The newly created TIAA Henderson Real Estate is eyeing expansion in Asia and a global debt business. Richard Lowe talks to James Darkins and Tom Garbutt
’Long term’ is used frequently in the institutional real estate industry. Investors and investment managers mostly employ the term as a way of disassociating themselves from their more flighty counterparts: retail money, hedge funds and others that come and go at various points in the cycle.
But the institutional sector could be criticised for relying on the ‘long term’ label too readily without actually defining what it means. James Darkins, CEO of TIAA Henderson Real Estate, uses it on more than one occasion to describe the newly created joint venture. Fortunately, he also provides some points of reference to illustrate what he actually means.
TIAA-CREF and Henderson Global Investors certainly have long histories. They were founded in 1918 and 1934, respectively. But a more recent year is perhaps more apposite.
“We both have beginnings in that region, an ambition to do more”
In 2001, Henderson Global Investors established its joint venture with German investment bank MM Warburg as a way of accessing the German institutional investor market. Today, Warburg-Henderson, running out of Hamburg, has €5bn in assets under management on behalf of German institutions.
Over the intervening years, Henderson built up its investment expertise in the German real estate markets out of its Frankfurt office. It manages two funds – targeting retail and logistics – that are effectively investing German institutional capital in Germany.
“I’ve always seen the moment of truth for us – in an offshore location – of being able to take money from local clients and invest it in the local market,” says Darkins. “Because by definition you’ve become sufficiently local to have that trust.”
Getting to that point took the best part of a decade in Germany. TH Real Estate has similar ambitions for Asia. “That is the exactly the sort of thing I see us doing: very long-term relationships building trust and confidence among investors,” Dawkins says. “When we talk about Asia that is exactly where I want us to be.”
Cracking Asia is invariably seen by large real estate investment managers as the key to their long-term fortunes. The acquisition of MGPA by BlackRock in 2013 was done with one eye on Asia, the former having established a presence there.
Both Henderson and TIAA-CREF have been active in the region, albeit in different ways. TIAA-CREF has been investing in Australia and Singapore on behalf of its General Account, which is funded by the American insurer’s annuity book. Henderson has offices in Sydney, Beijing and Singapore, and has invested in the region (its Silk Road joint venture in China being one example) and has also been working with local capital sources, such as Australia’s superannuation industry. A new office in Hong Kong is being planned.
Asia will inevitably be central to any long-term plans of TH Real Estate. The company is a joint venture that brings together the European and Asian real estate businesses. TIAA-CREF, one of the biggest players in the US, has acquired Henderson’s smaller operations in the region in a separate transaction.
So TH Real Estate is not a fully global business in one sense: it manages $22.6bn (€16.3bn) in Europe and Asia. But a global distribution and client service organisation will link it to TIAA-CREF’s North American business which has a team of seven in Chicago. Combined, TH Real Estate and TIAA-CREF manage $70.8bn globally.
“The US is extremely well covered, as is Europe,” Dawkins says. “We both have ambitions in Asia Pacific. We both have beginnings in that region, an ambition to do more. The dynamics, the raw materials are right, we just have to then have a carefully selected programme where you look for the next steps to take.”
Henderson Global Investors is one of the biggest names in European real estate. In its domestic market, the UK, it made $1.4bn (€1bn) in transactions in 2013. It manages a number of large funds, including a $1.1bn shopping-centre fund. It has also been making headlines (with varying degrees of positive sentiment) over two of London’s most ambitious commercial property developments in Leadenhall Street and Smithfield Market.
But the one market it failed to crack was debt. Henderson hired ex-banker John Feeney in 2012 to lead its newly launched real estate debt fund business. However, Henderson failed to close either of the two funds it was marketing – targeting senior and mezzanine debt, respectively – and Feeney left to join Lloyds Banking Group a year later. At the time, Henderson said, without naming names, it was “engaging with a strategic partner regarding the development of our debt platform” that “would add both scale and expertise”.
Where European debt funds have been launched successfully, it has invariably involved some form of in-house capital. The likes of AXA Real Estate and M&G, for example, have been able to get investment strategies off the ground by having access to parent insurance capital with which to build up a track record and attract other investors. TH Real Estate falls into this camp, especially as TIAA-CREF’s general account has a strong appetite to expand its property lending exposure (it has been active in the US since 1934) to Europe.
“Tremendous appetite for real estate debt”
“We’ve got an internal client that has a tremendous appetite for real estate debt,” says Tom Garbutt, head of global real estate at TIAA-CREF. “Having an internal client that has a very discrete strategy and knows what it wants, with its experience [is] a tremendous advantage.” Garbutt reveals that TH Real Estate is “in the throes of trying to get a debt fund up and running that would be focused on the UK”.
But rather than just going transatlantic, TH Real Estate has ambitions to create a global debt investment strategy. “TIAA has a very deep background both on the equity side of the business and lending,” Garbutt says. “It actually started on the lending side 80 years ago. We’re excited about taking that expertise and trying to develop global debt strategies.”
Asked whether the opportunity in debt is a short-term one, he says: “Debt is a tricky business. There are inefficiencies and then money comes in and prices it down. The beauty of a global platform though is we think we can always find spots where you can take advantage of those inefficiencies. We want to be a very nimble shop… there are not that many organisations that can do that effectively in a global context.”
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