Harrison Street sells majority stake to Colliers; CalPERS CIO steps down; LACERA reduces managers’ discretion in separate accounts
Investors jump back into global funds. Global/multi-regional private equity real estate funds have bounced back from their low point in 2017, according to recent insights from IREI’s FundTracker. Global funds have always accounted for a large percentage of the capital raised each year, but that percentage has varied widely since 2014. In 2015 global funds accounted for 40% of total capital raised, a figure that contracted to 18% in 2017. Year to date figures for 2018 are showing a reversal of this downward trend with 41% of capital being raised for global/multi-regional funds so far.
SFR investors are filling the pipeline with new development. Developers built more than 36,000 houses for rent in 2017, representing 6% more than 2016 and the largest number of “build-to-rent” houses completed in any year for at least the last 14 years. Developers have been specifically drawn to the Southeast U.S. where there is strong demand for rental houses and available land.
“The build-to-rent market has started to expand significantly over the past year… A lot of entities, including traditional homebuilders and investors, are starting to become active in this space.” – Gary Beasley, CEO and co-founder of Roofstock
Startups poised to disrupt the construction industry. New companies focused on developing technologies to make construction projects go more smoothly while increasing productivity and efficiencies are aiming to disrupt the multi-trillion-dollar construction industry. Data from Crunchbase supports growing interest in the space: 2017 saw $581.6M invested into 87 known North American transactions, representing a 318% increase over the $182.7M deal value (across 44 transactions) in 2013.
CAPITAL RAISING UPDATES
Berkshire Group holds $1.25B final close on multifamily debt fund. Berkshire Multifamily Debt Fund II will primarily consist of Freddie Mac’s Multifamily Capital Markets Execution debt investments. The fund will invest opportunistically in other debt assets secured by multifamily properties such as mezzanine debt, B-notes and discounted notes. The fund launched in early 2017 with a $1.25B target and hard cap, reaching a final close within one year.
“The Berkshire Multifamily Debt Fund is a continuation of our efforts to create products that meet our clients’ needs by expanding and customizing our scope in rental residential real estate investment offerings.” – Chuck Leitner, CEO of Berkshire Group
GLP establishes $1.6B logistics fund. The Singapore-based logistics real estate firm, which manages approximately $50B of logistics real estate assets, has launched its first private equity fund. Hidden Hill Modern Logistics Private Equity Fund is the only fund in China dedicated to investing in the logistics ecosystem, targeting companies that are “employing technology to enhance efficiency in the logistics industry.” The fund has already garnered $1.6B from long-term institutional investors and insurance companies, including China Post Capital. The fund looks similar to other private equity vehicles with a seven-year life span and two one-year extensions.
HNA is said to be planning $1.5B fund. HNA Group is understood to be launching a private equity fund to invest in overseas real estate, travel and aviation assets. The Overseas Aviation and Tourism Industry Fund will buy minority stakes in group-controlled companies such as online travel agent Tuniu Corp. HNA ’s decision to become a manager of third-party money at a time when the debt-laden company is under heavy regulatory scrutiny has piqued the real estate industry’s attention and raises questions about the motive, strategy, sources of capital and alignment of interests.
CalPERS investment chief will leave in 2018. CalPERS CIO Ted Eliopoulos is stepping down and moving to New York City at the end of this year. He will remain CIO until his replacement is found and will assist with the transition. Joining the public pension in 2007, Eliopoulos previously served as CalPERS’ senior investment officer for real estate and real assets before he was appointed interim CIO in June 2014. As CIO, he managed a team of nearly 400 staff and oversaw CalPERS’ $356 billion portfolio. During his tenure, he implemented the Vision 2020 Strategic Plan to reduce the portfolio’s complexity, cut fees and better manage risk. He focused on reducing external managers, cutting the number of real estate managers from 90 in 2007 to 15 today. In total, CalPERS decreased its external managers from 400 to 140.
BlackRock pushes real assets research with triple hire. At the start of the year BlackRock surveyed 224 of its institutional investor clients and found that 60% planned to increase their allocations to real assets, which includes real estate and infrastructure. In response, the asset manager has appointed a head of European real assets research (Simon Durkin in London), a head of Asian real assets research (Bruce Wan in Hong Kong) and a European director (Cynthia Parpa, reporting to Durkin) as it continues to expand in real estate and infrastructure. Previously, Durkin was head of research at BNP Paribas Real Estate and head of European real estate research at Deutsche Asset Management, Parpa was the director of research and analysis at Grosvenor Group, and Wan was the head of property research for RF Capital in Sydney.
Harrison Street Real Estate Capital sells 75% stake to Colliers International. The firm is selling a partial company stake to property services company Colliers, which is expanding into the investment management space. Colliers International Group is acquiring the 75% interest in Harrison Street for $450 million. As part of the deal, Harrison Street is expanding its equity participation for some of its employees, though founder Chris Merrill has no plans to leave, and senior management will remain in place. The deal marks Colliers’ entrance into the investment management business.
“The investment in Harrison Street is transformational and the most significant in our history. The transaction establishes us as one of the major players in global real estate investment management, providing an important new growth platform that also facilitates the integration of our existing operations in Europe.” – Jay Hennick, CEO, Colliers
DivcoWest and CalSTRS form $300M joint venture. The JV will focus on acquiring core and core-plus commercial real estate assets in growth-oriented markets throughout the U.S. and will be concentrated on opportunities in markets characterized by strong local economies and highly qualified workforces. Cities in five states plus the District of Columbia have been identified as target markets. DivcoWest and CalSTRS have a 15-year history of investing together, during which time DivcoWest has put more than $1.5B committed by CalSTRS into various investment vehicles.
LIMITED PARTNER NEWS
California State Teachers Retirement System (CalSTRS) staff will explore rolling out a collaborative model. CalSTRS officials renewed support this week for exploring investment plans to lower fees and grant it more direct control than in traditional funds. The approach, which they are calling a “collaborative” model, would be designed to give CalSTRS more say over investments, including co-investment platforms, customized pools and seeding managers. The fund has held discussions with other institutions about the model and will refine plans on how the approach will vary between asset classes. Such initiatives aren’t new, as other public pension plans continue to explore strategies to gain more visibility over illiquid investments.
Los Angeles County Employees Retirement Association (LACERA) has recently reviewed the structure of their real estate program. Immediate modifications to the strategy include the development of manager specific performance hurdles and ceasing to allow separate account managers to make value-added investments on a discretionary basis. In the medium term, LACERA plans to increase exposure to industrial investments and reduce exposure to apartments, both moves intended to better match their benchmark. The public pension will also seek to evaluate domestic value-added and open-end commingled core funds for possible commitments.
Texas County & District Retirement System committed $75M to KSL. KSL Capital Partners V will invest in hotels, resorts, clubs, fitness properties and resort real estate globally. The fund also received commitments from the Oregon Public Employees Retirement Fund ($200M) and the Washington State Investment Board ($300M). Texas County committed $40M to the fund’s predecessor in December 2014, which held a final close of $2.68 billion in equity commitments in 2015. Texas County currently allocates 4.3% of assets to real estate, below its 9% target.