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TH Real Estate restructures US business – Exclusive

The firm’s changes, which will affect its US core fund in particular, stem from investor demand for property type-specific investments.

TH Real Estate is restructuring its US core fund and operations in response to investor demand for more specialized product types, PERE has learned.

The real estate giant, which manages $97 billion globally, is remaking its TIAA-CREF Core Property Fund into the US Cities Fund series. This will comprise a master overarching feeder fund as well as four sector funds that allow investors to allocate capital to retail, office, industrial and multifamily properties through the open-ended vehicles.

In tandem with the US fund structure shifts, parent company TIAA Global Asset Management has made some internal changes. TIAA’s US real estate operations are being integrated with TH Real Estate’s existing third-party global investment platform to become one unified entity under the TH Real Estate name. TH Real Estate will remain part of the global real assets unit within TIAA Global Asset Management.

“We have a history of this [sector expertise based] approach,” Chris McGibbon, TH Real Estate’s Americas head, told PERE. “This is an additional focus now because we heard from investors that they’re not looking for general investments.”

McGibbon said the overall restructuring stemmed from investors’ desire for direct investment opportunities, flexibility, and good performance, and was partially a response to the larger industry trend of fund sponsor concentration. He said TH Real Estate’s four feeder funds, along with the firm’s larger slate of products, are attractive to investors seeking to reduce fees and complexity by allocating capital to fewer managers.

“Nobody’s going to pick us for everything, but 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,” McGibbon said.

The firm will increase its emphasis on local markets, building up teams to add on-the-ground expertise. TH Real Estate has notified current investors, which have been largely supportive of the change, and intends to make the restructured fund go live by the end of the year, McGibbon said. TIAA also increased its contribution to the master fund from $100 million to $300 million.

The reshaping is modeled after the core fund’s European counterpart, European Cities Fund (ECF), which the firm launched in March 2016 with a €3 billion to €5 billion target, PERE previously reported.

Through ECF and the US Cities Funds, TH Real Estate seeks to deploy capital in specific growing urban markets that the firm has deemed “future-proof” in order to provide investors with diversified and defensive income returns, according to Mike Sales, the firm’s head of real estate for Europe and Asia-Pacific. Through a proprietary system, TH Real Estate analyzes cities to identify which areas are positioned for the best and most consistent returns.

The firm also plans to build out two new offices to better focus on local investments, with a Miami location slated to open in the first quarter of 2017 and a Washington, DC office to follow in the second quarter.

Heads for each office are relocating to lead the local teams. 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. TH Real Estate will also hire about 20 employees by the end of the year for the local offices.