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Blueprint: Starwood’s 12th opportunity fund; Brookfield’s covenant relief; GIC, AEW find a bargain in Beijing

Starwood launches its 12th opportunity fund; Brookfield gets covenant relief from lenders; GIC goes bargain shopping in Beijing, and more in today's briefing, exclusively for our valued subscribers.

She said it

“I think there are opportunities for domestic capital where cross-border capital may be constrained due to travel restrictions. That presents unique opportunities for pensions and other funds who may have historically been sitting on the sidelines because of the level of competition from foreign capital.”

Leah Stearns, CBRE’s chief financial officer, on market pricing during the company’s earnings call last week.

What’s new

Easy dozen

The allure of pandemic-driven distress has brought Starwood Capital back to the market to raise its 12th flagship global opportunity fund. The $60 billion manager is targeting $7.5 billion for Starwood Opportunity Fund XII, which launched in early June and is expected to reach a first close later this month, PERE learned. Renowned for its hospitality investments, Barry Sternlicht’s (pictured above) firm nonetheless expects to be active in all property types, other than retail. It will also pursue both equity and debt investments. The Miami Beach-based firm was so confident in the market for distressed opportunities it began marketing SOF XII while it still had more than a billion dollars left to deploy for SOF XI. Recent moves by the firm, such as its $325 million recapitalization of TPG’s mortgage REIT, give a glimpse of the corporate and portfolio-level deals it will target.

Credit in check

Retail owners treading water on debt payments now have a potential model for relief. Brookfield Asset Management has struck a deal with its lenders to waive covenants on a $6.4 billion credit facility for Brookfield Property Trust, its retail-heavy real estate investment trust through next June. Lenders, such as Wells Fargo, have agreed to remove the REIT’s limit on debt and lower its fixed charge ratio. In exchange, Brookfield will meet a series of other criteria such as maintaining a $500 million liquidity facility. The manager will also lend at least $250 million to the REIT. See the full disclosure here.

Beijing bargain

While many investors are still taking a wait-and-see attitude on the future of offices, Singapore’s sovereign wealth fund GIC continues to believe in the sector. This week, we reported the fund has partnered with Boston-based AEW and Shanghai’s SDP Investment for a 3 billion yuan ($430 million; €363 million) office asset in Beijing. The investor has made at least three office investments in China since November last year, making it one of the biggest foreign investor in the country, despite the ongoing tension between China and the US.

Data snapshot

Unappreciated

The National Council of Real Estate Investment Fiduciaries benchmark open-end diversified core index had its worst quarter since 2009.

Trending topics

Bucking the trend

A sign of the times it is not. Federated Hermes – the newly merged entity combining investment managers Federated Investors and Hermes Investment Management – and MEPC have announced plans to build a 200,000-square-foot speculative office development in Manchester, England, to be completed by early 2023. Meanwhile, office take-up in Europe fell by more than 20 percent in Q2 2020, as widespread remote work forced occupiers to re-evaluate their space needs, according to a report from AEW. In the face of lower occupier demand, AEW also predicted that many office developments will be delayed, downsized or canceled over time.

Equities or fixed income?

During the low interest rate years post global financial crisis, private real estate has quietly migrated down the risk curve, going from the outperformance segment of institutional portfolios to the lower-risk, more dependable part alongside fixed-income stalwarts like government bonds. Perhaps not for much longer. As Paul Kennedy, JPMorgan Asset Management’s head of real estate Europe strategy, explained on the bank’s alternative assets media briefing last week, office occupiers’ growing appetite for flexible, shorter duration leases could make parts of the market more like volatile equities. And covid-19’s workplace upheaval only seems to compounds this trend. Hey ho, back up the curve we go then.

Investor watch

Euro-centric

Europe has been front of mind for the New York State Common Retirement Fund this summer. The pension committed to two closed-end funds targeting the region: £200 million ($261 million; €222 million) to PGIM’s Real Estate Capital VII, which will target mezzanine debt and preferred capital, and €200 million to Exeter‘s Europe Industrial Core Fund. It also pledged up to $100 million in co-investment capital alongside Ares European Property Enhancement Partners III. NYSCRF previously committed €318 million to the diversified fund, which launched last year. The pension has already partnered with all three managers, so, like most investors that have been active during the pandemic, it has focused on existing relationships.

This week’s LP meetings

Tuesday, August 4

Wednesday, August 5

Thursday, August 6

Friday, August 7


Today’s letter was prepared by Kyle Campbell with Jonathan Brasse, Evelyn Lee, Arshiya Khullar and Christie Ou contributing.

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