When CBRE, the world’s largest property services firm, acquired ING Real Estate Investment Management (REIM), then the world’s largest real estate investment management business, in 2011, the transaction was scrutinized by all corners of the private real estate market.
The approximately $1.2 billion deal had, after all, transformed CBRE’s own real estate investment management firm, CBRE Global Investors (GI), into an industry goliath with $94 billion of assets under management. Five years on and the deal is still scrutinized, its success the subject of continuous debate.
The purchase of ING REIM was, in fact, an acquisition of four distinct businesses: European and Asian direct investment management businesses, a securities-orientated business called Clarion Real Estate Securities and ING Select Multi-Manager, a fund of funds operation. A consensus among executives is that the divided opinion about CBRE’s purchase of ING REIM revolves around the first three of these businesses.
Few, they say, question the combination of the GI and ING REIM multi-managers.
Before the deal, GI’s multi-manager business, then called CBRE Global Multi-Manager (GMM), was a $6 billion assets business with a track record primarily made from making limited size investments in primary and secondary fund units. Merging with ING Select doubled its size to $12 billion of assets, scale that meant GMM was able to adopt a more progressive strategy that incorporated large direct investment initiatives such as programmatic joint ventures and club deals with operating partners. It also provided the platform for fundraises rivalling that of its parent company.
Today, in keeping with its direct and operating partner focus, the platform is called CBRE Global Investment Partners (GIP). Its widened remit resembles that of a private equity firm nowadays and that flexibility has paid dividends for GI, its investment vehicles regularly outperforming peer groups and indexes.
Now commanding $13.6 billion of assets, approximately 15 percent of GI’s current total of $89 billion– and accounting for about 20 percent of its transactions last year – GIP has gone from a supplementary to a crucial contributor to CBRE’s real estate investment management revenue, which was $461 million in 2015.
Nonetheless, certain executives familiar with the business also say its surge in prominence has created certain challenges for GI, particularly in regards to brand identity and company resources. Earlier this year, GIP was made primarily responsible for GI’s value-add fund offerings in Europe and Asia. To deliver its direct-heavy strategy, GIP was also permitted to access the resources of GI’s extensive network of investment professionals in both regions as and when required to assist with local transactions, a move which led some onlookers to wonder if internal overlap issues might arise.
It is unusual for PERE to select what essentially is a platform (GIP) within a platform (GI) within a platform (CBRE) as the subject of the Blueprint profile. But interest in GIPs rapidly escalating profile, in conjunction with the market’s fascination with how this escalation is managed within GI, provoked us to visit GIP’s global chief executive officer, Jeremy Plummer, at its headquarters in London’s Square Mile last month.
Considered and precise
A considered and precise talker, Englishman Plummer takes his time to answer PERE’s questions. When, for instance, he is asked whether CBRE’s ING REIM takeover has been a success, he deliberately sidesteps the question – not to appear disparaging about other the GI platforms, but because he wants to focus on his own. “ING Real Estate Select was hugely successful. I’m not going to comment on the others,” he states.
Naturally, he is more animated discussing GIP, a business he has led since his own, European fund of funds manager, Oxford Property Consultants, was purchased by GI in 2006. In fact, his enthusiasm when describing the activities of the 72-strong business reflects a man delighted with how things have been going, particularly in the years since that pivotal corporate event in 2011, which he labels a “game changer”.
He is particularly content at the moment because GIP is just about to announce the closing of its largest closed-ended vehicle since its inception, an $840 million value-add, club-style fund through which it plans to execute a series of large, programmatic joint ventures and club transactions in Europe. Significantly, it has been capitalized by just six investors, four of which Plummer describes as ‘majors’ – specifically, large US institutions. The other two are European, one UK and one Swiss. The money is predominantly pension capital although there is an insurer in there too.
“Investors have backed us for this because we’ve already been doing this type of work across separate accounts where we have built up a track record.” For Plummer, attracting big tickets from a small number of large investors endorses how he wants the private real estate marketplace to view GIP’s capacity for transactions. He expects to make individual equity outlays of up to $100 million in transactions that require operational partnerships. In so doing, GIP’s investors are accessing scenarios that are normally the preserve of the largest capital sources.
The firm already has completed three investments for the fund, using combined equity of $231 million: a 4.7 million square foot French logistics portfolio; two high street retail properties in Madrid; and a 2 million square foot industrial development site within London’s M25 ring road. Another $123 million of transactions are “currently in exclusivity”.
“What was of interest to the majors was the concept of us being an extension of their in-house teams, giving them the capability to do the types of investments than their better resourced peers can do, but are frankly too resource-intensive for them,” Plummer explains. “To access these types of deals in the international market has been tricky for the North Americans in particular.”
