They said it

“We don’t throw darts at a target and say, ‘Let’s build a vehicle and see if people are interested.'”

John Pattar, Head of Real Estate Asia Pacific at KKR, talks about CBRE’s The weekly opinion Podcast about how the company’s real estate strategies are driven by its global investor base.

What’s new

Time to downsize

Korea’s National Pension Service has reduced the number of its fund investments in real estate, the only alternative asset class in the investor’s portfolio that has seen such a reduction in the past year. The pension plan, based in Jeonju, South Korea, has reduced the number of its real estate fund investments from 226 in 2022 to 217 in 2023, according to an official statement. However, the NPS’s total value commitments to this asset class increased from 78.7 trillion won ($57.4 billion; 52.6 billion euros) to 84.6 trillion won during the same period. The pension plan has made commitments to at least 10 known new private real estate funds, with the three largest commitments going to funds managed by LaSalle Investment Management, Madison International Realty and GLP Capital Partners. At the same time, the total investor capital called in real estate also increased from 38.3 trillion won to 43.8 trillion won. In contrast to real estate, NPS increased the number of fund investments in 2023 in private equity from 456 to 494, in hedge funds from 14 to 17 and in infrastructure from 219 to 234.

A dampened Q2

It was a “relatively light” second quarter for fundraising for Brookfield Asset Management’s flagship strategies, including real estate, President Connor Teskey said during last week’s earnings call. Brookfield raised $1.1 billion for real estate investments, bringing the total capital raised for its fifth opportunistic real estate fund, Brookfield Strategic Real Estate Partners V, to about $9 billion, versus a $15 billion target. The firm also invested $1.5 billion in the asset class during the quarter. Those second-quarter numbers lag other industry heavyweights. During the quarter, KKR raised $18 billion for real assets, including real estate and infrastructure, and has invested $10 billion in real estate since April 1. Meanwhile, Carlyle raised $3 billion for real estate during the same period. Despite the comparatively quiet second quarter, Teskey expects capital raising to pick up in the second half of the year: “We expect significant capital raising for our flagship projects in the market, be it in credit, real estate or transformation, as they all move towards final completion later in the year.” You can find our full coverage here.

Billion dollar baby

Blackstone has offloaded another portfolio for nearly nine figures. The New York-based manager signed deals to sell 11 apartment properties from its vehicles Blackstone Real Estate Income Trust, Blackstone Real Estate Partners and Blackstone Property Partners to Chicago-based REIT Equity Residential for $964 million, according to a joint statement last week. The buildings in Atlanta, Dallas Fort-Worth and Denver are being sold in separate transactions expected to close in the third quarter. The deals prompted at least one group of analysts to think harder about pricing U.S. multifamily properties. “Attributed capitalization rates for A-grade (multifamily) assets need to be lowered — perhaps by about 20 basis points,” Green Street Advisors wrote, based on pricing from previous disclosures. Blackstone is still a buyer of apartments overall and remains quite bullish on the asset class. “Rental housing remains one of our highest conviction themes,” Asim Hamid, senior managing director at Blackstone, said in the statement.

Trend topics

Effects of an interest rate increase

After a faster-than-expected interest rate hike in Japan in late July, real estate investors are taking a more cautious stance on Japanese real estate, according to two CBRE reports. The Bank of Japan raised the benchmark interest rate to 0.25 percent from 0.1 percent in late July ahead of the expected September rate hike. The brokerage believes the rate hike could increase the capitalization rate of Japanese real estate and affect investment underwriting, it said in a market report released last week. “CBRE believes there is a possibility of an increase in investors’ expected returns, potentially leading to lower real estate transaction volumes in the coming quarters,” researchers Chinatsu Hani and Hiroshi Okubo wrote in the report. An early rate hike also prompted CBRE to revise its July 30 half-year forecast, raising the expected yield increase for logistics and office properties in Tokyo by 20 and 10 basis points, respectively.

