With its established presence in the UK, the US firm now has its sights set on other European markets. Justin Slaughter reports
Armed with a new name and two years of successful commercial real estate debt investments in the UK, TIAA (formerly “TIAA-CREF”) plans to cross the Channel and target debt investments throughout continental Europe.
After first investing in real estate equity in Europe in 1995 and then debt in the UK in 2014, the company now has plans to expand debt investments into continental Europe markets like Ireland and Spain, Real Estate Capital has learned.
“We are selectively adding European target markets or cities as we see opportunities,” says Jack Gay, head of the TIAA general account real estate portfolio. “Our debt strategy is unique for Europe in that it’s primarily a long-term, fixed-rate loan product that matches TIAA’s long-term liability structure.”
TIAA currently holds some $18 billion in commercial real estate debt in Europe and North America. Of that amount, the asset manager deployed approximately $600 million in private debt investments into the UK through TH Real Estate at the end of 2015, up from $200 million the previous year. But in 2016, Gay says TIAA could potentially double the $600 million currently invested overseas.
He says stable core assets in Ireland, the UK and Spain are attractive markets for long-term, fixed-rate mortgages, whereas markets that are more driven by banking, like Germany, are very competitive and less appealing.
“Historically, lending in Europe has been bank-driven, short-term, and floating rate, but now we are seeing a shift to becoming a little more like the US with fixed-rate, long term lending as another option,” he says.
After many large European banks repaired their balance sheets coming out of the financial crises, they have continued to lend more conservatively, creating a shortage of debt capital in certain markets.
The firm’s debt investments into the UK started in 2014 after the company helped launch TIAA Henderson Real Estate (TH Real Estate), a joint venture with the Europe-based Henderson Global Investors, as the exclusive commercial real estate investment manager for TIAA across Europe and also Asia. (TIAA purchased the remaining share of the joint venture from Henderson for £80 million last April).
One of TIAA’s transactions was an £85 million senior, seven-year, fixed-rate, interest-only loan at 63 percent loan-to-value, secured on a portfolio of three prime office and retail properties located in central London.
On the equity side, the company is continuing to target core as well as value-add and opportunistic investments in European commercial real estate, Gay says.
This March, TIAA pumped €200 million into TH Real Estate’s pooled European Cities Fund, targeting equity investments in core assets. TH Real Estate owns nearly 400 real estate properties in Europe on behalf of TIAA and other global institutional investors.
Last August TIAA invested in a pan-European office investment platform to a joint venture between TIAA and Swedish National Pension Funds AP1 and AP2, the Cityhold Office Partnership.
Over the next three years, the platform is targeting €2 billion in equity investments in core properties in cities like Paris, Munich, Hamburg, Frankfurt, Berlin and Milan.
Other American firms are targeting Europe on the debt side as well, like MetLife, Prudential, and Cornerstone, for example. But Gay believes TH Real Estate’s prior experience in the region will give it an edge.
“Between TH Real Estate’s $30 billion in assets under management and its eight offices, staffed with local investment professionals who know those markets very well, we have a strong presence and substantial operation across Europe,” he says.