TPG continued to accelerate the pace of deployment in the first quarter of 2024, particularly in the private equity and real estate areas, according to CEO John Winkelried.
“In 2023, our deployment pace has more than doubled in the second half of the year compared to the first half and continues to perform well through the first quarter of 2024,” Winkelried said during the company's first-quarter 2024 earnings call last week.
In the first three months of the year, the firm invested actively across its real estate platforms, which include TPG Real Estate, TPG AG Real Estate and its real estate credit strategy, TPG Real Estate Credit Opportunities.
“For our equity strategies, the prolonged high-interest-rate environment continues to create a wide range of investment opportunities that we are selectively pursuing,” he said.For example, TPG Real Estate completed the acquisition of a large office building in downtown Manhattan last month with plans to convert the asset into about 800 multifamily rental units.
“This is the result of our broader view of secular headwinds in the office market and the opportunity to pursue office-to-residential conversion given historically strong multifamily fundamentals in New York City.”
At TPG AG Real Estate, the firm's net lease business saw a strong increase in activity from corporate owner-occupiers, Winkelried said. “Given the costs and challenges of the traditional financing market, many companies are seeking alternatives to balance sheet financing. As a result, entry cap rates have reached 15-year highs.” The firm closed three sale-leaseback transactions during the quarter in “highly attractive” sectors that are “insulated from typical economic cycles.”
Additionally, the firm began investing from its first real estate credit fund in the first quarter and has already completed three investments with mid-teens return targets. The deals were focused in the multifamily sector and are “representative of the opportunities we're seeing as a result of higher borrowing costs and reduced bank willingness to lend,” Winkelried said.
The real estate division had a total of nearly $15 billion in uninvested capital at the end of the quarter, Winkelried said. Most notably, the company raised about $2.5 billion for TPG AG's two real estate funds, TPG AG Asia Realty Fund V and its first domestic Japan Realty Value Fund.
TPG AG Asia Realty Fund V is the first Asia real estate fund that TPG AG has closed since TPG acquired Angelo Gordon late last year. With $2 billion in commitments, Fund V is $700 million more than its predecessor, AG Asia Realty Fund IV. Fund IV, which had a target of $1 billion, closed in 2019 on $1.3 billion.
Meanwhile, the TPG AG Japan Realty Value Fund is TPG AG's first value-add real estate investment fund in Japan. With $420 million in capital from the Japanese institutional investor community, the fund will target value-add investments in industrial, office, residential and retail in the country.
“We are pleased to expand our value-add real estate investment activities across Asia with the backing of new and existing LPs through TPG AG Asia Realty Fund V, our largest Asia real estate fund to date,” Wilson Leung, head of TPG AG Asia Realty Fund V, said in a release about the fund's closing. “We also welcome the opportunity to deepen our partnerships with Japanese institutional investors through the TPG AG Japan Value Fund.”
The acquisition of Angelo Gordon not only gives TPG a strong real estate presence in Asia, it also doubles the size of the company's real estate platform.
According to the PERE report, there is relatively little overlap between TPG and TPG AG's platforms: Angelo Gordon's real estate strategies include value-add and net lease, for example, while TPG's traditional business lines target opportunistic and core-plus real estate.