Some of the biggest developments coming out of the Asia-Pacific region over the past year have involved the formation of long-term partnerships. Unlike in the past, however, these new ventures typically don’t involve the blind-pool funds of fund managers and instead have become a source of new business for advisory firms.
In February, for example, TIAA-CREF formed an alliance with Australian developer and investor Mirvac Group, giving the New York-based investor exclusive first rights to acquire a 50 percent stake in all of the developer’s co-investment opportunities in prime Australian office assets over the next three years. The first transaction under the agreement involves 699 Bourke Street, an office development in Melbourne’s central business district that commenced in April.
Meanwhile, in March, the Canada Pension Plan Investment Board cemented a $250 million residential venture in China with the country’s largest residential developer, China Vanke. And just last month, APG Asset Management hopped on the bandwagon through a $300 million tie-up with Indian investment manager, Xander Group.
While these particular investors have been making direct investments for some time, advisors’ involvement in these joint ventures could give rise to concern. Although advisors always have been involved in property transactions on this side of the world, in recent years, they have begun to offer some services that used to be the purview of fund managers. In addition, as investors develop more focused, niche strategies in property, fund managers seem to fit that bill less and less.
“Many of the large [investors] are reluctant to go for the big blind funds because they want to direct money into the strategies of their choice,” says Goodwin Gaw, managing principal and co-founder of Gaw Capital Partners. Sometimes, that comes in the form of co-investment opportunities, he notes, but other times advisors may step into the fund manager’s shoes if investors want to cut out the middle man.
Carving out a niche
All this is not to say that private equity real estate fundraising in Asia has hit a wall. In fact, the region just came off its most successful fundraising year since the global financial crisis, hauling a total of $14.9 billion. The successes of several megafunds were particularly noticeable, including Gaw’s $1 billion Gateway Real Estate IV and Secured Capital’s
$1.5 billion Secured Capital Real Estate Partners V opportunistic fund, which closed with 50 percent more equity than originally was targeted. In addition, The Blackstone Group’s first Asia-focused fund is expected to close this year, having raised $3.5 billion so far towards its $4 billion goal.
“There is still a space for fund offerings that are sector- or location-specific, and there still are many investors that have restrictions that only allow them to invest in funds,” says Jonathan Hannam, group executive of capital at Mirvac.
Advisors and fund managers have distinct roles, and it is crucial to not confuse the two, one North American investor tells PERE. Even on a fund investment, an investor will call in lawyers and tax advisors, just as it will need advisors on forming a joint venture. “We’re just as likely to use advisors in a fund investment or a direct investment,” he says. “The key difference is the focus of the advisors.”
These distinct roles, however, are precisely what have allowed advisors in Asia to take advantage of investors’ changing appetites. Stuart Crow, head of Asia-Pacific capital markets at global advisory firm Jones Lang LaSalle (JLL), notes that his firm has been expanding its range of services to investors looking to partner with local operators. “We’re not just selling buildings; we’re introducing partners,” he says. “Our finance business is all about structuring separate accounts, essentially introducing JV partners.”
Hannam adds that larger investors have been looking for greater control over a smaller number of investments, and that has put the onus on local operating partners such as Mirvac to make their deals “investor friendly,” a process that often requires guidance from global advisors.
For Mirvac’s alliance with TIAA-CREF, for instance, the developer brought in Macquarie Capital to benchmark the offering, leveraging the firm’s global relationships. “With the creation of new vehicles and clubs, companies such as Macquarie can have a role to play when groups have a limited level of global institutional experience,” Hannam points out.
An uneasy truce
Whether the rise of advisors in Asia is coming at the expense of fund managers is open to debate. Keith Chan, Macquarie’s managing director and head of greater China real estate, recalls one investor questioning whether the fund manager partner was needed in setting up a residential JV with a local operator.
Still, Crow emphasizes that sometimes a fund manager is the local operating partner. “There are many cases where you could argue that a LaSalle Investment Management or CBRE Global Investors or Gaw Capital plays [the role of] that local operating partner,” he says.
Rather than relegating such roles to their blind-pool funds, Asian fund managers must offer more separate accounts and co-investments. “Fund managers want more discretion, but for now they need to be more asset specific, more nimble,” agrees Nick Crockett, executive director at CBRE’s capital advisory unit.
The most significant change that Crockett has observed over the past few years does not involve large investors, rather the smaller pensions and insurance companies starting to look at options for direct property investment. Although their limited platforms traditionally would direct them to the fund route, these smaller investors have been coming to CBRE more and more for market research and introductions, hoping for more control.
“Even if they can’t go straight into picking assets because of time and resource constraints, they would like to get a partner on the ground to close and manage the investments,” Crockett says. Sometimes such platforms work and sometimes they do not, but either way the interest is driving business for advisors.
“Investors are speaking to us mostly because they want advice, then they may go direct or indirect,” Crockett admits. “The difference is all investors are asking how.”
The possibility of fund managers benefiting from advisors’ relationships with investors seems to have prevented the competition from escalating into an all-out war. Crockett suggests that fund managers probably would feel more threatened if advisors began managing funds and accounts for fees. Although Asia is the kind of market in which that could happen, so far he has not heard of many advisors going that route, and he declares that CBRE itself never wants to take that step.
Isolated by victory
In a market as fast-changing as Asia, however, advisors may find themselves shouldered out by the very trends they rode to prominence. As investors’ desire for control gets them more educated on Asia’s property markets, the need for advisors could become less pronounced.
Mirvac’s Hannam cannot deny that advisors have carved out a space with their networks and global relationships, but he also suggests that JVs can be formed without their help. “We have a clear strategy that will look to bring in long-term partners across the office and residential sectors, and we are looking to build these relationships directly,” he concludes.
The North American investor concurs that advisors actually have become a smaller part of its business, as more and more deals find investors thanks to their brands. “An advisor is mostly for getting you into a deal,” he says. “Advisors usually say, ‘We got you in but you’re a big boy, so you take it from here’.”
Even as changes are settling in the investor community, Crow speculates that the disintermediation of fund managers may be nothing more than “a moment in time, a fad.”
This is why, according to Crockett, the work of advisors has to be a long-term play of “getting closer to the capital,” or becoming more involved on the buyside. Even for sophisticated investors that have been making direct investments for some time, like APG or the Abu Dhabi Investment Authority, advisors still can help them break into new markets.
“It could be as simple as matchmaking, getting the parties to meet in the middle,” Crockett says. “We talk about strategy with investors, which lets us raise capital.”
Of course, the advisor’s involvement in a deal doesn’t always end at signing. Crockett recalls one deal where an investor wanted him to look at particular deals within a fund offered for co-investment in order to get an independent view on the properties.
“For us, it’s a long-term game,” Crockett says. “We always will try to stay involved, formally or informally, with the investors.
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