Marriage, TIAA-CREF style

A year-and-a-half ago, TIAA-CREF’s transition from an institutional investor to a general partner already was well under way. Speaking at the PERE Forum: New York in November 2011, Thomas Garbutt, the financial services organization’s global head of real estate, said: “It would make sense to now characterize our business as a real estate investment manager.” At the time, TIAA-CREF was just fresh from forming a joint venture with APG to acquire a $1.5 billion US mall portfolio.

Since then, TIAA-CREF has gone on to execute other transactions as a real estate investment manager – including a $1.2 billion joint venture with the Norwegian Government Pension Fund Global earlier this year. But a blockbuster alliance with Henderson Global Investors, announced earlier this week, takes TIAA-CREF’s standing in the real estate investment management world to new heights.

TIAA-CREF already was one of the largest owners of US institutional real estate, with $41 billion of its $44 billion in property assets located in North America. Through its merger with Henderson Global Investors, the organization now becomes part of one of the largest real estate investment management businesses in the world.
The joint venture company, TIAA Henderson Global Real Estate, will comprise $19.8 billion of real estate assets, including TIAA-CREF’s European real estate business and Henderson’s European and Asian real estate businesses. The new entity and TIAA-CREF, which will acquire Henderson’s US property business in a separate transaction, jointly will represent a combined $63 billion in real estate AUM.

The marriage offers some clear advantages for TIAA-CREF in building a larger-scale real estate presence outside of the US. While TIAA-CREF has been investing in Europe since 2008, with offices in London and Luxembourg, the new joint venture will give the organization a more boots-on-the-ground presence in the region and immediate access into additional markets. Henderson, with more than five times the real estate AUM that TIAA-CREF does in Europe, has a much broader footprint outside of the US, including locations across Europe and a handful of offices in the Asia-Pacific region, such as Singapore, Beijing and Sydney.

Of course, it also is easier and more expedient for a group to expand by acquiring an existing platform than building one from the ground-up – a process that takes years, if not decades, to accomplish. Indeed, this echoes much of the logic behind BlackRock’s takeover of MGPA and Ares’ acquisition of AREA Property Partners. Global expansion aside, TIAA-CREF now also has a “captive manager in-house” – as one industry insider put it – that can help the organization to make global investments on behalf of its clients. TIAA-CREF’s third-party investment management business, therefore, has gotten a major boost through the union with Henderson.

What’s interesting about the TIAA-CREF/Henderson marriage is that both parties are looking to grow their property businesses in similar areas, namely the Asia-Pacific region and commercial real estate debt. In many ways, the union represents the alliance of the two firm’s real estate investment objectives. At the same time, however, the joint venture also signals the convergence of TIAA-CREF’s individual real estate ambitions.