GPIF undeterred by low profits
Japan's Government Pension Investment Fund (GPIF) has not shied away from increasing its allocation to private real estate as part of a larger plan to diversify its overall portfolio. According to GPIF's annual report for the fiscal year ending March 31, real estate was the only alternative asset class to see its allocation fall to 9.82% in 2023 from 11.12% in 2022. Still, the world's largest pension fund has made at least two new direct real estate fund investments in fiscal 2023, including a build-to-core fund in Japan with Tokyo Land Capital Management and an investment in Brookfield Strategic Real Estate Partners V, Brookfield's global opportunistic fund. These investments, combined with the U.S. dollar's strengthening against the yen, helped GPIF's real estate assets under management rise 27% this year to 1.165 trillion yen from 919 billion yen ($6.5 billion, 5.9 billion euros).
Not all individual investors are the same
Starwood Capital Group has long tapped wealthy capital for a series of opportunistic real estate funds dating back to Starwood Opportunity Fund I in 1992. The Miami-based manager’s latest in the series, Starwood Distressed Opportunity Fund XIII, is no exception, raising $785.95 million from retail investors through JPMorgan’s private banking division, according to an SEC filing issued last week. But retail investors in Starwood’s closed-end opportunistic fund series are understood to have little overlap with those backing the company’s core open-end private REIT, Starwood Real Estate Income Trust, given the differences in the two funds’ strategies. This, in turn, means that the SREIT’s woes (Starwood began limiting its share buybacks to 1% of its net asset value per quarter this month) will have limited impact on Fund XIII’s fundraising. Indeed, the fund has already raised nearly $4 billion since its launch late last year, out of a $10 billion target. For more details on Starwood's latest financing, read the full story here.
A call from Europe
The opportunity to invest in Europe's turbulent real estate market, where asset prices are correcting at a faster pace than in the U.S., has attracted the interest of many large private real estate managers. But this is all happening amid a 12-year low in global fundraising, with only five funds focused solely on Europe reaching final close so far this year, according to PERE data. The largest of those, and the only one managed by a non-European manager, is HIG Europe Realty Partners III, managed by Miami-based HIG Capital. The firm, ranked 63rd on the 2024 PERE 100, last week announced the final close of its third European Value Add fund, raising $1.3 billion for both the fund and separately managed accounts that will co-invest. The close exceeded its $1 billion target size, making it the firm's largest fundraise to date, according to PERE data. HIG Capital has made 10 investments in the fund so far, investing in mid-market real estate across Europe.
Featured Topics
PGIM goes to Australia
PGIM Real Estate has expanded its $108 billion global credit business into Australia. The New Jersey-based firm last week announced its first real estate debt strategy targeting A$750 million (US$509 million, €467 million) in the country. The fund, its first debt strategy in the country and across Asia-Pacific, raised A$300 million in its first offering, according to a statement. Steve Bullock, head of Asia-Pacific debt and Australia at PGIM Real Estate, expects valuation pressures and the upcoming wave of loan maturities to create a “significant gap” for alternative lenders. Other groups backing Australian real estate debt strategies include Australian superannuation fund REST, which invested more in Australia's Metrics real estate debt fund last week, and ADIA, which committed an additional A$300 million to Australian lender Qualitas.
Second chance
With deal flow sluggish and access to financing through traditional channels limited, the emphasis is on opportunities for asset managers to provide liquidity to existing real estate owners looking to “survive to 25”. While GP-led secondary deal volume may have declined in 2023, Brookfield is one of the asset managers finding numerous investment opportunities through recapitalizations, and this month it executed a second transaction through its Global Real Estate Solutions strategy. Last week, the leading asset manager recapitalized a rental apartment development in Cologne, Germany, owned by Swiss asset manager Empira Group. The financing will see the project move into its second phase of construction, which is expected to be completed by the end of 2027. In return, Brookfield acquired a minority stake with rights and governance. Earlier this month, the company acquired a majority stake in a portfolio of logistics assets in Germany and Austria owned by asset manager GARBE Industrial Real Estate, an approach PERE understands is more common in this strategy. For more information, see our coverage.
Data Snapshots
The allure of Asia Pacific data centres
According to a report released last week by Singapore-based data center management company CapitaLand Investment, based on analysis by the World Bank, the United Nations, CBRE and CLI PERA Research, the Asia-Pacific region has the most favorable supply and demand indicators for data center investment in terms of internet penetration, online population and population per megawatt. In contrast, North America has the least favorable supply and demand trends, the report showed.
people
DWS UK CEO departs for Downing
Jessica Hardman, former head of European portfolio management and UK at DWS, is joining London-based investment management firm Downing to launch a new real estate investment management business, the company said in a statement last week. The new company, Avoriah Capital, will be based in London. Hardman will initially focus on delivering Downing's £1.6 billion ($2 billion, €1.9 billion) pipeline, which includes 10 projects due to commence in 2025 and 2026, including Square Gardens, a £400 million co-living development in Manchester that will provide more than 2,500 beds when completed. Commenting on Hardman's hiring and Avoriah's launch, executive director Bay Downing said he and the company wanted to take advantage of the current market turmoil, saying: “We feel now is the right time to bring together two very complementary skill sets – real estate and global investment management – to launch Avoriah Capital.”
Featured Deals
Hines goes lavish in New Jersey
New Jersey often gets a laughing stock, but the Garden State's multifamily sector has caught the eye of one investment manager. Hines has bought two luxury high-rises in Jersey City for $221.5 million in an all-cash deal. The stake is coming out of Hines US Property Partners, an open-ended core/core-plus fund the Houston-based firm launched in 2021. The adjacent properties, Lenox and Quinn, have a combined 408 units and a rooftop deck with a pool. “We like assets that are very amenity-rich,” Alfonso Munk, chief investment officer at Hines Americas, told PERE. The manager is not relying on acquisition financing to buy HUPP, making it easier to close the deal. But Hines could then put asset-level or fund-level debt into the properties, Munk said. To find deals for the strategy, Hines plans to target certain types of sellers, including those squeezed by floating-rate loans, as well as funds and unlisted real estate investment trusts (REITs) facing a liquidity crisis.
Investor Watch
STRS Ohio plans new initiatives for 2025
Managers with experience investing in data centers, medical offices and industrial properties should consider contacting STRS Ohio. According to its FY2025 investment plan, the investor plans to make up to five commitments to funds focused on these properties. The pension fund, which has $94.5 billion in assets under management, said in the document that it is “targeting managers with strong sourcing networks to weather real estate cycles and identify assets that are mispriced in traditionally liquid markets.” STRS Ohio's direct investments in the apartment, retail, office and industrial sectors make up the largest portion of the pension fund's real estate portfolio at 67%, with real estate funds and public REITs making up the rest. For FY25, which began July 1, the pension fund aims to focus on new direct investments in apartment, retail and industrial assets and reduce its exposure to offices.
This week's investor meeting
Tuesday, July 16
Wednesday, July 17
Thursday, July 18
Friday, July 19
Today's letter was written by Miriam Hall, Evelyn Lee, Charlotte DeSouza, Christy Wu, Gerda Voyen and Harrison Connelly.