows)
As new outbreaks of covid-19 delay and derail re-opening efforts across the US, rent collections will not return to normal soon. But that uncertainty does not mean institutional investors should be left in the dark. NCREIF and PREA have compiled a set of guidelines for how managers should detail the performance of their funds and other vehicles. These standards call for running tallies of deferred, waived and collected rents in a portfolio broken down by property type, with a disclosure of how many tenants are unlikely to become current again. See the full guidelines here.

People moves

Déjà vu
LaSalle Investment Management global chief executive Jeff Jacobson is reassuming a role he last held 13 years ago. Later this month, he will take back the reins for the firm’s European business on an interim basis until LaSalle finds a permanent replacement for Karen Brennan, who is vacating the position after just a year to become chief financial officer at parent company JLL. Jacobson was Europe CEO for seven years before being named LaSalle’s head honcho in 2007.

CalPERS’ new captain
The California Public Employees’ Retirement System has tapped Sarah Corr as the next managing investment director for real assets, which includes both real estate and infrastructure. Corr replaces Paul Mouchakkaa, who left earlier this year to join BentallGreenOak. Corr (LinkedIn profile here) previously ran the pension’s private equity portfolio on an interim basis and is a well-known, well-respected part of the PE limited partner scene.