TPG Gets Over $2 Billion for Multi-Investor Property Fund

  • Firm began real estate business after global financial crisis
  • Blackstone, Carlyle among others to raise billions this year

TPG Capital finished gathering more than $2 billion of capital pledges for its first multi-investor real estate fund, slightly exceeding its target at a time of volatility in financial markets.

The Fort Worth, Texas-based firm, whose property unit is led by Kelvin Davis and Avi Banyasz, began raising the new pool about 20 months ago.

TPG, like rival buyout firm KKR & Co., began a dedicated real estate business after the financial crisis as Wall Street banks exited or scaled back. Plunging prices for homes and buildings and related debt created an opportunity to acquire bargain assets in the U.S. and Europe. The company has invested in assets including office buildings, homebuilders, warehouses, self-storage units and publicly traded real estate investment trusts.

Investors continue to flock to real estate for higher yields than they can get in fixed-income investments as interest rates hover near historic lows. Sovereign wealth funds and other institutions also are seeking the perceived safety of high-quality, well-leased U.S. properties, an attribute enhanced by the recent swings in financial markets amid tumbling commodity prices and the slowdown in China’s economic growth. Falling U.S. REIT share prices are fueling expectations of buyouts.

“We continue to see really interesting opportunities in the States and Europe,” Davis said in a telephone interview. In the U.S., “we’re watching closely as the REIT market goes through some gyrations,” he said. “It’s likely we will see more take-private activity if public real estate company valuations remain pressured.”

Carlyle, Blackstone

Among other alternative investment firms, Carlyle Group LP last month raised $4.2 billion for its seventh U.S. real estate fund, meeting the top end of its target range. Blackstone Group LP last week completed raising $15.8 billion for its eighth global property fund, a record for a private real estate pool.

TPG Real Estate II raised $2.1 billion. The firm already has invested or agreed to invest about $600 million of the total, or about 30 percent of the new fund, according to Davis. TPG generally buys property-laden businesses and companies rather than individual buildings. Its average equity investment is more than $200 million and the firm targets three to five deals a year, Davis said.

The new fund’s first investment was in Evergreen Industrial Properties, which owns distribution centers of less than 250,000 square feet (23,300 square meters) each in fast-growing U.S. areas. The company rents space mainly to local businesses, including contractors. Evergreen owns about 17 million square feet in 18 markets.

“We’re not buying beautiful buildings in San Francisco or downtown New York,” Davis said. “We’re looking for above-average returns.” The U.S., he said, is showing signs of a broadening recovery. Aside from rental apartments, there isn’t significant supply growth for most property types.

Davis said he expects the new fund to invest more than half its capital in the U.S. and the rest -- probably more than 30 percent -- in Europe.

Condos, Apartments

TPG Real Estate’s first investment, done with the firm’s special-situations unit and other investors, was the joint $2.7 billion acquisition of a stake in a group of loans tied to luxury condominiums and apartments. The assets had been part of Corus Bank and were sold by the Federal Deposit Insurance Corp. TPG and its partners sold the last of the assets from that deal in April. In total, they sold more than 3,100 apartment units in 13 properties, and more than 6,000 condos across the U.S.

“We’re not emphasizing multifamily” in the new fund, Davis said, citing “concerns of how much capital was pursuing the opportunities and because we have seen substantial supply” growth.

Among European investments, P3 Logistic Parks, a Prague-based warehouse landlord, has doubled its holdings since TPG acquired the company in 2013, to more than 30 million square feet, Davis said.

“We have accomplished a great deal in terms of what we wanted,” he said. “We will certainly be evaluating what our options are” for exiting the P3 investment. Such considerations are “not advanced” at this time, he said.

TPG also is looking at possible investments in Italy and Spain, Davis said.

TPG previously made 11 real estate investments using $2.7 billion of equity before completing the new property fund. Those deals were financed largely by its private equity funds and alliances with individual pension funds. TPG bundled the investments it had made since 2009 into a pool called TPG Real Estate I.

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