Manulife plans debut Asia fund investments – Exclusive

In a departure from its existing strategy, the real estate arm of the Canadian life insurer is looking to deploy capital via pan-Asia core funds.

After years of majorly focusing on making direct investments in real estate assets, Manulife Real Estate, the global real estate arm of the Canadian life insurance company, is making a push into indirect fund investing in Asia.

The firm is looking at potential investment opportunities in pan-Asia core real estate funds, Hidetoshi Ono, managing director for Japan real estate at Manulife told PERE.

“We are starting to look at pan Asia funds, which is very unusual from the North American point of view, but Asia is so diverse and geographically spread out that we want to start with funds to get invested sooner or later,” he said.

The move falls in line with Manulife’s revised investment approach for Asia-Pacific. Since last year, the firm has moved towards investing from a regional capital pool to build a diversified Asia portfolio, instead of a country by country allocation, PERE understands.

As part of this plan, the insurer has set an ambitious goal of doubling its exposure in the region and investing around $2.5 billion over the next couple of years. Target investment markets include Sydney, Melbourne, Hong Kong, Shanghai, Tokyo, Osaka and Singapore, among others.

So far, Manulife has focused on acquiring standalone core buildings. In Japan, for instance, the firm has investments in nine office assets, each of them non-levered and acquired directly. In the last year, it has also made debut deals in Australia and Singapore: in January, it acquired 800 Collins Street, a 14-story, 317,335 square foot Melbourne office tower, and in April 2017, purchased 8 Cross Street, a 28-story Class A office tower in Singapore. The Singapore deal, valued at $526 million, was Manulife’s second largest global real estate transaction as of April last year.

The move to have a regional investing remit stems partly in response to the mounting challenges of finding quality core assets in markets like Tokyo, where there is growing competition from local and foreign bidders. Ono, who joined Manulife in early 2015, revealed at PERE’s Japan roundtable last month that he has not closed any real estate acquisitions in Japan since he joined. Meanwhile, the firm sold three assets in Japan alone in the past year.

“As a long-term investor looking for a long-term return, the current total return is not enough to meet the long term target,” he said. “So, there is a trade-off – either buy now or wait for a few years to get better pricing. But then, one ends up losing that yield during the waiting period.”

He acknowledged the pressure to invest, but at the same time he noted that since Manulife’s investment horizon is regional, a 3 percent cap rate in Tokyo may not be as attractive as a 5 percent cap rate in Sydney.

At the end of September, Manulife’s real estate portfolio totaled more than 62 million square feet and around $17.1 billion in market value. PERE understands that around 80 percent of the real estate portfolio is in North America.