CBRE Investors to (half) rule the world

Buying ING REIM would make CBRE Investors, led by Matt Khourie, the largest property management firm in the world - but not the largest opportunity fund manager globally.

Should CB Richard Ellis, the Los Angeles-based property services firm, buy ING Real Estate Investment Management, it would not necessarily be a seismic event in the opportunistic real estate world, but it would certainly create the world’s largest property investment management outfit.

As the Dutch news site, Vastgoedmarkt, and then the Financial Times reported on Friday, public company CBRE is in exclusive talks to acquire the whole or parts of ING REIM and it is clear that CBRE wants to do so in order to enlarge its property fund management arm, Richard Ellis, which already manages $35.7 billion of assets. ING REIM, for its part, manages around €65.3 billion ($86.6 billion). Therefore, the combination of the two would create a super-group with $122 billion under management – larger than anyone else.

The logic is clear. Firstly, CBRE has always pursued a strategy of being either Number One or Number Two in the property markets and business lines it operates in. It has certainly achieved that with its global brokerage arm. Richard Ellis, on the other hand, has never been a market leader.

But assuming a sale of the whole or most of ING REIM goes ahead, CBRE Investors would indeed be a market leader in property investment management. Not only that, but it would suddenly contribute around 50 percent of CBRE’s total revenues given the amount of fees ING earns from its assets under management, so the commercial logic is clear there too.

Commentators on PERE have consistently said that while ING’s home market is Europe, perhaps the most attractive businesses it controls are ING Clarion in North America and ING’s Asia platform. A deal with ING therefore would not only make CBRE Investors a market leader in Europe but also in North America and Asia as well, so the geographic fit is good.

However, ING REIM is mainly a core/core plus fund manager. So, in a sense, the deal is not a total game-changer in terms of the pecking order of opportunity funds.

Matt Khourie

CBRE Investors, led by chief executive officer Matt Khourie, is already a significant force in higher-risk, higher-return strategies. It was the ranked the 11th largest private equity real estate firm in the world in the only global list to measure such a thing – the PERE 30. In the last five years up until March 2010 it raised a total of $6.46 billion for value-added and opportunistic strategies. ING, on the other, did not figure on the list of the top 30 at all.

CBRE Investors’ main strength in the higher-risk world lies with its value-added platform through the Strategic Partners family of funds. In 2005, the firm raised nearly $1.2 billion for CBRE Strategic Partners US IV, and followed up with a European version in 2006, which raised $1.1 billion. In 2008, it went back on the fundraising trail to garner $2.1 billion for CBRE Strategic Partners US V. These are not small funds, and they show the value to CBRE Investors of being backed by some very considerable LPs.

Which brings us to the next reason why buying ING REIM would be valuable to CBRE and CBRE Investors – for its investor base.

ING Group, as a financial services giant, has provided ING REIM with a very significant well of deep-pocketed Dutch pension funds and indeed non-Dutch institutional investors to invest in its property funds. How else does a firm build up such a large global platform? The investors in its institutional property funds would become investors with CBRE Investors.

What CBRE Investors would presumably not get, however, is an on-going co-investment from ING Group affiliates for future funds in the aftermath of an acquisition. The total ING co-investment across its real estate funds is thought to amount to as much as €1 billion and PERE has been told in the past that one of the conditions of a sale would be that the acquiring party takes over those ING LP positions, which is why any buyer would have to write out such a large cheque to buy it. CBRE certainly has the financial firepower to do that.

There is one other thing to note. One of the other bidders was arch-rival Jones Lang LaSalle, presumably bidding to add ING REIM to its property investment fund management arm, LaSalle Investment Management. With $44.6 billion of assets under management, LaSalle is larger than CBRE Investors in its present state. Had it bought ING, it would have been out-of-sight.

As things stand, it is CBRE that is going to be out-of-sight and one wonders how LaSalle or anyone else for that matter might quickly catch up. They will have to wait for the next corporate opportunity. Morgan Stanley Real Estate Investing has previously put feelers out in the market about who would be interested as a buyer for the platform. That was when the Volcker rules came out. Of course, nothing came of it as the details of Volcker became clear, but should it come to a conclusion in the near future that a sale made sense, there would no doubt be a willing buyer. 

For now, it is wise to at least temper excitement about CBRE. Though it appears a sale of the whole of ING REIM is the most likely outcome now, there is no guarantee it will happen. Nevertheless, the financial markets like the story. Shares in CBRE rose 3.1 percent on news of the potential deal.