TPG Courts Investors as Real Estate Bets Top $2 Billion

About two years after TPG Capital expanded into real estate, the firm started by David Bonderman and James Coulter has invested more than $2 billion of equity in properties including California malls, a homebuilder, Florida apartments and office buildings in the U.S. and London.

Instead of raising a dedicated real estate fund like many of its big private-equity rivals, TPG has been investing in property with money from its global buyout fund and striking alliances with pensions and real estate operating companies, including a $350 million pledge from New Jersey’s state pension fund in October. TPG is playing catch-up to Blackstone Group LP, the largest private-equity investor in real estate, with about $57 billion of equity under management.

“They’re looking at the real estate world differently than just buying a building, fixing it up and selling it,” said Timothy Walsh, director of New Jersey’s Division of Investment. “That really appealed to us.”

TPG has been finding investments in distress, both in the housing market and in commercial property, while exploiting the global appetite for the investment yields real estate can offer with interest rates near record lows. Last week, TPG agreed to acquire Assisted Living Concepts Inc., which operates a chain of residences for seniors. In December, TPG teamed with DivcoWest, a closely held real estate investor based in San Francisco, to buy assets from Mission West Properties Inc., an owner of Silicon Valley real estate that’s liquidating.

Parkway Stake

Other recent deals include the $200 million purchase in June of a 43 percent interest in office real estate investment trust Parkway Properties Inc. and the 265 million-pound ($398 million) acquisition last month of London’s Woolgate Exchange office building with Ivanhoe Cambridge, the real estate arm of Canada’s largest pension fund, Caisse de Depot et Placement du Quebec. TPG and its partner acquired the property in London’s financial district by restructuring a loan held by Irish Banking Resolution Corp.

“Our investment results with TPG have been terrific,” Bill Tresham, president of global investments at Ivanhoe Cambridge, said in an e-mail. “We always found that their underwriting was exceptional. They are a solid team of highly skilled professionals.”

Ivanhoe Cambridge invested alongside DivcoWest and TPG in the acquisition of 73 office buildings from Mission West in December, said Sebastien Theberge, an Ivanhoe Cambridge spokesman. The firm has invested “well over” $500 million in U.S. and European real estate in partnership with TPG, he said.

Patron Partnership

Last August, TPG and Patron Capital Ltd. took over more than 200 offices and industrial properties owned by Uni-Invest Holding NV after a 600 million-euro default.

In 2011, TPG teamed with Oaktree Capital Management LLC and JH Investments Inc. to buy Taylor Morrison Home Corp., a Scottsdale, Arizona-based homebuilder that operates as Taylor Morrison in the U.S. and Monarch in Canada. Taylor Morrison is planning to go public, and last month doubled the size of its proposed initial share sale as homebuilding rebounds.

TPG -- which, unlike competitors Blackstone, KKR & Co. and Carlyle Group LP, hasn’t gone public -- doesn’t list real estate as a separate investment target on its website, nor is TPG’s name found on the website of subsidiary Catellus, a development company it bought in 2011 from Prologis Inc., along with shopping centers, office buildings and land in the San Francisco area.

Owen Blicksilver, a spokesman for TPG with Blicksilver Public Relations Inc., said TPG executives declined to comment on their real estate investments.

‘Very Active’

“What they’re likely doing is building their track record until they’re ready to raise a fund,” said Stephen Coyle, chief investment officer of Cohen & Steers Global Realty Partners, the private-equity fund unit of New York-based Cohen & Steers Inc. “They’ve been very active in the investment market. They’ve been focused on distressed investments, whether through debt or underperforming assets.”

TPG, started in 1992 as Texas Pacific Group, has done more than 10 real estate deals since the beginning of 2011. That year, TPG paid $505 million for a portfolio of non-industrial properties that Prologis had acquired as part of its 2005 purchase of Catellus Development Corp. TPG also gained rights to the Catellus name.

Kelvin Davis, a senior TPG partner who supervises North American buyouts, has been overseeing TPG’s real estate investments. Davis has a background in property, having worked for Tom Barrack’s Colony Capital LLC, an investment firm that owns real estate, before joining TPG. In January 2011, TPG hired Avi Banyasz from Westbrook Partners and has brought in Adam Metz, former chief executive officer of General Growth Properties Inc., the second-largest U.S. shopping-mall owner, as a senior adviser.

Weaver Hiring

Some investors viewed the hiring of Robert Weaver in October 2011 as a sign TPG would start a real estate fund. Weaver, a senior executive at TPG, was previously at Morgan Stanley, where his specialty was raising money from investors. Morgan Stanley’s property-funds unit was the biggest real estate investor among Wall Street firms until the credit crisis.

“I would expect them to raise a commingled fund in the next year or two,” said New Jersey’s Walsh.

Last June, TPG invested $200 million for a 43 percent stake in Parkway Properties at $11.25 a share, according to the REIT. In December, TPG invested an additional $75.7 million at $13 a share to maintain its stake when Parkway sold shares in a public offering. The TPG investment helped fund Parkway’s $250 million purchase of Hearst Tower, a trophy office building in downtown Charlotte, North Carolina.

Flagler Deal

Parkway, an Orlando, Florida-based REIT, owns office buildings in the Southeast and Texas. Its stock closed at $17.65 yesterday.

In January, Parkway agreed to buy eight office buildings in Jacksonville, Florida, for $130 million from Flagler, the Coral Gables, Florida-based developer that Fortress Investment Group LLC acquired in its 2007 purchase of Florida East Coast Industries Inc.

TPG has the right to appoint four of Parkway’s nine board members. In October, the company named C. William Hosler to its board. Hosler is chief financial officer of Catellus and previously served as CFO of Morgan Stanley Real Estate Funds.

“You have a small REIT that wasn’t well followed by the Street and wasn’t big enough to attract the long-only index funds,” Walsh said of the Parkway investment.

Residential Sale

TPG may be close to realizing some proceeds from another real estate deal -- apartments it acquired in 2009 as part of an investment in bankrupt lender Corus Bankshares Inc. through a partnership with the Federal Deposit Insurance Corp. and Starwood Capital Group LLC. ST Residential, which manages properties on behalf of the partnership, said in January that it’s selling 13 residential properties in eight states valued at almost $1 billion after redesigning units and boosting occupancy to 98 percent.

“We are excited to take this unique portfolio of high-quality multifamily properties to market at a time when there is very strong demand,” Davis, who represents TPG on ST Residential’s board, said in a Jan. 18 statement.

“The Corus Bank transaction has performed extremely well for the FDIC and our private investor group,” Barry Sternlicht, Starwood’s chairman and CEO, said in the statement. The partnership repaid $1.3 billion of FDIC notes and had more than $1 billion of cash in hand, he said.

Deal Input

New Jersey’s investment division signed with TPG partly because it got a break on fees and a say in potential deals, said Walsh, the division director.

“They involve us in their investment process,” he said. “You can just see by the performance of a lot of real estate funds, you give them money and they buy at the wrong time. It’s easy to get in, but tough to get out.”

The separate account also gives New Jersey the potential to profit from real estate investments in Europe.

“We don’t have much exposure overseas,” Walsh said.