CBRE Global Investors has secured a new $200 million discretionary mandate from a group of affiliated Asian insurance companies, which it declined to name. The Los Angeles-based firm, which will be in charge of building a core and core-plus real estate portfolio in the US and Europe, expects to deploy the capital within the calendar year.
The mandate would target both debt and equity investment across property types in the top 25 markets in the US and large metropolitan areas in the UK, France and Germany. The current pipeline of investments for the mandate includes mezzanine debt opportunities for Class A office buildings in two US gateway markets and two equity transactions involving an office building and a multifamily property in the US.
While investments are expected to be fairly evenly split between the two regions, the majority of the investments will be weighted toward debt. “These investors just have a familiarity with debt,” said Peter DiCorpo, Americas head of separate accounts at CBRE Global Investors. “They’ve done a lot of debt in their home region. They’re comfortable with debt and understand it very well.”
Such a preference is somewhat unusual for CBRE Global’s foreign separate account clients, which typically seek equity investments because of the desire for control over when the asset is sold and financing decisions relating to the asset. However, debt can be a more tax-efficient structure since it allows a foreign investor in the US to avoid paying taxes under the Foreign Investment in Real Property Tax Act. After all, an investor would earn interest income with a debt investment, as opposed to dividends and capital gains with an equity investment.
Like many other foreign property investors, the new client is seeking opportunities internationally because of limited opportunities at home. “In their home market, yields are down and they’re not able to achieve the yields they want,” said DiCorpo. “I think investors are able to move quite quickly to the US because of the fluidity of getting stuff done and the economy doing well. Still, it’s challenging for them to come because they can’t just work with a particular group. They want to be able to talk with someone in their language in their time zone.”
Indeed, the separate account will involve staff spanning all three regions, including DiCorpo in Los Angeles and New York; Richard Price, Asia-Pacific chief executive in Hong Kong; Mark Jun, senior vice president of Asia-Pacific investor services in Korea; James Clifton-Brown, EMEA head of separate accounts in the UK; Jeff Torto, who will serve as the overall portfolio manager, in Boston; and Andy Glanzman, who will oversee the debt investments, in New York. “You’ve effectively got several engines looking at opportunities for this client,” DiCorpo said.
The Asian insurers represent CBRE Global’s first foreign separate account client to grant the firm discretion, which will allow the investment manager to move more quickly on investments, according to DiCorpo. By contrast, with nondiscretionary mandates, the firm would have to get each transaction approved before executing. “You can only focus on a very tight niche of transactions because it has to stand still for three or four months,” he explained.
With this new mandate, the client created very detailed investment guidelines for CBRE Global to follow. “What they’ve done is taken a lot of the decision-making and control and frontloaded it,” DiCorpo said. Compared with a commingled fund, “they can control their destiny a little more. They can truly craft exactly the type of transaction they want to buy.”
Asian investors currently account for 20 percent to 25 percent of CBRE Global’s separate account business and 50 percent of the new mandates that the firm has won is the last two or three years. In 2013, the investment manager raised $3.3 billion of capital for separate accounts, of which $1.2 billion was intended for cross-border investments.
Among Asian investors, Korean insurers have been particularly active in putting real estate capital to work in the US and Europe in recent years. For example, Samsung SRA Asset Management, the real estate investment management business of Samsung Life Insurance, executed its first direct real estate acquisition last April, with the purchase of 30 Crown Place in the City of London.
The year prior, Samsung Fire & Marine Insurance, Korea’s largest non-life insurer, revealed plans to add funds to its direct core real estate investment strategy. And in 2011, Samsung Life awarded a $460 million separate account to RREEF, now known as Deutsche Asset and Wealth Management, to invest in core real estate in cities in Europe and North America.