They said it
“There’s just a lot of people who put on too much debt or paid too high a price for real estate in the last couple of years, and they’re all going to have to sell at the same time, and fewer buyers around means the pricing should get more attractive”
Brian Kingston, chief executive of Brookfield’s real estate business, speaking on Brookfield’s Perspectives podcast last week.
What’s new
Arise Caplan and Meghji
Blackstone’s real estate business has kicked off 2024 by shaking up its real estate leadership team. Ken Caplan, the firm’s global co-head of real estate for the past six years, is now in the newly created role of the firm’s co-chief investment officer. Stepping up to lead the real estate business alongside now fellow global co-head of real estate Kathleen McCarthy is Nadeem Meghji, formerly the head of real estate Americas at the firm. Caplan is joined in the co-CIO role by Lionel Assant, previously European head of private equity.
The shift comes as the firm, which last year became the first alternative asset platform to surpass $1 trillion in assets under management, gears up for what Blackstone chief executive Steve Schwartzman said in a statement will be an ‘active’ investment period.
“We’re trying to create a more enduring institution. These are people who are incredibly well-trained Blackstone investors, who are able to synthesize information and see the forest for the trees,” Blackstone president Jon Gray told the Wall Street Journal of the new positions.
Another big exit at BlackRock
Blackstone is not the only mega-manager seeing top-level changes with its real estate leadership. Anne Valentine Andrews, head of infrastructure and real estate at BlackRock, is leaving the New York-based asset management firm after a decade at the company, PERE reported last week.
She has resigned to pursue another opportunity but will remain an external adviser to BlackRock in the months to come, BlackRock chief executive Larry Fink and president Rob Kapito disclosed in an internal memo released on Friday in conjunction with its announcement to acquire Global Infrastructure Partners for $12.5 billion.
In what was clearly a busy week for BlackRock, Fink and Kapito also released a separate memo earlier last week announcing plans to lay off 3 percent of the firm’s global staff. Although Valentine Andrews’ professional background was primarily in infrastructure, she oversaw significant changes to the real estate team during her tenure, which you can read about here.
Goldman looks debt ahead
Goldman Sachs has held a second close for its latest credit fund, West Street Real Estate Credit Partners IV. The target size of the New York-based manager’s fourth credit fund was not disclosed in a filing with the US Securities and Exchange Commission, but it did state it has so far raised $2.6 billion for the offering. The firm launched the North American-focused fund in late 2021 and held a first close of $2 billion in August 2023. The fundraise comes at a time when private real estate groups are tilting toward debt strategies, spurred in part by sponsors’ need to refinance debt that originated during the last rate cycle and is now coming due. Read more about the launch here.
Off the menu
Hong Kong-based Phoenix Property Investors is the latest private real estate manager to switch tack on mainland Chinese real estate, as revealed by PERE this week. The firm has removed investments in the market from the menu for its pan-Asia fund series – now on its seventh iteration – for the first time responding to conversations with investors concerned about geopolitics.
Has it hurt Phoenix’s fundraising efforts? Not at all. According to sources, Phoenix has already raised or committed $900 million from anchor investors for its Phoenix Asia Real Estate Investors VII fund, which it launched only three months ago. They have evidently been enticed by the firm’s pivot to making investments exclusively in Asia’s developed markets, including Australia, Japan and Korea. Phoenix’s plans to change its China strategy follow similar adjustments last year at organizations including neighboring manager Gaw Capital Partners and Canadian investor Ivanhoé Cambridge.
Trending topics
Ready player one
London-based alternative lender DRC Savills Investment Management this week expanded its commercial real estate debt platform to the US via a joint venture with Atlanta-based Quadrant Real Estate Advisors. The firm, which manages debt investments in the UK, Continental Europe and Australia, sees the US as the next logical place for expansion.
“It is an interesting time to enter the US markets because the size and speed of the interest rate rises and the adjustment in capital values is creating an opportunity for non-bank capital, even in the US where there is a more balanced system of providers,” Dale Lattanzio, managing partner, told affiliate Real Estate Capital USA.
DRC Savills IM, which has about £2 billion ($2.5 billion; €2.3 billion) in assets under management in a portfolio that includes senior debt, high yield and whole loan products, will be the joint venture’s majority owner.
Race to the bottom in the UK
This time last year, the outlook for private real estate investment into the UK was shaky. The country’s economy was still smarting from Brexit, the resignation of prime minister Liz Truss after only 45 days in office and, moreover, the economically damaging legacy of Truss and then-chancellor Kwasi Kwarteng’s September 2022 ‘mini budget.’
