Betting on changing occupier demands for office space, London-based investment manager TH Real Estate has invested £1.1 billion ($1.4 billion; €1.2 billion) in total capital into different joint venture partnerships with operators like Edge Technologies, a subsidiary of Amsterdam-based OVG Real Estate and the New York-based co-working startup WeWork, heard delegates at the PERE Europe summit held in London this week.
One of the firm’s highlight deals this year was the purchase of Devonshire Square, a sprawling 650,000 square foot campus in the City of London, in partnership with the Danish pension fund PFA and WeWork. As part of the joint venture, the result of a syndication exercise by WeWork which completed in April, TH Real Estate committed 45 percent of the equity from its open-ended core vehicle European Cities Fund, PFA invested 45 percent, while WeWork retained the remaining 10 percent.
However, the next deal that TH Real Estate signs with WeWork may not even require an equity investment from the shared-working provider, a sign of the growing adoption of disruptors like WeWork by real estate institutional investors.
In response to an audience question about WeWork’s equity participation in the Devonshire Square deal, Nick Deacon, head of European offices for TH Real Estate, said: “There is alignment through this structure and deal. Not only as equity participants, but in the way we share in underlying economics of the estate. It could have been a large stake or it could have been a smaller stake. We are convinced that this was something exciting that could drive returns.”
“The next deal we may well not ask WeWork to put in any money,” he then went on to add.
Deacon, who was presenting a case study on the Devonshire Square purchase along with Matthew Brown, director at WeWork, acknowledged that while the deal was a “deep dive” for the firm, it was an educated risk given WeWork’s phenomenal growth in recent years.
“We had to take a deep dive,” said Deacon in response to a question on how an institutional landlord like TH Real Estate got comfortable with WeWork’s financials. “We focused more on understanding the real estate and benefit WeWork can offer from an operational perspective in generating additional returns through this revenue sharing. We did a lot of analysis. Leap of faith is a wrong response. But these guys are the largest occupiers in London and they are going places. Fundamentally, we want to be part of that.”
“There is a lot of press and speculation about WeWork,” added WeWork’s Brown. “But we have a strong business model and strong accounts. You do not acquire 15 million square feet of space globally and huge volumes a month without getting people’s confidence. Anyone out there who has concerns over our accounts, bring us a deal and come speak to us.”