Principal Real Estate Investors, a Des Moines, Iowa-based fund manager, has relaunched its real estate operating company line of business around two years after liquidating its previous platform.
The firm has appointed John Kropke to lead REOC’s rebuild in the US and expand the platform to Europe. As managing director, Kropke – who was formerly partner and portfolio manager in the special situations team at the Townsend Group – will be responsible for the platform’s strategy of sourcing, structuring and management of operating company investment initiatives in start-up companies, as well as established operating companies.
Principal Real Estate Investors managed or sub-advised $78.9 billion in commercial real estate assets as of March 31, 2020.
The REOC platform, housed within Principal Real Estate Investors’ larger real estate operations, makes entity-level investments either by taking full ownership or a minority stake in real estate firms. For about two decades, Principal Real Estate Investors ran a separate account partnership with an undisclosed institutional investor that made several entity-level investments in the US totaling more than $9 billion in assets under management. That investment program wrapped up in August 2018 in what Todd Everett, the firm’s chief executive, described to PERE as a “coordinated conclusion of the platform.”
“It was a program designed with a set timeframe,” Everett sad. “Ultimately, the client was interested in keeping all the investments we made in companies. The team we had originally assembled to manage those investments also moved with the assets. Since then, we have been working to develop new REOC interest and secure experienced leadership.”
Over the next year, the firm will target growing the REOC team to five or six people, PERE understands.
With the timing of Kropke’s hire coinciding with the covid-19 outbreak, the firm expects to find various opportunities amid the ongoing disruption. This could take the form of providing capital infusion into existing real estate operators, deleveraging balance sheets and taking listed real estate companies private.
“There are three levels of investment we can make in the current environment in the coming year or two,” Everett said. “Those that are covid-resilient, like investments into operators doing industrial and multifamily; covid-assisted investments in data center operators; and covid disruption in sectors like retail and office.”
Of these, Everett says the multifamily and industrial sectors appear to be the most opportunistic from an acquisitions standpoint, since retail and offices still have “a fairly wide bid-ask spread.”
Everett declined to provide specific performance figures for the previous REOC investment. However, he said since a lot of the firm’s future investments will go into supporting the future growth of smaller platforms, there will be a meaningful development play. From such investments, he expects to generate typical double-digit level returns.