InsightsKAP’s insights on private equity investor relations and fundraising
Welcome back to the weekly Re-KAP where we round up market and LP news from the RE PE marketplace (Nov. 8, 2017)
- Investment Sales in the Office Sector Continue to Decline. According to a recent report from Real Capital Analytics, transaction volume in the sector totaled $28.7 billion during the quarter, marking an 18% YoY decline. Sales of office assets in central business districts (CBDs) declined by 49% during the period, while sales of suburban office buildings increased by 4%. The historical swinging pendulum between CBDs and suburban areas appears to be shifting back in favor of suburbia according to a recent article from IREI.
- The multifamily sector continues to run strong, according to Paul Fiorilla, Associate Director of Research with Yardi Matrix. He notes that demand should remain healthy for the next few years, as the 20- to 34-year-old prime renter cohort continues to increase in number, a growing number of baby boomers downsize and become renters, and the population shifts to urban centers with access to public transportation and jobs.
- The trend of asset consolidation continues among real estate investment firms. According to the 2017 Global Investment Managers Survey, as of December 31, 2016, the top 20 real estate investment firms now control more than half of the world’s real estate assets under management. (See chart at right.) The top 10 managers control more than one-third of total AUM, which grew 7% since last year to more than $3 trillion.
LIMITED PARTNER NEWS
- New York State Teacher’s Retirement System (NYSTRS) presented their Real Estate Program Review at last week’s Board Meeting. As of June 30, 2017, the total real estate investment portfolio was valued at $19,993 million, 67% of which is held in real estate equity and the remaining 33% in real estate debt. Broken down further, their equity portfolio was 55% commingled funds and 45% direct investments. An analysis of the diversification of their equity portfolio by property type (see chart below) reveals that NYSTRS may look to shift commitments away from retail in favor of residential, industrial and hotel, where they currently fall short of their strategic target allocations. The pension fund also renewed their agreement with Callan Associates to act as a real estate consultant, for one year, effective Feb. 1, 2018.
- Florida State Board Administration (FSBA) made two new real estate commitments. The $194.3 billion public pension fund committed $50 million to CapMan Nordic Real Estate Fund II and $75 million to Heitman Value Partners IV. Both commitments were made to existing managers. The pension maintains a 10% target allocation to real estate.
- California State Teacher’s Retirement System (CalSTRS) has chosen a new real estate consultant. The current contract, held by The Townsend Group, expires in February 2018. They will be replaced by RCLCO, who will begin a three-year term contract in March 2018 with a possible two-year extension. The other finalist for the role was Pension Consulting Alliance. RCLCO will work with the investment staff to monitor and comment on the real estate portfolio performance and policy matters. However, the consultant is specifically excluded from recommending any individual investment opportunity. Earlier this fall, it was announced that Aon would acquire the Townsend Group from Colony NorthStar. Colony NorthStar decided to divest the entity because of a perceived conflict between Townsend and the institutional investment management business it gained when in merged with Colony Capital (a real estate asset manager) in January 2017.
- Vermont Pension Investment Committee (VPIC) committed $100 million to Brookfield Strategic Real Estate Partners III, a global opportunistic real estate fund that targets direct property and equity positions in real estate companies. The $3.8 billion plan is an active investor in real estate as part of its alternative investment strategy. It has a 7% current allocation to the asset class, below its 8% target allocation.
- Chicago Metropolitan Water Reclamation District Retirement Fund made its first real estate commitments totaling $70 million. The $1.38 billion public pension committed $35 million each to RREEF America REIT II, an open-ended core real estate vehicle managed by Deutsche Asset Management and Trumbull Property Fund managed by UBS Realty Investors.