National Australia Bank Ltd. (NAB), the nation’s fourth-largest lender, bought a 35 percent stake in William Mack’s Area Property Partners as the U.S. firm seeks funding to expand its global real estate investments.
Mack, chairman of New York-based Area, and Lee Neibart, chief executive officer, will remain in charge of all investment decisions, the real estate fund manager said in a statement. Terms of the agreement weren’t disclosed.
Area, which has invested in New York’s Time Warner Center, the St. Katherine Dock complex in central London and the Pascal Tower in Paris, is seeking to increase its real estate holdings in the early stages of an improving market. A recovery is “well under way” in most major markets and global direct investment in commercial properties may climb as much as 25 percent this year, broker Jones Lang LaSalle Inc. (JLL) said in a Feb. 2 report.
“We think that there will be opportunities to acquire some smaller REITs,” or real estate investment trusts, Neibart said in an interview in New York. “There’ll be an opportunity to acquire larger distressed assets. We think that there’ll be an opportunity to significantly grow our debt business. So by having access to this type of capital, we can look for bigger things to do.”
National Australia, based in Melbourne, had been seeking a “a top-tier global real estate investment manager,” Garry Mulcahy, CEO of the bank’s investment-management arm, NabInvest, said in the statement.
“We believe in Area’s ability to deliver high-quality investment solutions for its investors and therefore have high confidence in Area’s future prospects,” he said.
Money for Growth
The bank’s interest will be non-controlling, Neibart said.
“This deal was not done for NAB to provide capital for a continuation of our businesses,” he said. “Our business is in very good shape and it’s totally organized. The capital they invested is really for growth of other businesses and doing new things. That’s really its purpose.”
The agreement will give Area access to institutional investors in Australia and New Zealand, the fourth-largest asset-management market globally, according to Neibart. He projects that the National Australia Bank’s investment could produce returns of 15 percent to 20 percent.
The partnership “puts us in a unique position to take advantage of the recovery,” Mack, 71, said in the statement. Mack, who founded the firm in 1993 with Leon Black’s Apollo Global Management LLC, said a year ago that Area was focusing on investing outside the U.S.
Area’s move to seek non-U.S. institutional investors makes good strategic sense, said David Hodes, managing partner at Hodes Weill & Associates, a New York firm that advises investors and fund managers. Major U.S. public pension funds, which have been some of the largest investors, are under political pressure to shift to defined-contribution systems, similar to 401(k) plans, “and therefore may be capital constrained,” Hodes said.
“What you’re seeing is a manager who has done well for close to 20 years and they’re taking a step back” to prepare for the future, Hodes said of Area.
Interest in U.S.
The deal is a sign that non-U.S. investors are seeing recovery in the U.S. property market, said Peter Slatin, editorial director at New York-based Real Capital Analytics Inc., which tracks commercial real estate sales and pricing worldwide. It may also be the beginning of a spate of international partnerships, he said.
“You have a company that now has global capital seeking global opportunities. That’s what’s most exciting,” Slatin said. “We will see more cross-border capital partnerships along with cross-border acquisitions.”
Area plans to invest more than $1 billion of equity this year, up from about $825 million last year, according to Neibart. About $500 million probably will be split between Europe and India, and slightly more than that in the U.S., he said.
The firm is considering acquisitions in the Manhattan hotel market, and looking to acquire multifamily assets in U.S. cities including Atlanta, Miami, Dallas and Washington, Neibart said. It also is seeking investments in retail properties.
“We still don’t feel comfortable in the office market,” Neibart said.
Area, formerly known as Apollo Real Estate Advisors, has invested about $13 billion of equity in more than 500 transactions since its founding, according to the statement.
National Australia Bank investors have suffered in the past from the lender’s U.S. expansion. The company in October 1997 agreed to pay $1.2 billion for HomeSide Inc., a U.S. home-loan business, as part of a plan to build a global mortgage company. The bank sold HomeSide in 2002 after $2.2 billion of writedowns from the takeover ended eight years of record profits.
In November 2007, National Australia Bank agreed to buy U.S.-based Great Western Bancorp for $798 million. In the year ended September 2010, cash earnings at Great Western, which sells services in seven Midwest states, rose 1.4 percent to A$74 million ($75 million). That was 1.6 percent of National Australia Bank’s total profit in the period.
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