At the heart of the South Korean National Pension Service’s latest bet on private real estate is an ambition to own assets capable of weathering change better than many of those adversely impacted by this year’s pandemic.
In an announcement on Thursday on the $672 billion investor’s global ‘build-to-core’ joint venture with private real estate development and management giant Hines, Hyo-Joon Ahn, NPS’s chief investment officer said: “We believe there are significant opportunities to invest in the highest quality, bulletproof assets that will provide long-term value to NPS stakeholders.” Korea’s preeminent institutional investor believes the Houston-based manager is ideally placed to deliver such opportunities.
“The current economic climate, shaped by global responses to the pandemic, has impacted all sectors of commercial real estate,” he added. “This venture has committed to a long-term strategy capitalizing on the transformation of living environments, consumer behavior and space-use patterns combined with the latest technology in real estate development.”
David Steinbach, Hines’ global chief investment officer, told PERE the firm has never before engaged with one of its investors on such a globally focused, discretionary and long-term oriented mandate. Under the joint venture, agreed at a ‘relationship meeting’ in Seoul, Hines will envisage and develop properties able to cater for fast-changing occupier needs across sectors. Mixed-use, residential, offices and logistics properties will feature, all in what Hines terms “high-barrier-to-entry markets.”
NPS has bought into Hines’ 1,000-ft vision that key aspects relating to individual property types are becoming apparent across real estate sectors. “Our view of the world is that all the product lines are converging,” said Steinbach. “This vehicle is pressing into something which is about the future of real estate.”
Among these converging characteristics is the view that real estate, across sectors, is becoming more of a service than an asset, underpinned by a greater influence from occupiers. “The rules of the game are changing,” he said. “There’s a new muscle of flexibility our customers have and are going to want to keep.
“Tenants want a complicated thing made simple. As such, having a vertically integrated operating platform is important.”
So far, the venture has been 20 percent committed to projects in North America and Asia-Pacific, specifically into two deals yet to be formally announced. A significant proportion of the capital committed by NPS is expected to be deployed in Europe.
Steinbach declined to comment on the targeted performance of the joint venture. But he confirmed it was in line with traditional development-based risk-return strategies. Typically, development strategies are expected to deliver opportunistic returns of 20 percent IRR and a 2x equity multiple. However, as this venture is long-dated, the emphasis would be on the equity multiple.
NPS is not the only large institutional investor looking to tap Hines’ philosophy on the asset class. Earlier this year, Ivanhoé Cambridge, the real estate business of Canada’s Caisse de dépôt et placement du Québec, appointed Hines to manage a 10 million square foot portfolio of offices, the sector arguably most immediately adversely impacted by the pandemic, with a view to modernizing the assets for optimal post-crisis use.
Hines is one of the managers to feature prominently among those nominated for awards in PERE’s 15th Global Awards. To see its nominations and to vote in the awards, click here