Bayerische Versorgungskammer, Germany’s largest pension fund, is expanding its value-add and opportunistic real estate portfolio in the US with its latest acquisition.
The German pension fund has purchased 100,000 square feet of vacant office space at 685 Fifth Avenue in a partnership led by Deutsche Finance Group, Turkish private equity real estate firm BLG Capital and New York developer Shvo. Other investors in the consortium include German insurer Versicherungskammer Bayern and an unnamed Munich-based insurer. The partners acquired the upper floors of the “Gucci Building,” which once housed Gucci’s New York headquarters, from Brookfield’s GGP and Thor Equities after raising $155 million in capital. The consortium is seeking to obtain $100 million in debt financing to help fund the redevelopment of the asset.
The partners felt the office vacancy was an opportunity as they plan to redevelop and expand the space into a new use, BLG Capital chief executive officer Serdar Bilgili, Deutsche Finance Group chief investment officer Sven Neubauer and real estate developer Michael Shvo told PERE in a joint interview. The group intends to add five extra floors to the building, making the building 25 stories, according to a work permit. The executives declined to disclose the future use of the space, but said the property is zoned for multiple uses and will not be used as office space under their ownership.
The three leading partners will plan to acquire several more properties together within the US, following the same value-add and opportunistic strategy, acquiring and redeveloping properties in prime locations. Neubauer and Shvo said under the strategy, the firm will aim to increase returns while reducing risk, as the attractive location will provide downside risk in the event of a downturn. BVK and the other institutional investors in the 685 Fifth Avenue consortium and have shown interest in doing more deals with the partnership, Neubauer said.
685 Fifth Avenue, also known as the Gucci building, was originally owned by the Italian fashion company before being bought by GGP and Thor for $460 million in 2014. The office space had been purposefully left vacant by the co-owners, which wanted to focus on the retail aspect of the property and had intended to sell the office space from the start, according to a source familiar with the matter. A complete vacancy would be more attractive to a buyer than a partial lease-up because the new owner could place its own mix of tenants, the source said.
BVK began targeting US real estate for the first time in 2017, and selected USAA RealCo to invest €750 million in core, build-to-core and value-add multifamily investments within major cities across the US. The pension fund has previously invested $460 million in a retail and office account with Northwood Investors and $368 million in a logistics mandate to Cabot Properties. They also invested $368 million with Harrison Street Real Estate Capital to target student housing, self-storage, senior living and medical office sectors.
BVK told PERE in March that the pension fund planned on scaling back on US real estate investments in 2018 because of higher hedging costs and rising interest rates. Rainer Komenda, head of real estate investment global at BVK, said returns from a typical core or core-plus deal were not sufficient to support the higher costs of investing in the US, and therefore had discussed with its US-focused managers to move up the risk spectrum.