TH Real Estate eyes tripling APAC AUM to $9bn in five years

London-based investment firm TH Real Estate, an affiliate of Nuveen, aims to increase its assets under management in Asia to around $9 billion in the next five years, nearly tripling its current exposure.

The investment manager of the New York-based Teachers Insurance and Annuity Association (TIAA) currently has around $3 billion AUM in the region, according to Chris Reilly, managing director of Asia-Pacific at TH Real Estate. With a global AUM of $115 billion as of 30 June 2018, that means less than 3 percent is allocated to the Asia-Pacific markets.

“We are growing all three strategies in APAC aggressively, and I would expect our AUM to double or treble in the next three to five years,” Reilly said.

Reilly defined three overall strategies for real estate investments in the region, namely “resilient” that more or less refers to core assets; “enhanced” that covers value-add and opportunistic; and real estate debt.

To help this growth along, THRE last week officially announced plans for the Asia Pacific Cities Fund, its debut open-end core vehicle in Asia. The open-ended fund has an overall target size of over $2 billion after the first five years. So far, the firm has raised circa $230 million, which includes commitments from two investors as well as $200 million in seed investment from TIAA.

With this vehicle, the firm is targeting to achieve long-term investment returns of 7-10 percent per year. To achieve that performance, Reilly expects the fund to be invested in assets requiring more operational asset management than refurbishment.

“When we look at a balanced, well-diversified portfolio longer-term, we would expect to see reasonable rental growth in the markets we are identifying. Therefore, the value growth will not necessarily be through yield shift, but through growth in income and how we manage that income,” he said.

The fund is seeded with an office asset, 183 Clarence Street in Sydney. The 85,000 square feet asset will be developed by the Sydney-based developer Built and was acquired for $180 million via forward funding.

The fund’s capital will initially invest in what the firm defines as 11 “principal cities”, composed of the region’s most liquid and transparent real estate markets as shown in the map below. Of these, Reilly mentioned the key markets right now are central Tokyo, Seoul, Sydney, Brisbane, and Melbourne.

“In the initial launch and ramp-up stage of this fund, we will turn our focus on these principal cities. Not all sectors are good value in each of those markets, but those are where we will turn in the first few years of the fund,” he said.

As the fund grows in size, the principal cities will be expanded with six “progressive cities”, as shown on the map below, that have less liquidity and transparency, but where the firm sees strong growth in the decade ahead.

In the long term, 50-60 percent of the fund is expected to be invested in office assets, around 20 percent in industrial, 15-20 percent in retail, and the remainder to housing. The loan to value is expected to be around 35 to 40 percent on average across the portfolio.

Steering the fund is Louise Kavanagh, managing director at TH Real Estate, who joined the firm in late 2017. Kavanagh was previously fund manager for the Asia open-ended core vehicle of the New York-based asset manager Invesco Real Estate.