Blueprint: SC Capital and ADIA’s data center venture, PGIM Real Estate senses credit crunch, Flynn, Varde in $1.1bn hotel commitment, AXA IM’s Australian affordable housing strategy

SC Capital's data center business receives vindication following ADIA backing, PGIM Real Estate's global CIO senses a credit crunch as lenders of all types retreat, Flynn and Varde stay committed to limited-service hotels and to each other, AXA IM Alts focuses on affordable housing in Australia with latest build-to-rent venture; and more in today's briefing, exclusively for our valued subscribers.

They said it

“A seller has a pricing expectation that is anchored to peak pricing that might be 12 months ago and it is hard to move them off that in this private market.”

Richard Kleinman, LaSalle Investment Management’s co-CIO for the Americas, speaking on Bloomberg Markets’ The Close last week.

What’s new?

Economies of scale: SC Capital Partners has received an up to $2 billion investment from ADIA for its data center platform, allowing Suchad Chiaranussati’s business to quickly scale. (Source: SC Capital Partners)

SC Capital’s digital pivot gains support
SC Capital Partners, the Singapore-headquartered private equity real estate firm led by founder Suchad Chiaranussati, turned heads in March with the launch of a dedicated pan-Asia-focused data centers business, SC Zeus Data Centers. Known best for its opportunistic private real estate investments across the region, investing predominantly via its Real Estate Capital Asia Partners fund series, the firm was not previously associated with such specific sector strategies. That did not deter the United Arab Emirates’ pre=eminent sovereign wealth fund, the Abu Dhabi Investment Authority, however, which formed a joint venture with SC Capital that could be scaled up to see as much as $2 billion of equity committed. The operating platform has a healthy pipeline of projects, Joe Gooi, chief executive officer of SC Zeus Data Centers, said, adding that the injection of capital from ADIA would improve the firm’s speed in growing its presence in the sector.

Out to crunch
For the past few months, global real estate markets have been working through the series of rapid rate hikes and other macroeconomic factors, causing an almost global slowdown. Raimondo Amabile, global chief investment officer at manager PGIM Real Estate, is worried things could get worse before they get better. “We are sitting in a market that is close to a credit crunch,” he told the Financial Times last week. “Banks are frozen… In Milan, London, etc there is still finance, but costs are two to three times what they were a year ago.” The FT highlighted how the office sector was the area of the market predicted to be most affected by the lack of liquidity. But the broader commercial real estate sector could be in for a bumpy ride. Mark Allan, chief executive of UK real estate investment trust Landsec, prognosticated that commercial real estate values could fall up to 20 percent.

Showcasing top real estate women
The third-annual Women in Private Markets Summit kicks off today at the Royal Lancaster hotel in London. The two-day summit, which is expected to welcome more than 600 global attendees, will begin with a series of general sessions featuring top female executives such as Schroders Capital’s real estate boss, Sophie van Oosterom, and LaSalle Investment Management’s co-head of US asset management, Kristy Heuberger. The summit will then break out into four asset class-focused forums in the afternoon: Women in Real Estate Forum, Women in Private Equity Forum, Women in Infrastructure Forum and Women in Private Debt Forum.

The real estate program opens with the panel session, “State of Real Estate: changes in the macroenvironment and the impact on investing,” moderated by PERE editor Evelyn Lee. The conference continues tomorrow with more general sessions, covering topics such as digitalization, impact strategies and the evolving role of investor relations. For more information on the conference, click here.

Trending topics

Mind the ESG gap
While ESG has a constantly moving definition, it continues to have a material effect on the real estate market. Data from research firm MSCI suggests it is in fact having an outsize effect on pricing in two key European markets. In London and Paris, MSCI has found the pricing gap is widening between buildings with environmental credentials and those without. In London, the gap began significantly widening in 2019 and now green buildings are priced more than 25 percent higher on average than their non-green counterparts – an at least 10 percentage point jump in that period. In Paris, that number is more than 35 percent after being under 10 percent in mid-2018. Research from global brokerage firm CBRE found rental premiums across the continent for certified buildings averaged 6 percent.

Extended partnership
San Francisco-based Flynn Holdings, a hospitality owner-operator, and Minneapolis-based credit specialist Värde Partners, have extended their relationship to jointly purchase a $1.1 billion portfolio of select service and extended stay hotels across the US. The pair’s second joint venture will see them take an 80 percent stake in 89 properties from affiliates of New York manager Cerberus Capital Management and New York-based owner-operator Highgate. Highgate and Cerberus will maintain a 20 percent stake and Highgate will continue to manage the properties, according to an announcement.

These types of hotels were popular in the onset of the pandemic as many market participants felt they would benefit from the more nomadic nature of work and were simple to operate, unlike more traditional hotels. “This acquisition is part of a broader business strategy of Flynn Properties to increase its limited service hotel footprint, which has proved to be one of the best performing sectors in the industry,” Greg Flynn, chief executive officer of Flynn, said in a statement.

Data snapshot

Asia deal terminations spikeMore deals have collapsed in the region this year than at any point since the global financial crisis. At PERE‘s Asia roundtable, coverage of which is published tomorrow, participants blamed fears of escalating borrowing costs for certain recent high-profile aborted transactions.

People moves

Berry’s roll
With volatility comes opportunity and that much is not lost on former Clearbell Capital founder Nick Berry [his LinkedIn here]. After co-founding the London-based manager and advisory firm in 2012, Berry is starting over with another firm called Hill Court Real Estate. The firm will be focused on advisory and development management, Berry said in an announcement on LinkedIn. Berry previously worked at global brokerage firm Knight Frank. In 2001, he joined London-based investment shop Mountgrange Investment Management, a former iteration of Clearbell. There, he served as a partner, sitting on the firm’s investment committee and had responsibility for the firm’s development activities and specialist investment activities.

Investor watch

AXA IM public private housing partnership
As part of its broader initiative to bring positive social impact through investments, Paris-based AXA IM Alts launched an Australian build-to-rent strategy focusing on affordable and sustainable housing. The investment arm of the insurer has teamed up with Sydney-based operator St George Community Housing to develop assets across the country, according to an announcement. Australian government entity National Housing Finance and Investment Corporation will also contribute a total umbrella commitment of A$300 million ($202 million; €195 million) to support the partnership. The first project in West Sydney will be managed by SGCH and delivered by leading NSW developer and builder Deicorp. Nathan Dal Bon, chief executive officer of NHFIC, called this a “ground-breaking agreement that clearly demonstrates how NHFIC can partner with the community housing sector and institutional investors to find innovative new ways to deliver much-needed affordable housing.”

This week’s investor meetings

Wednesday, November 30

Thursday, December 1

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