Why investors are homing in on joint-venture strategies
Partnerships top investors’ priority lists amid pandemic travel restrictions
Joint venture strategies are rising in popularity among real estate investors as an attractive route into new markets and sectors, as well as a way for existing owners to diversify risk and create new relationships.
Globally, 27 percent of investors plan to increase their allocations to joint ventures, according to an INREV survey. Between 35 percent and 40 percent of EMEA transactions above US$100 million are already in some form of joint venture, according to JLL.
Joint ventures satisfy a range of needs, explains Peter Evans, corporate finance director at JLL. “There’s a real drive from many investors to make inroads into new or unfamiliar sectors. This often calls for a local expert helping hand and JVs provide an ideal solution for this.”
And for experienced owners and managers in those markets, it provides a chance to source and build relationships with new capital partners, as well as retaining assets under management, he adds.
Around 45 percent of investors in Europe are expected to increase their allocations to joint ventures this year and in 2022, according to INREV. Just 4 percent said they expected to decrease their use of the strategy. Fund managers, developers, REITs and pension funds are the most active capital groups.
“So far, the more traditional sectors have dominated joint-venture transactions,” says Evans, pointing to offices as an example which accounted for around 55 percent of all joint ventures in the first half of last year.
Late last year, Allianz Real Estate acquired a majority stake in three London office assets owned by UK REIT British Land in a deal worth £401 million (US$545 million).
But the past year has also brought emerging sectors from living to data centres and life sciences into greater focus. Last May, Danish pension provider PFA acquired a 20 per cent stake in Data4 for around €200m, which finances, designs, builds and operates data centres across Europe and is owned by AXA Investment Managers.
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Overseas investors have long been reliant on local asset managers to both manage their existing assets, as well as source new product on their behalf, says Alice Buckingham, director, International Capital Coverage at JLL.
“As a result of the pandemic and ongoing travel restrictions, strategic partnerships top the priority list for these investors as they seek to deploy capital in non-domestic real estate.”
Singapore-based Suntec REIT acquired CPP Investments’ interest in a London office property late last year, creating a new 50:50 joint venture between Suntec REIT and Landsec. Korean investor NPS created a US$1.5 billion build-to-core venture with Hines across a broad span of sectors, from mixed-use and residential to office and logistics globally. A fifth of the joint venture is committed to projects in North America and Asia-Pacific.
In Australia, Canadian investor QuadReal Property Group and GPT’s new AU$800 million industrial and logistics joint venture has just spent AU$175 million on two properties, while Singapore’s CapitaLand has recently formed a joint venture in the U.S. with an Austin-based real estate investment, development and property management firm to acquire and develop multifamily assets worth US$300 million.
Alignment is key
Joint-venture strategies are of course, not without challenges. For instance, exit routes for investors looking to conclude partnerships, or the ability to make major decisions when there is a material divergence of opinion, can both prove to be hurdles.
“There is of course potential complexity as you are doubling - or more - the number of stakeholders who require alignment,” Evans says. “A changing market like the one we are in right now has the potential to create misalignment among investors who may not view things equally.”
However, joint ventures remain in favor and the mechanisms dealing with critical items such as decision making, disputes and exit are becoming ever more standardized and familiar to an ever increasing audience of investors, owners and managers. A number of established ventures also continue to grow. Lendlease and Canada Pension Plan Investment Board (CPP Investments) last year strengthened their UK build-to-rent BTR partnership with an additional £85 million investment. The partnership was first announced in 2018 when they agreed an initial target of investing £1.5 billion in the sector.
“We see demand for JVs continuing and more partnerships being created in the coming months across a variety of sectors and strategies,” Evans says. “There’s a real opportunity for owners and managers to capitalize on strong ongoing demand as investors continue to see the benefits of using JVs to enter new markets, gain direct access to assets and align themselves with specialist management expertise.”
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