China Investment Corporation (CIC) looks to be at the start of a US buying spree with its second office transaction in a month.
The sovereign wealth fund reportedly purchased a 49 percent stake in Manhattan office tower 1 New York Plaza in a deal valued at $700 million, according to local media. Last month, CIC made its first investment in US real estate for the first time since 2010, partnering with LaSalle Investment Management to buy a 52-story office tower in Chicago for $539 million, according to real estate data provider Real Capital Analytics (RCA). That Chicago transaction became public just a week after PERE learned that the Chinese sovereign wealth fund set up a dedicated real estate department and doubled its allocation to the asset class.
The sovereign wealth fund’s only previous direct investment in US real estate was the June 2010 purchase, and subsequent 2011 disposition, of a Manhattan office tower at 650 Madison Avenue, according to RCA.
In its latest New York deal, CIC bought the minority interest in the 50-story 1 New York Plaza from Brookfield Office Properties, valuing the building at $1.4 billion, according to Crain’s New York Business. In a quarterly earnings call earlier this month, Brookfield said it had sold the minority interest but did not identify the buyer. The building, constructed in 1969, has 2.6 million square feet of office space and was 97 percent occupied as of March, according to RCA. Brookfield will reportedly continue to manage the property.
These transactions come a month after PERE reported that CIC doubled its allocation to real estate to 10 percent, meaning the fund could ultimately own as much as $74 billion of real estate assets. PERE reported at the time that it is not thought that CIC manages anywhere near that much real estate at present.
The sovereign wealth fund managed approximately $740 billion of assets as of the end of 2014, according to its latest annual report published last summer. From the Beijing-based state fund’s inception in 2007, CIC’s real estate investing activities have formed part of a wider private equity division. However, PERE understands that as of this year, CIC has been operating a standalone real estate group, called the Department of Real Estate. The department is led by real estate head Zhi Wei Cai, a long-serving executive focused on real estate investments at the state fund.
CIC has been making inroads with some of the largest global real estate transactions of late. In one example last year, it made headlines with the acquisition of Investa Property Trust, a vehicle containing nine prime offices in Australia, for A$2.45 billion ($1.8 billion; €1.6 billion), from Morgan Stanley Real Estate Investing (MSREI), Morgan Stanley’s real estate business. In Europe, CIC teamed up with Paris-based real estate investment management firm AEW Europe in June for the purchase of 10 shopping centers in Belgium and France in a deal worth €1.3 billion.
The state fund has also been a meaningful backer of a small number of third-party managers, with commitments to opportunistic funds managed by MSREI, The Blackstone Group and Brookfield Asset Management, according to PERE Research & Analytics.