The early bird gets the worm. CIM Group put this proverb into action when it announced the sale of a 20 percent stake in the firm to Japanese conglomerate Mitsui in late February.
Mitsui’s total investment will be $450 million-$550 million and include commitments to several CIM funds. Proceeds from the sale to Mitsui “will be used entirely to fund CIM’s continued growth,” the real assets manager said, announcing the deal.
Indeed, the Los Angeles-based firm has multiple investment strategies where it is seeking to expand, including opportunistic, core and value-add real estate, debt and infrastructure.
But while Mitsui’s investment in CIM will fuel the firm’s growth, it is not the conglomerate’s checkbook but rather its client network that will have the greatest impact on CIM’s expansion.
In its own deal announcement, Mitsui said it intended to “strongly support marketing activities” of CIM’s funds to the Japanese market through Japan Alternative Investment, a subsidiary through which the company advises the country’s institutional investors. Moreover, the company said it aimed to raise several hundred billion yen of new capital for CIM funds from Japanese investors in the coming years.
Mitsui is therefore expected to provide CIM with access to not only a new source of capital, but a source that until recently had been largely absent from the US real estate market.
Since 2011, Japanese investors have been increasing their overseas real estate investment, and are likely to continue to do so as they seek higher yields amid a low-interest rate environment at home and lower investment risk through geographic diversification, according to a 2015 report from commercial real estate services firm CBRE.
Japanese investors represented the fastest-growing source of foreign capital into US real estate last year, deploying $2.3 billion in the sector, according to data provider Real Capital Analytics. This was an 88 percent year-on-year increase – the highest such rise in RCA’s top 20 ranking of cross-border flows between specific capital sources and capital destinations.
But this is the tip of the iceberg, as some of the largest Japanese institutional investors have yet to dive into the overseas real estate markets. For example, Japan’s Government Pension Investment Fund, the world’s largest pension fund, currently has approximately $1.3 trillion under management and plans to invest 5 percent of its portfolio in alternatives, but has yet to award a real estate mandate to an external manager.
With many Japanese institutional investors just starting to make forays into real estate, CIM is in a prime position to secure this capital ahead of many of its competitors.
As Avi Shemesh, CIM co-founder and principal noted in the sale announcement, the firm’s partnership with Mitsui would “position CIM to be the first choice for Japanese investors interested in real estate and infrastructure investments in North America.”
It’s true that CIM is already one of the private real estate industry’s most successful capital raisers, having amassed $3.96 billion in equity over the past five years and clocking in at number 20 in last year’s PERE 50 ranking. Its last fundraising was a triumph, closing on $2.4 billion for its latest opportunistic real estate fund, CIM Fund VIII, in January 2015.
But there is room for improvement. While Fund VIII was the firm’s largest property vehicle to date, it was only slightly larger than the previous opportunistic fund, CIM Fund III, which closed on $2.37 billion in October 2007. CIM also trails the five-year fundraising of the largest private equity real estate firms by a significant margin.
To elevate itself in the industry, CIM, which managed $19.2 billion in assets as of September 30, would benefit from broadening its investor base. Through its deal with Mitsui, the firm would likely receive a much warmer reception from Japanese institutional investors than other overseas managers, thanks in no small part to its alliance with a Japanese partner.
Indeed, if CIM is aiming to take a leap forward in the private equity real estate world, expanding its investor network through a key new relationship will be a critical step.