Switch to hybrid

A direct UK property fund from Abrdn is the latest open-ended property fund in the UK to undergo changes to meet its investors’ liquidity needs. The Edinburgh-based asset manager is asking shareholders for approval to convert its UK property fund, which will have a size of £773 million ($986 million; €903 million) from the second quarter of 2024, into a hybrid direct and indirect vehicle. According to George Shaw, the fund’s manager, the decision was driven by the need to “future-proof” the fund in the face of a changing regulatory environment. Citing the Financial Conduct Authority’s proposal to introduce 90- or 180-day notice periods for redemptions of open-ended, daily-traded funds that invest over 50 percent of their assets directly in real estate, Shaw said Abrdn was seeking to reduce the fund’s direct exposure to 45 percent “to provide shareholders with certainty about the continuation of daily trading.” At the same time, the company will invest an equal percentage in global real estate, investing indirectly in REITs, exchange-traded funds and listed real estate companies. The remaining 10 percent will go into money market instruments.

Data snapshot

Relaxation in the office area

Office prices in New York City have recovered to pre-pandemic levels. The total market value of the city’s office buildings reached nearly $205 billion in the fiscal year ended March 31, surpassing the full-year 2021 value of $202 billion, according to a report released last week by the Office of the New York State Comptroller. The recovery is due to stronger occupancy, with peak occupancy reaching 64 percent in July, 3 percentage points above the average for the top 10 office markets.

People

Family Office

Hines has taken the next step in its succession planning with Adam Hines joining the company’s CEO’s office. Founder Gerald Hines’ grandson, who was promoted to senior managing director, will serve as chief of staff and report to co-CEOs Jeff Hines and Laura Hines-Pierce in the newly created role. The move follows the promotion of his sister Hines-Pierce to co-CEO in 2022. At the time, the company expected both Adam Hines and Matthew Hines, who is part of a development team in the company’s western region, would eventually join the CEO’s office. After joining the company in 2017, Adam Hines began working in the London office, focusing on student housing and residential acquisitions. He most recently served as chief growth officer of the investment management platform. Hines’ promotion follows a recent senior leadership shakeup aimed at integrating the company’s real estate services and investment management businesses. For more information on the leadership changes at Hines, read our full story here.

Offers in the spotlight

Make an exit

Pan-European private equity real estate firm Revetas Capital has sold TriGranit, a Central Europe-focused real estate developer, to Czech real estate company DRFG Investment Group. Terms of the deal were not disclosed, but the investment is understood to have yielded an IRR of over 22 percent for the funds used by Revetas to acquire the company. Revetas acquired TriGranit from TPG Real Estate in 2018 for around EUR 300 million, according to a PERE Report. The purchase was made through Revetas Capital Fund II and Fund III, with Goldman Sachs and the European Bank for Reconstruction and Development (EBRD) as co-investors. As part of its initial investment, Revetas acquired an office portfolio of existing assets and development projects valued at EUR 450 million. During Revetas’ five-year ownership, TriGranit completed, among other things, the 37,000 square meter Millennium Gardens office complex in Budapest.

Investors in focus

Falling short

In a volatile market environment, making accurate forecasts is easier said than done. PEREThe H1 2024 Investor Report, which shows that investor allocations to private real estate in the first half of the year largely did not meet year-end expectations, PERE‘s 2023 Investor Perspectives 2023 study. Only 15 percent of investors across all institutions increased their allocations to the asset class, well below the 39 percent expected. Meanwhile, 56 percent of investors maintained their allocations, above the 35 percent expected. On the positive side, however, allocations to private real estate increased at most institutions, with the average allocation across all institutions increasing from 6.9 percent in the first half of 2022 to 8 percent in the first half of 2024. You can find more findings from the investor report here.

This week’s investor meetings

Monday, August 12

Tuesday, August 13

Wednesday, August 14

Thursday, August 15

Friday, August 16

Today’s letter was written by Evelyn Lee, with contributions from Charlotte D’Souza, Christie Ou, Harrison Connery, Guelda Voien and Sarah Marx.