InsightsKAP’s insights on private equity investor relations and fundraising
Weekly Re-KAP (Nov. 15th, 2017)
- Retail Landlords are Turning to Apartments to Shore up their Properties. Westfield is the latest in a string of mall developers and landlords whose firms have begun adding non-retail uses to existing retail properties. Construction has started on a 23-story upscale apartment tower at Westfield UTC, a one-million-sq.-ft. outdoor center in San Diego. Combined with a renovation that will be completed this fall, the rebirth of Westfield UTC suggests that relying less on brick-and-mortar stores may become a way of life for every shopping center.
- Real Estate Allocations on the Rise for HNW Investors. Institutions are not the only investors increasing their allocations to alternatives. High-net-worth (HNW) investors’ increased allocation to alternative investments, such as private equity, hedge funds, commodities and real estate, is driven by desires for improved portfolio diversification, a hedge against future inflation and increased current yield, with certain tax benefits in the case of real estate.
- Investors Maintain Confidence in Hospitality Market. Investors maintain confidence in the hospitality market as domestic and international travel continue to rise, driving occupancy and revenue. According to Marcus & Millichap’s midyear 2017 report, domestic and international passenger travel in the United States rose 3.8% during 2016. Potential headwinds do exist due to significant new inventory in certain markets: Houston and New York City have recently experienced the greatest growth in supply, with 4,200 and 5,400 rooms added, respectively, from July 2016 to June 2017.
Institutional Real Estate Inc. recently released its third quarter Fund Tracker Report. A total of 32 private-equity real estate funds recorded final closings during third quarter 2017, raising an aggregate total of $17.6 billion. This represents about $1.6 billion less than capital raised in third quarter 2016, and $8.9 billion less than 2015. Of those funds closed in the quarter, the majority are geographically focused on North America (55.2%), and are pursuing an investment style described as value-added/opportunistic (54.4%)
LIMITED PARTNER NEWS
- New York State Teachers (NYSTRS) has committed $200 million to Blackstone Real Estate Partners Asia II, which employs an opportunistic strategy and targets assets such as warehouses and shopping centers located in Southeast Asia, Australia, China and India. The $109 billion public pension fund is an active investor in real estate and currently allocates approximately 9.23% of its total assets to real estate, below its target allocation of 10%.
- Montana Board of Investments has approved three new real estate commitments. The $11 billion public pension fund has allocated $25 million to Oak Street Real Estate Capital Fund IV, their first commitment to this manager. They have also committed $25 million to JP Morgan Strategic Property Fund, a $31 billion fund which was deemed attractive for its ability to invest in large assets which have historically seen resilient returns. Lastly, they committed $20 million to Bell Apartment Fund VI which focuses on multifamily and, according to Montana Board documents, is heavily oversubscribed.
- Texas Permanent has made three new real estate commitments. The $32.7 billion sovereign wealth fund committed $75 million to Pennybacker IV, a value added real estate fund targeting multi-family, office, retail, and industrial assets in sustainable US growth markets. It also committed $75 million to Berkshire Multifamily Debt Fund II, a real estate debt vehicle. Its final commitment was for $87 million to Ares European Real Estate Fund V. Texas Permanent currently allocates approximately 7.4% of its total assets to real estate, below its target allocation of 10%.
- Teacher Retirement System of Texas (TRS) committed to two real estate funds. Stonepeak Infrastructure Partners has secured a $200m commitment for its third fund. TRS also backed Invesco Real Estate Pan Asia Credit I with a $150 million commitment. The pension allocates approximately 12% of its total assets to real estate, below its target allocation of 14%.
- State Universities Retirement System of Illinois has committed $20 million to Dune Real Estate Fund IV and $30 million to Oaktree Real Estate Debt Fund II. An additional $30 million has also been earmarked for Basis Investment Group Fund I. Basis Investment Group is a New York-based woman- and minority-owned private equity real estate firm. The seed investor for BIG Real Estate Fund I is understood to be alternative asset manager GCM Grosvenor. The $18.4 billion public pension fund currently allocates 9.6% to real estate, below its target of 10%.
- The Public School and Education Employee Retirement Systems of Missouri recently received a presentation from their real estate consultant, Townsend, with a comprehensive review of their Real Estate Program. It was reported that the PSRS/PEERS’ RE portfolio produced an annualized return of 11.8% (net of all fees) for the five-year period ended June 30, 2017. As of September 30, 2017, their private real estate portfolio has reached its target allocation of 7.5%.
- Los Angeles Fire and Police Pensions (LAFPP) revised the minimum qualifications for the Real Estate Core Separate Account Manager search, which include a minimum of 10 years real estate investing experience, core and non-core experience and have a minimum of $1 billion of real estate AUM (net of debt), among other criteria. As of September 30, 2017 the $21 billion public pension has commitments with 42 unique private real estate funds, valued at $808 million, or 3.7% of total assets.