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AMERICAS NEWS: Core comeback

For two years, Goldman Sachs has been unable to dispel industry rumours that its opportunistic real estate foray is no more. Indeed, despite raising a $2.6 billion mezzanine vehicle last year, rival managers have often declared (perhaps with an ounce of pleasure) that Goldman’s Real Estate Principal Investment Area (REPIA) and its Whitehall fund series are all but defunct.

It’s a claim the bank has strongly and repeatedly refuted. However, the New York-based firm is certainly not out of real estate altogether, as it has shown by launching a core real estate platform to be led by ING Clarion’s former second-in-command, Jeffrey Barclay.

Jeff Barclay

Although the core group will come under Goldman Sachs’ asset management group — rather than the merchant banking division, like REPIA — it is being viewed as the bank’s rebirth into real estate, according to some industry professionals.

Barclay’s group is expected to target US core and core-plus assets that are substantially leased, with a “significant percentage of their return” generated through cash flows, other sources said. The properties, which will have low to moderate risk profiles, also will be held for longer periods than opportunistic deals and employ less leverage.

Core has proven to be an increasingly attractive sector over the past year, as LPs slash the risk profile of their property investments. Last month, Urban Land Institute and PricewaterhouseCoopers revealed that almost 43 percent of the equity targeting the US was eyeing core and core-plus investments, compared to 25 percent for opportunistic deals and 21.8 percent for value-added strategies. With more than $700 billion in private equity, pension fund money and foreign investment capital looking at US real estate markets this year alone, the appetite for core is substantial.

Goldman’s move into the sector therefore is reflective of the flow of capital as LPs start looking to make investments again. But as Eric Lane, co-chief operating officer of Goldman Sachs’ investment management division, added in a statement announcing Barclays’ appointment: “[The firm also expects] attractive opportunities in core and core-plus real estate over the near to medium term.”

The core group also will provide some welcome relief from the poor performance of Goldman’s opportunistic investments. As of the end of July, the parent company provided $355 million in loans and guarantees to its private funds, primarily its real estate vehicles, according to the firm’s second quarter earnings report. Goldman added that it had another $151 million in outstanding commitments to extend credit to the same funds.

Barclay, who was set to start at Goldman as of press time, leaves ING Clarion after 17 years with the firm. As head of acquisitions, Barclay was responsible for overseeing all new investments the New York-based firm made for its clients. David Gilbert, managing director and portfolio manager at ING Clarion since 2007, has been promoted to replace Barclay.