Investors spoke and TH Real Estate listened. Executives at the subsidiary of TIAA Global Asset Management heard that investors wanted more specialized funds, and in response, the firm revamped its TIAA-CREF Core Property Fund into the US Cities Fund series. The open-ended core fund has a master vehicle and four underlying sector funds to invest in retail, multifamily, office and industrial real estate.
Concurrent with the fund launch, TIAA’s US real estate operations will be integrated into TH Real Estate, forming a global investment manager focused on third-party real estate investment management. TH Real Estate will remain part of TIAA’s global real assets unit.
The US Cities Funds, which can take capital monthly, will open to new investors at the end of the year. The revamped US vehicles join a global series of open-ended funds, including the European Cities Fund (ECF), which the firm launched in March 2016 with a €3 billion to €5 billion target.
The new set-up will increase the original core vehicle’s emphasis on local markets, Mike Sales, the firm’s head of real estate for Europe and Asia-Pacific, said. The reason why the firm’s European fund lacks its US counterpart’s individual property type sleeves is because the firm already had a number of sector-specific funds in Europe, he explained.
The firm leveraged its existing country-based structure for ECF, and TH Real Estate Americas will now follow a similar model, investing through eight regional US offices, including two new outposts to be added in 2017. Manuel Martin is leaving his position as Spain country head to lead a new Miami office, which will open in the first quarter, and Duane Hale is moving from Newport Beach to launch the Washington DC office in the second quarter.
“That’s a major departure from where we were before, which was a much more siloed approach,” Chris McGibbon, the firm’s Americas head, said.
Left to the experts
The four sector-specific funds will be run by experts in the business, which McGibbon said is the best way to generate alpha at the individual fund level and for the master vehicle. Randy Giraldo is the lead portfolio manager overall, while Giacomo Barbieri leads office, John Ragland manages retail, Michael Schwaab oversees multifamily and Brad Simpkins heads industrial.
These changes originated partly due to investors’ desire to gain exposure to specific property sectors without increasing the number of manager relationships, McGibbon said.
“Groups don’t want to deal with 30 different funds when they’re a team of three or five; they want to deal with half of that,” he said. “If we can do four or five things for a lot of these global investors that have full alternative mandates, I think that’s great.”
With increasing numbers of investors seeking property type-specific investments that still fit in the NCREIF Fund Index – Open End Diversified Core Equity (ODCE), TH Real Estate has engineered the funds’ structure to fit in the index and investors’ corresponding mandates. McGibbon said this change opens the firm up to new investors, citing an example of one which could not earmark funds for the firm’s first regional mall fund that closed in August because it was closed-end and had a value-add component. That investor, along with five others in similar situations, is now considering an investment in the retail sleeve of the US Cities Fund. Investor feedback to the changes has been largely positive, McGibbon said.
“Their big concern is ‘how quickly can you get scale and liquidity in the underlying funds?’” he said. “It’s taking what was a relatively small ODCE fund at $2 billion, and given where we are in the cycle, how quickly can we get scale? When you get scale and have people coming in and out, that’s when you’ll create liquidity.”
To that end, TIAA is helping with some scale, earmarking $300 million to the master fund from the firm’s general account, McGibbon said. With such house skin in the game, the expectation is other investors will follow suit.