Blueprint: Silicon Valley Bank’s and Signature Bank’s collapse and the real estate fallout, North American investors’ China problem, Niam’s latest roadshow

Silicon Valley Bank and Signature Bank failures have different initial implications for real estate managers; some North American investors have a China problem, as told in PERE's latest deep dive; Niam returns to fundraising form with a big CalSTRS commitment; and more in today's briefing, exclusively for our valued subscribers.

They said it

“Especially for transitional assets, we’re not borrowing at all”

Michael Zerda, co-CIO and head of debt and value-add strategies in Europe for Chicago-based manager LaSalle Investment Management, on Bloomberg TV last week describing LaSalle’s approach to investing through current volatility

What’s new?

Not banking on it: Silicon Valley Bank’s failure is the second largest in US history, bracing the real estate and wider markets for further disruption. (Image credit: Silicon Valley Bank)

The initial SVB fallout on real estate borrowers
“There were many fund managers who did not sleep well this weekend.” That was the comment that Roger Singer, partner at law firm Gibson Dunn, shared with PERE in the aftermath of the Silicon Valley Bank’s collapse on Friday. It was the second largest bank failure in US history. Amid the initial fallout, borrowers were unable to communicate with anyone at the bank as of Monday morning. “There’s theoretically an FDIC line, but no one picks it up,” according to one source familiar with the matter. By contrast, Signature Bank, a US regional bank that shut down on Sunday, still had people at work and answering the phones, the source said. Meanwhile, one manager told investors it had “an atypically large cash balance” of $30 million in one of its fund accounts at SVB and was “hopeful there will be a majority, if not total, recovery of the dollars currently at risk,” in an email seen by PERE. For more on the short-term and longer-term impact of the bank failures on the private real estate industry, check out our coverage here.

Fund managers’ China dilemma
Long-simmering US-China tensions have been reaching a boiling point in recent weeks, following an alleged Chinese spy balloon being spotted over North American airspace last month and Chinese president Xi Jinping’s sharp rebuke of the US for isolating his country just last week. It is against this backdrop of deteriorating US-China relations that PERE is publishing its March cover story, The China Conundrum, on how managers raising Asia-Pacific funds are accommodating investors – predominantly North American institutions – that want to have exposure to the overall region but also keep their capital out of China. The dilemma that these firms face, however, is that many consider China – the largest economy in the region and the second-largest in the world – to be too important a market to be excluded from a pan-Asia investment strategy. Read more in our cover story here.

MIPIM bound
The movers and shakers of the global real estate community will descend on the world’s largest property conference this week. MIPIM expects more than 23,000 people to attend in Cannes this year, with delegates representing 90 different countries and responsible for €4 trillion of managed assets. Whether it is repricing, refinancing or repurposing, there are myriad decisions facing the industry, meaning this year’s MIPIM will have an air of uncertainty around it, much like the market it represents.

In attendance from our ranks are Charlotte D’Souza for PERE, Dan Cunningham for Real Estate Capital Europe and Samantha Rowan for Real Estate Capital USA. To name drop some of the firms in their diaries: AXA IM Alts, Hines, LaSalle Investment Management, Nuveen Real Estate, Aareal Bank, AEW, PIMCO and Oxford Properties. Keep an eye out over the coming weeks for coverage based on what we are hearing at MIPIM.

Room in town for two
You would be forgiven for thinking first of Copenhagen’s NREP when considering institutional real estate managers covering the Nordics region, given the firm’s fundraising successes and generally high visibility over recent years. But seven years before NREP’s inception came Stockholm-based Niam. Founded in 1998, the firm was considered a trailblazer when it came to enticing international, institutional capital to the region. The firm remains very much in the fight for capital. Last week, it emerged US pension California State Teachers’ Retirement System had approved a $204 million commitment to its eighth opportunity fund, Niam Nordic VIII, for which the firm is seeking to raise €1.5 billion. That target amount is almost 50 percent smaller than NREP’s target for its latest Nordics vehicle, NREP Nordics Strategies Fund V, which carries a €2.7 billion target. But it is still some 36 percent more than the €1.1 billion corralled for Niam Nordic VII, which closed in 2019. Such ambitious targets demonstrate there is enough activity in the region for two big private real estate managers to be relevant to the capital markets.

Trending topics

Korean institutions take more responsibility
South Korea’s National Pension Service plans to include climate change in its investment agenda as ESG becomes an increasingly important area for South Korean investors. The country’s welfare ministry said the state pension has added climate change and industrial accidents to its list of focus areas for responsible investment activities, according to a report on Reuters last week. Prior to this, the investor was mainly focused on issues related to corporate governance such as dividend policy, remuneration caps for directors and the violation of rules and regulations. Korea’s sovereign wealth fund KIC has also dialed up its actions on ESG, signing up for the UN’s Principles for Responsible Investment, the world’s largest responsible investment consultative body at the end of 2022. The state investor also launched a dedicated ESG team in 2021.

Some welcome relief
A report from Frankfurt-based asset manager DWS offers some relief in an otherwise bleak current market condition. It suggests the worst in terms of one key issue could be over for some European markets. The firm’s European Real Estate Strategic Outlook report for Q1 2023 posits that of the 15-20 percent capital value loss expected for the asset class, four-fifths have already happened, meaning a repricing has mostly already occurred. DWS believes prime yields have moved between 30 and 170 basis points from their low point earlier in the year, reducing the gap between interest rates and yields. “Central bank rates are likely to rise further this year, but this has already largely been priced into longer-term rates,” the report stated. Further price discovery will come as transaction markets thaw, but there is a little light at the end of the tunnel somewhere in the market at least.

Data snapshot

A way to go
PERE’s 2023 Investor Perspectives report shows how investors regard few managers as excellent in terms of their performance on a variety of ESG measurements. Read coverage of the report here.

People moves

MEAG promotes new head
A top 30 entrant on PERE’s Global Investor 100 ranking has new leadership. Munich-based insurer platform MEAG has promoted Stefan Haas [his LinkedIn here] as its global head of real estate. Haas will oversee MEAG’s almost $20 billion portfolio after spending almost 17 years at the asset manager. Previous roles at the investor include global head of real estate asset management, which Haas spent the last 4 years doing, and head of real estate asset management for Germany, which he filled the seven years prior to the global role. MEAG has been active in the asset class to start the year, forming a joint venture with Milan-headquartered Generali Real Estate to own half of the London office building Fen Court and acquiring a Durham, North Carolina-based warehouse via a separate account with CBRE Investment Management.

Investor watch

Oregon trailing
The Oregon Public Employees Retirement Fund could commit up to $1.1 billion to real estate this year as part of its continued march towards a portfolio with a higher concentration of non-core investments. The Salem-based investor has currently invested just more than 20 percent of its real estate allocation – currently just under $13.4 billion – in value-add and opportunistic real estate strategies combined, despite having a long-term target of allocations of 20 percent to each non-core bucket. OPERF had prioritized core investment in recent years, committing capital mostly via its separately managed account program. A pacing plan seen by PERE shows the investor’s value-add portfolio could see net growth of over $1 billion by 2026, while its opportunistic allocation should grow by around $700 million. Read our full coverage of the investment roadmap here.

This week’s investor meetings

Tuesday, March 14

Wednesday, March 15

Thursday, March 16

Friday, March 17

Today’s letter was prepared by Peter Benson with Jonathan Brasse, Evelyn Lee, Charlotte D’Souza and Christie Ou contributing