Early in 2024, however, and one of the first notable real estate fundraising stories of the year saw £427 million raised in under five months exclusively for investment in UK logistics – a market CBRE said appears to have bottomed out per its latest UK Monthly Index Snapshot. The fundraise was completed by Clarion Partners Europe, the pan-European arm of US manager Clarion Partners, at the end of 2023 and revealed by PERE last week.
Encouraged by the relative expediency of repricing in the UK over the past year relative to other European real estate markets, the firm’s chief executive officer Alistair Calvert said the time was right for the firm to raise its first UK-only vehicle – after around seven years’ absence from investing in the UK – and investors agreed.
Starwood checks into London
Starwood Capital Group picked up 10 hotels in London from Edwardian Group, the private equity firm announced in a statement on Friday. While Starwood did not disclose the price, Bloomberg reported the deal to be valued at £800 million. The acquisition features 2,053 rooms, and the properties, which operate under the Radisson Blu Edwardian flag, are largely concentrated in the West End districts. Starwood and the Edwardian Group are planning collaboration on future opportunities, Starwood said.
Covid-19, interest rates and inflation have hit hotels hard, but there are growing indicators 2024 will bring better times for the sector. Indeed, this year could be the first since the onset of the pandemic that occupancy rates pass 2019 levels in the UK, per a CBRE report. Key performance indicators of a hotel’s average daily rate and revenue per available room are predicted to be strong this year, according to the brokerage.
Data snapshot
Bottom’s out
Prime capital values for major real estate sectors are expected to bottom out in 2024 as interest rates level out, according to a CBRE report. The value of offices will drop the most – by more than 30 percent from its peak in 2022 – as the sector continues to experience changes in workplace strategies as well as pressure from higher interest rates. However, the research also noted the extent of further repricing across most asset classes is expected to be smaller than the level in the second half of 2022 and 2023.
People
Hollick banks big promotion
Following its integration with Credit Suisse, UBS Asset Management has promoted Jon Hollick to the newly created role of head of global ex-DACH real estate, according to an internal memo sent last week and seen by PERE.
He is now responsible for overseeing the Zurich-based manager’s regional real estate teams, reporting to Joe Azelby, who remains responsible for the overall real estate and private markets division. Hollick formerly oversaw the firm’s European real estate strategy and investments as head of real estate EMEA ex-DACH, to which a successor has yet to be appointed.
The promotion comes around seven months after the departure of Robert Rackind from Credit Suisse Asset Management, where he had served as global head of real estate since June 2022. UBS announced the acquisition of fellow Swiss bank Credit Suisse in March last year as part of the Swiss government’s attempts to avoid a banking crisis. At the time, around 180 staff at Credit Suisse were due to be integrated with UBS’s 500-plus staff.
Investor watch
Non-core is the way to go in 2024
Connecticut Retirement Plans and Trust Funds is planning to increase its real estate allocation from 7 to 10 percent by year-end of 2027 with 30-50 percent of its allocation dedicated to core assets, and 50 to 70 percent to non-core investment, respectively, according to its latest council meeting report. To meet the target allocation, the investor will continue to focus on non-core investments in 2024 with $950 million committed to the strategy. It will also allocate $150 million in core in 2024. Meanwhile, it will redeem around $180 million to $280 million in core, open-end funds annually over the next three years. Last year, the pension plan only invested in non-core real estate with $500 million of commitments.
This week’s investor meetings
Tuesday, January 16
- Houston Firefighters’ Relief and Retirement Fund
- Pompano Beach Police & Firefighters’ Retirement System
- Maryland State Retirement and Pension System
- New Mexico State Investment Council
- Public Employee Retirement System of Idaho
Wednesday, January 17
- Fresno County Employees’ Retirement Association
- Orange County Employees Retirement System
- City Of Austin Police Retirement System (CAPRS)
- Marin County Employees’ Retirement Association (MCERA)
- Boston Retirement System
- New York City Board of Education Retirement System
- New York City Employees’ Retirement System
Thursday, January 18
- Chicago Municipal Employees’ Annuity and Benefit Fund
- Chicago Teachers’ Pension Fund
- Los Angeles Fire & Police Pension System
- Utah Retirement Systems
- Public Employees’ Retirement System of Nevada
- Teachers’ Retirement System of the City of New York
- Miami Beach Firefighters’ and Police Officers’ Pension Plan
- Police & Fire Retirement System of the City of Detroit
- Kern County Employees Retirement Association
Friday, January 19
Today’s letter was prepared by Jonathan Brasse, with Evelyn Lee, Charlotte D’Souza, Miriam Hall, Christie Ou and Samantha Rowan contributing.
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