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Real Estate Alert - Equity Pledges by Pensions Soar 46% -

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1) Equity Pledges by Pensions Soar 46% Public pensions pledged $12.4 billion of equity to commercial real estate vehicles in the second quarter, remaining on pace for a post-crash annual record. The tally, up 46% from a year earlier, was the second-highest quarterly total since FPL Consulting began tracking commitments in 2011, ranking behind only the $14.1 billion volume in last year’s third quarter. Coupled with the first-quarter total of $12 billion, pledges are now on track to approach $50 billion for the year, which would far exceed the $39.5 billion of commitments last year, the current high-water mark since the 2007-2008 financial crisis. The surge in first-half pledges to closed-end funds, open-end vehicles, separate accounts and institutional joint ventures was fueled largely by the final closes of a handful of megafunds by sponsors such as Blackstone, CIM Group, Lone Star Funds and Starwood Capital. Also, Blackstone was actively raising equity for its new core-plus platform. Indeed, the top five shops receiving first-half pledges accounted for 40% of the committed dollars, up from 21% for the five largest in full-year 2014. The top 20 firms collected 68% of the total dollars pledged in the first half, up from 52%. “The overall market is still incredibly active, and there’s still significant demand for real estate,” said FPL principal Timothy Kessler. “Even if you didn’t count Blackstone, we’d still have been up in the second quarter.” Institutional investors view commercial real estate as offering attractive returns on a relative basis. And the highest-yield plays — opportunistic and valued-added — continue to draw the lion’s share of pledges: 79%, by dollar amount, in the first half, up from 62% in full-year 2014. Conversely, investments in core vehicles fell to 21%, from 38%. “You can’t get the kind of returns you want in the core assets because there’s so much demand for them and they’re so expensive,” Kessler said. “That’s why for the last two years now, you’ve seen more activity further up the risk spectrum.” Some 59% of commitments went to closed-end vehicles in the first half, up from 47% for full-year 2014. The rest was pledged to open-end funds, joint ventures and separate accounts. Vehicles targeting a single asset class attracted 22% of commitments in the first half, down from 41% in full-year 2014. Among such vehicles, 40% of pledges went to multi-family funds, up from 25%. Niche funds — which invest in nontraditional assets including medical offices, senior-living facilities and student housing — garnered 34% of commitments, up from 12%. AUGUST 5, 201 5 Hotel Sales Do uble in 1st Half; 10 TOP RETAIL BROK ERS 13 TOP HOTEL BROK ERS 2 Park Hyatt NY Gets Unsolicited Bids 2 Luxury Chicago Rentals Up for Grab s 2 Newark Office Condo on Block Again 3 Class-B Bost on Office Portfolio Listed 4 Equity Pledges by Pensions Soar 46% 4 New Apartmen ts Listed in Broo klyn 6 Rentals in NY’s East Village for Sale 6 USAA Markets 2 Chicago-Area Hotels 9 Mixed-Use Spac e Pitched in LA 9 Thor Lists Reta il Condo on Fifth Ave. 11 Retail-Property Sales Up 25% 14 Shuttered DC Hotel Back in Play 15 MARKET SPOT LIGHT THE GRAPEVINE Acquisitions veter an left Rockefeller Grou John Rivard has unknown. Rivard p. His plans are was hired in late 2013 to lead investmen ts for the $500 milli Rockefeller Grou p U.S. Premier Offi on Fund, which held ce its Rockefeller, of New final close that year. owned subsidiar York, is a wholly y of a leading Japanese Mitsubishi Estate, deve previously was foun loper. Rivard of asset-managem der and president ent shop Soundpor Capital. Before t that, officer of New York he was chief operating fund shop Broadway Partners. He had prior stints at O’Co Capital and nnor After California State Teachers. 