Investcorp, the Bahrainian alternative investment group, struck a $300 million deal last month underlining global demand is growing for high-quality alternative US assets and for relevant US operating partners at the same time.
The investment manager with a total of $11 billion of assets under management of which $1.5 billion is in real estate, agreed to buy a portfolio of residential properties in Washington D.C., Orlando in Florida, San Diego, and Baltimore with its usual model. It maintains a controlling interest in the investments made alongside national or regional real estate companies, in this latest case being with four undisclosed operating partners.
The deals give Investcorp exposure to properties totaling more than 2.1 million square feet comprising 1,900 multifamily and student housing units, such as Orion, a 624-student property located close to University of Central Florida. All are described as being “high-quality assets” at what the firm believes are “attractive yields that demonstrate upside potential,” according to Brian Kelley, principal in the firm’s real estate group, which is no stranger to US property having invested here since 1996 in deals totaling $11 billion. In the last twelve months it has put $850 million to work.
Perhaps more significantly still, it was one of three examples during the past few weeks where capital sources have invested alongside operating partners of varying expertise and guises. Just two weeks ago – in fact, in the same week as Investcorp announced its deal – USAA Real Estate Company revealed the formation of a joint venture in the health care sector with localized operating partner, Brackett Flagship Properties, to acquire, develop, manage and lease properties like medical offices and critical health outpatient facilities throughout the south east part of the US. In this case, the initial assets inserted into the joint venture comprised 315,000 square feet of property including Costwold Medical Plaza II in North Carolina. USAA said the strategic partnership focused on a sector with “significant growth potential” based in part on demographic analysis. The interest in healthcare is fuelled by the aging baby boomer population – the most significant demographic transition in US history. Len O’Donnell, USAA’s president and chief executive officer, added the model could be replicated in other regions throughout the US, implying more operating partnerships in the future.
These deals come as experts in operating partnerships suggested a shift towards more activity in alternatives. Deborah Harmon, co-founder and chief executive officer at Washington D.C.-based Artemis Real Estate Partners, which has a total of 44 operating partners, said that while its first fund, Artemis Fund I, was overweight in multifamily property, in the follow-up the firm had been more active in self-storage, healthcare and student housing markets. Harmon further observed that given declining yields for core property, operating partners were particularly interested in core-plus capital.
The third deal to occur in recent weeks was closer to a core property deal. Norges Bank Investment Management (NBIM) has acquired a 45 percent interest in 11 Times Square for $401.9 million. In this instance, the owner is Prudential Real Estate Investors and the operating partner is SJP Properties, which stays in as asset manager.