Asian investors partner for real estate opportunity

Singapore sovereign wealth fund GIC and the National Pension Service of Korea (KPS) have both partnered with alternative investment specialists in unique real estate investment strategies this month.

The two deals combined total more than $2 billion and each have a unique play on COVID-19 pandemic themes.

This week, the world’s third largest pension fund NPS announced a deal with Seattle-based Russell Investments for a $1 billion global listed real estate mandate. It is the second global real estate securities mandated awarded to Russell by the KRW 785 trillion ($674 billion) pension giant.

The new mandate is designed to take advantage of tactical opportunities with the majority allocated following periods of market downturns. According to NPS, the pension fund aims to leverage Russell’s extensive research efforts on real estate managers that dates back three decades.

Looking ahead to 2021, Russell strategies said they expect public real estate will attract more cash flow due to market conditions that feature extended low interest rates, relative to high U.S. equity valuation and ample liquidity.

“We are excited to further expand our listed real estate capability to capitalize public real estate market opportunities and complement the private real estate portfolio,” said Scott Kim, head of the real estate division at NPS. “Not only does this new mandate allow us to efficiently capture the potential price discrepancies between public and private real estate markets going forward but it will also act as an excellent portfolio diversifier, and help improve the overall portfolio risk adjusted return.”

According to Russell Investments, effective management in the now $2 trillion global real estate market that this year includes 470 companies in 35 countries and 11 sectors is becoming a focal point in well-diversified portfolios. The multi-manager firm found that there is a performance spread of more than 300 basis points between first- and third-quartile managers over the past 12 quarters.

“Successful distribution of COVID-19 vaccines should enable demand for public real estate to recover, particularly for the most impacted property sectors, such as retail, office and lodging,” said Bruce Eidelson, director and senior portfolio manager of equity at Russell. “We expect the ever-broadening intra-sector performance dispersion will create a better active management environment which can produce significant return over the benchmark.”

The return expectation for real estate is great too in Singapore, where the GIC formed a $1 billion urban logistics real estate joint venture with California-based global real estate firm Kennedy Wilson.

The $360 billion GIC’s investment will center on the acquisition and management of urban logistics properties in the U.K. with the potential to expand to Ireland and Spain.

The joint venture will be seeded with a $220 million portfolio comprised of 18 urban logistics assets in prime locations in the U.K. The assets are wholly owned by Kennedy Wilson. The partnership will seek out additional last-mile urban distribution center investment opportunities targeting total assets of up to $1 billion, officials announced late last week.

“The logistics sector continues to be a long-term area of focus for GIC,” said Lee Kok Sun, chief investment officer of real estate at GIC. “We believe the urban logistics sub-market will benefit from positive fundamentals, due to increasing occupier demand driven by accelerating e-commerce adoption and changing supply chain management strategies.”

Kennedy Wilson will be responsible for the sourcing, acquisition and management of the assets. The asset manager will have a 20% ownership and GIC will have an 80% ownership.

“We have witnessed the rapid growth of urban logistics properties driven by strong demand from businesses looking to grow their distribution networks with limited supply of space across major cities in our target markets,” said Mary Ricks, president of Kennedy Wilson. “Over the last five years, we have significantly grown our footprint in this asset class. We are thrilled to partner with a preeminent global long-term investor like GIC to further capitalize on the exciting opportunities in this sector and to build out a premier urban logistics portfolio.”

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