11 years at CBRE , retail pro Gleb Lvovich left to beco me a managing See GRAPEVINE on Back Page Eastdil on Top Partner for Last WTC Tower The question isn’t whether hotel sales by how much. will break the all-ti me record this year, Some $17.5 billio but volume in last year n of large hotel trades closed by tracks deals of at ’s first half, according to Real Esta June 30, virtually double the least $25 million. te billion record set Transactions are Alert’s Deal Database, which in 2006 — and coul poised to blow past Eastdil Secured d easily surpass the $21.7 lion of trades, or continued its reign as the mos $30 billion. t-active 46.6% The surge was boos of the brokered total (see Rank brokerage, with $7.2 bilings on Page 13). ted by the large $1.95 billion sale of the Waldorf Asto st-ever trade of a single U.S. hote l — February’s ria in Manhattan “The first half of transactions,” said the year was very strong, large to Anbang Insurance of China. ly driven by a few Larry Wolfe, senio half of the year large trophy is shaping up with r managing director at East dil. sizable gains as well, but more cons“The second ervatively in Silverstein Eyes See HOTEL on Page 13 Developer Larry of equity toward Silverstein is seeking a partner to pitch in roughly the construction Lower Manhatta of a skyscraper $500 million n. at Two World Trad The capital would e Center in buy a 50% stake will be the final in the 2.8 million-s piece in the rede quare-foot prop velopment of the expected to financ World Trade Cent erty, which That means som e about three-quarters of the roug er site. Debt is e $1 billion of total hly $4 billion proje up a partner that cted cost. would supply half. equity is needed, and Silverstei n wan of large investors He has hired HFF . to quietly approach ts to line Anchor tenants a handful construction wou haven’t been lined up yet, and it’s ld companies, 21st begin. But last month, it was anno unclear when above-ground Century Fox and unced that two Rupe letters of intent rt Murdoch to occupy about News Corp., had separately sign 1.3 million sf, or ed some 46% of the nonbinding space, on the USAA to Buy Big See TOWER on Stakes in 5 We Page 14 stfield Malls A USAA Real Esta malls in a transacti te partnership has agreed to buy large on The partnership that values the properties at a com stakes in five Westfield will purchase 79% bined $1.1 billio necticut Post in interests in four n. Milf Vancouver in Vanc ord, Conn., Westfield Hawthor of the malls: Westfield Conn in ouver, Wash., and also acquire a 49% Westfield MainPlacVernon Hills, Ill., Westfield stake in Westfield e in Santa Ana, Calif Evercore Partn Fox Valley in Auro . It will ers is advising ra, Ill. remaining inter Sydney-based Wes ests in tfi The Class-B prop the 6.2 million-square-foot port eld, which will retain the respectable sales erties are 97% occupied. They are folio. that produce $85. in strong trade area put the USAA part 7 million of net s and have oper ners USAA Real Estate, hip’s initial annual yield at 7.8% ating income. That would . chase with two partn a unit of San Antonio insurer USAA, is teaming ers: Montgo ery up on Street Partners, a unit of San Fran the purcisco-based See MALLS on Page 6 The largest drop in pledges was for retail funds, which drew just 2% of commitments, down from 28%. Pledges also fell to office funds (to 8% from 16%) and industrial funds (to 16% from 20%). Vehicles targeting investments in North America received 56% of the first-half pledges, down from 72% for full-year 2014, but in line with the 56% level in 2013. Globally focused vehicles nabbed 37% of pledges, up from 14% in full-year 2014. Asian- and European-focused vehicles received 6% of pledges, down from 14%. The average commitment size was $94 million, flat with fullyear 2014. As usual, commitments to separate accounts were much larger, averaging $164 million, down from $274 million. The 170 U.S. pension systems tracked by FPL have $245 billion of real estate investments and $3.2 trillion of total assets. That is believed to represent the vast majority of real estate assets held by public pension systems. The Chicago research firm will release a report summarizing its findings this week.  REAL ESTATE ALERT: August 5, 2015, 5 Marine View Plaza, Suite 400, Hoboken NJ 07030. 201-659-1700