“I think this is something that has been coming for a while given the interest from large investors to do things other than large, off-the-shelf, discretionary funds,” Plummer adds.
His conviction in this regard is supported by GIP’s own performance over the last three years. For instance, the firm’s largest vehicle, a core-plus, global fund which has attracted equity of $1.75 billion to date, has returned a respectable 11 percent from its primary fund deals. But it has generated impressive returns of more than 15 percent from its club deals and even higher returns for its programmatic joint ventures, the two styles of investing expected for the new European fund.
Welcome to the club
A similar direct strategy is expected in Asia where, PERE understands, GIP is readying the introduction of an Asia value-add fund with the hope of raising up to $750 million from investors. Plummer declines to comment on this vehicle as it would be a future fundraising and he is prohibited from discussing such matters.
Nevertheless, it was in Asia where GIP has had some of its biggest successes. It was invited by logistics giant, Global Logistic Properties and sovereign wealth fund, China Investment Corporation to jointly buy a $1 billion Japanese logistics portfolio from LaSalle Investment Management in 2012. “That was quite a compliment,” he recalls. But he adds how the deal was demonstrative of how GIP has become accepted as a big check-writer, in a league with the world’s largest investors.
“We need to be acceptable as a member of a club to the super-size guys. If our mantra to our own investors is we can give you access to anything a super-size investor can do, then we need to be acceptable, not only to the operator, but to super-size investors as well,” Plummer states.
Having been given such a seat at the table, things have gone well. GIP has generated an aggregate return of 29.2 percent from its co-investments so far, an average that includes an exceptional return from a co-investment in a Tokyo office-focused club, also formed in 2012. It was created with local partner, Tokyo-based Secured Capital (now PAG Real Estate), and fellow investors UK insurer Aviva’s management business, Aviva Investors, and Dutch pension manager, PGGM, to take advantage of an opportunity to buy offices in the Japanese capital at a low point in the market cycle.
For Plummer, that deal proved that evolving GIP’s strategy to make sizeable, direct co-investments also meant faster execution than it could manage via making primary fund commitments. He recalls: “That was a mind-set change. If you’ve got a big, market call, you need to execute on it quickly. A blind-pool fund which takes two-to-three years to deploy capital is not always the best way to execute on such a high-conviction, top-down call. Back in 2011, funds would have missed the Tokyo office call.”
The transaction also meant GIP possessed a greater degree of control on its outlay. “It’s why the biggest, most sophisticated investors moved away from funds. Like them, we wanted to make our top-down calls, control the entry price and exert more influence, preferably control over the exit too.” Plummer recalls.
Donal O’Neil, co-founder of Ardstone, a pan-European real estate manager headquartered in Dublin, which has been GIP’s operating partner for joint ventures in Ireland and the UK, says the speed afforded by such a programmatic model benefits the operating partner too. Recalling their first partnership, a multi-asset UK regional office venture formed in 2013, O’Neill says: “At that moment, there was a lot of nervousness from investors around small to medium sized managers. They were only backing the big, established managers. We needed to raise capital and didn’t want to spend six or nine months doing it. So we sold the concept to Ian (GIP’s global chief investment officer) and brought him on-board. Effectively, we created a fund for CBRE as the sole LP.”
“For a small manager like us, it reduces the time required for traditional equity raising processes, but also the LP management that comes with a traditional fund,” O’Neill adds. A second programmatic venture transpired between Ardstone and GIP later in 2013 for investment into Dublin office and retail.
Changing with the times
Real estate multi-management groups structuring deals in that way is normal nowadays, but Plummer has been widely accredited for trailblazing the approach. Alistair Grant, a partner at GIP’s long-serving law firm Jones Day, suggests its successes owe much to Plummer’s ability to spot new styles of opportunities for multi-manager capital and to execute on them. “We started working for GIP around 10 years ago when it was a relatively small business with a more traditional multi manager or fund of funds outlook. We have watched it grow significantly from this platform into much more of a dynamic, real estate business which secures bespoke opportunities, and delivers strong returns. It is a model that appears to resonate with their clients and counterparties.”
Plummer pins GIP’s strategic evolution to the opportunity he and his team could see as this market cycle has evolved. He accepts the changes that have taken place have caused the firm to struggle with its own classification, but is nonchalant about that. After all, GIP was not alone in having to shake off the fund of funds manager tag, a number of its peers had to as well. But he says: “I’d say we have called time on that now.”
For Plummer, the beginning of the end for real estate fund of funds management came immediately after the global financial crisis in 2008. “It was clear then, that the investment opportunity was not primary fund investments, but secondaries,” he says.
Stand out secondaries deals by GIP came in Asia where in 2014 it bought and sold a stake in the much maligned MGPA Asia Fund III opportunity fund, which possesses the Asia Square offices, two of the region’s highest profile towers in Singapore (now under asset manager BlackRock’s management). Due to confidentiality restrictions, Plummer cannot discuss this deal, but PERE understands the firm hit an opportunistic return from the trade.
