Friday Letter Surprise at the finish

For six months, speculation has mounted regarding the future of ING Real Estate Investment Management (REIM). After being put on the block by its Dutch insurance company parent in June, questions raged about whether ING REIM would be split up according to its respective regions or whether there was a firm hungry – and big – enough to take it over whole. 

An answer now appears close at hand after it was revealed this week that final bids had been submitted by a small group of firms, including TPG Capital, Richard Ellis, Jones Lang LaSalle and Ares Capital Management. According to people familiar with the sale, private equity firm Kohlberg, Kravis & Roberts – which has been looking to establish a dedicated real estate presence since at least 2008 – dropped out of the race, alongside US REIT Vornado Realty Trust.

With €71.1 billion in assets, roughly 80 funds and 1,500 real estate professionals and support staff, the ING REIM platform is a sizeable entity for any firm to consider taking down. Sources told PERE, most of the final bids were for the entire group, excluding only the equities arm, ING Clarion Real Estate Securities, which is being sold off separately. However, it is precisely such scale that firms such as TPG, CBRE, Jones Lang LaSalle and Ares are looking for.

Despite some industry “surprise” at TPG’s inclusion – as well as KKR’s exit – the sale offers an unprecedented opportunity for a third party to acquire an immediate presence on the global real estate stage, something that would take years, if not decades, to build organically.

For Jones Lang LaSalle and Ares, the sale would catapult the commercial property broker and private equity and debt investment shop front and centre into the real estate fund management business. In September, Ares hired a raft of professionals to lead its expansion into real estate debt investing, including former AllBridge Investments chief investment officer John Bartling as global head of its property arm.

In the case of CBRE, acquiring ING REIM is less of an easy fit. CBRE’s fund management arm, CBRE Investors, is already an established player in the field, having raised $6.5 billion of equity over the past five years for its US, Asia and European value-added and opportunistic funds and managing roughly $35.5 billion in assets.

For TPG, the case is less clear cut. Although the firm doesn’t have a dedicated real estate fund or team like The Blackstone Group, Lone Star or Apollo Global Management, it has been steadily ramping up its exposure to the asset class over the past couple of years with many of its property deals led by former Colony Capital co-founder and current TPG head of North America buyouts Kelvin Davies.

Although the Dallas-based firm invests in property through its buyout vehicles – namely the $15 billion TPG Partners V fund and the $18.8 billion TPG Partners VI – the firm’s appetite for real estate is undeniable. In the past year, TPG has closed a raft of high-profile deals, including the acquisition of 101 construction loans from the failed Chicago bank, Corus, as well as coming close on others, not least the auction for the Extended Stay hotel group.

For some industry veterans, therefore, TPG’s bid for ING REIM is “surprising, yet not surprising”. With its real estate credentials already in hand, David Bonderman’s private equity shop doesn’t need to take over a global property investment manager to kick start its foray into the asset class. But, if the firm has ambitions of following many of its rivals, acquiring ING REIM looks like a calculated bet.