Henderson’s managing director and chief investment officer for global property, Mike Sales, may have had a wry smile when he predicted more fund consolidation at the London Real Estate Forum two weeks ago.
Turns out it was a safe bet, as this week Henderson announced a merger with New York-based investment manager TIAA-CREF to create £13bn London-headquartered “global alliance”, TIAAHenderson Global Real Estate.
Under the deal, Henderson has merged its £10.5bn of European and £500m of Asian real estate assets under management with TIAA-CREF’s almost £2bn in Europe.
Henderson’s £1.7bn North American business will be sold to TIAA-CREF, with Henderson receiving a total cash payment of £114.2m.
TIAA-CREF, which has total assets under management of $520bn (£337bn), will own 60% of the new venture, with a right to increase its stake by 15% for a limited period ending in autumn 2021.
Its US business will not be merged into the new venture but the scale of its balance sheet is a crucial driver for the deal.
M&A activity has been tipped for the sector for several years, with CBRE Investors’ takeover of ING in 2011 setting tongues wagging.
This month alone the fund management sector has seen major consolidation through the Henderson/TIAA deal and BlackRock’s buy-out of MGPA, a move that created a $25bn global real estate platform.
Like most mid-sized real estate fund managers, Henderson found itself restricted by the size of its balance sheet since the financial crisis, as investors increasingly insisted on co-investment.
Managing director for property James Darkins emphasised the importance of the deal in providing the scale needed in terms of capital and operational ability.
“With TIAA committing to invest $1.5bn, it allows Henderson to participate in a growth story without locking up their balance sheet,” added Cannacord Genuity equity analyst Arun Melmane.
The venture is expected to boast a global team of 339 professionals, including 181 people in Europe, 149 in North America and nine in Asia.
TIAA-CREF head of global real estate Tom Garbutt said the business would be “new leader in global real estate investment”.
He added that much of TIAA Henderson’s focus would be on expanding its business in Asia.
“Asia Pacific is a key area of development for both partners and a region where Henderson has already created a small, well- respected business,” said Garbutt.
The geographic emphasis on Asia was clearly a significant motivation for BlackRock’s purchase of MGPA too.
With that deal came 200 staff spread across 13 offices, more than half in Asia.
In the context of BlackRock’s near $4trn total AUM, the real estate business was minute, but for managing director Marcus Sperber the MGPA deal was a clear statement that the firm wanted to be a large player in the field.
AREA Property Partners is another leading mid-market brand, with around $5bn of real estate AUM in the US, Europe and Asia, that has now been snapped up by a rival.
US investment management giant Ares, whose real estate business had previously made up a tiny proportion of its $59bn AUM, took control of the business in May.
The combined firm has around $8bn of committed capital in North America, Europe and Asia and 70 investment professionals.
While all three 2013 deals add scale, they remain dwarfed by the biggest players in the market – CBRE GI and Brookfield Asset Management.
CBRE GI boasts a global AUM of $90.7bn, of which $46bn is in Europe, $34.7bn is North American and $10bn in Asia, with headcounts of 693, 266 and 131 respectively.
In the UK alone it has £7.6bn AUM and 117 staff, excluding the Global Multi Manager and Clarion platforms.
But Brookfield is the real giant in the industry, according to the annual fund manager survey published this month by INREV and ANREV, its Asian counterpart.
Brookfield leapt to the top of the league this year with an AUM of €83bn globally after its assets swelled by €18bn during 2012.
CBRE GI was in second with €69.6bn, just ahead of Blackstone’s €67bn.
Overall, INREV’s capital raising survey suggested the industry might just be turning a corner, raising €29.5bn in 2012, its best performance since 2008, and a clear signal that investors believe the market might just have bottomed out.
So, with the infrastructure for growth now in place, and capital inflows returning, next year’s chart could start to look quite interesting.
jack.sidders@estatesgazette.com