He is happier to mention an investment made in a fund vehicle containing Tour Adria, the office tower in the La Défense central business district of Paris made in the same year. GIP purchased a 20 percent stake via a secondary trade in an OPCI structure managed by Primonial Real Estate Investment Management. “There, we bought out a Spanish investor at a discount to NAV. Effectively, it saw us buy super-prime in La Défense at a 7.3 percent income yield.”
“Our take was different to the pure secondaries specialists, which were buying tail-end opportunity funds at discounts. We were more interested in buying strategic assets via secondaries, thereby gaining better entry prices,” Plummer outlines. Asia Alpha Plus, GIP’s third Asia fund, which closed in 2014 on $236 million, and through which the MGPA deal was made, was an example of a GIP fund which was secondaries orientated.
Confusion outside
The change from a primary fund investor to a secondaries player was GIP’s first notable, strategic transition. But, while that shift came to embody the identity crisis experienced by real estate’s fund of funds fraternity, the adoption of direct strategies by GIP also stoked identity questions within the GI organization.
While its flagship global core-plus fund and separate accounts represent approximately 60 percent of the operation, the evolution of its value-add fund series in Asia and the creation of this latest value-add fund in Europe has led to GI’s executive committee decide to share its direct investing capabilities in both regions with GIP. That has prompted confusion outside of the company, given that GIP is independently run, regarding the potential internal competition for assets.
“Your observation is fair,” responds Plummer. But he believes the streamlining of GI’s value-added strategies in both regions should make things more clear, not less, in terms of how GI approaches what he calls ‘enhanced return’ investing.
In terms of Asia, he says: “The business had a GI offering and a GIP offering and the two looked quite competitive. We chose one offering in each space that the firm puts its whole weight behind. In Asia, Adrian’s (Baker, GIP’s head of Asia) fund series was successful and had investors wanting to back it again. It has migrated to a more direct model. So we decided to run with that for our Asia fund series.”
The situation was easier in Europe where GI had not raised a value-added fund since the financial crisis. Despite concerns expressed about potential overlap, Plummer insists “there was a strategic gap there” so GIP’s fund actually had no internal competition to contend with.
Meanwhile, in the US, GI has fund series called Strategic Partners, which carries a value-added strategy. Run by former GI chief executive officer, Vance Maddocks, it too has a successful track record, demonstrated by its lengthy run. Last year saw the closure of its seventh fund with $1.3 billion of equity commitments from 26 investors. As such, while GIP is active in the US, it confines its investing in the region to core-plus style outlays so as not to overlap with Strategic Partners.
GI’s internal lines have nonetheless met with skepticism outside of the organization. One rival fund manager commented: “There are so many overlaps at CBRE generally, when any one business becomes too dominant, things become complicated.”
Plummer rejects that notion. For him, the business is arguably more linear today than before. For instance, when GIP was a primary funds investor, it could have been argued that it was backing rival vehicles to the direct vehicles managed by GI. Such a charge could not be made today.
Holding ground
In light of GIP’s strategic evolution, PERE asked whether it would make sense to retire both the GIP and Strategic Partners brands, operating all private real estate strategies as GI instead. “That’s a fair question,” Plummer responds. “But that hasn’t been a focus. There isn’t a plan to rebrand. Instead we’ve just focused on product architecture across the various return spectrums.”
Plummer also makes the distinction between GIP and the direct side of the business in terms of its co-investment with operating partners. GIP always invests alongside an operating partner. The others generally do not require such a collaboration. “That is the headline distinction between the businesses.”
His confidence in the current set up is echoed by GI’s former chief executive officer Matt Khourie, who spoke with PERE prior to handing over the reins last month to chief investment officer Ritson Ferguson to take on the top job at another CBRE company, Trammel Crow. “They are still an investor with third-party operators and, given that, there is a need for confidentiality between the platforms,” he said, “We still want to keep investing through GIP.”
In response to suggestions of internal conflicts on account of GIP’s more direct investment strategy, Khourie is defiant. He says: “That is not accurate and I’m not sure where that has come from. We have a very cohesive senior group. Everything is totally endorsed and embraced by all our senior executives.”
GIP is a $13.6 billion assets, 72 professional operation residing in an $89 billion, 800 professionals investment management giant, which, in turn, resides in a 70,000 staff property services powerhouse. Organizational and strategic scrutiny comes with the territory. For Plummer, his team and his superiors, there are explanations to counter any confusion in any event.
Of greater concern, is maintaining the positive performance that has given rise to such high levels of interest in the first place. “Why is any business successful?” he asks, rhetorically. “Because it has good investment performance, right?”
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