It took two months for Korea’s Public Officials Benefit Association (Poba) and Danish pension fund PFA to execute their first joint investment into Europe’s real estate markets.

After signing a memorandum of understanding on October 4, the two asset owners on Friday (December 6) announced the purchase of a logistics properties portfolio. The portfolio was bought in collaboration with German real estate investment manager Patrizia, which will also manage the portfolio going forward.

The total price of the portfolio is around €1.2 billion ($1.3 billion), with around 50% leverage.

PFA took up 55% of the equity with DKK2.6 billion ($385 million), Poba 10% with €120 million and a Patrizia fund vehicle the remaining 35%, Poba’s chief investment officer, Jang Dong-Hun, and PFA’s head of real estate, Michael Bruhn, told AsianInvestor.

Jang Dong Hun

The deal includes 1.4 million square metres in logistics buildings and an additional 138,000 square metres under construction. Poba expects an IRR of around 6%, with the potential uplift with these development projects as a bonus, Jang said.

“I think if all the assets in the portfolio had been development projects, we may not have been that comfortable,” Jang said. “But the majority of assets are quite mature while others are development stages or with value-add potential, and we like that mix.”

As of end-November Poba’s total AUM was W13.9 trillion (11.7 billion), of which alternatives consisted W7.5 trillion, or 54%. Real estate investments make up more than half of Poba’s alternatives portfolio, Jang explained.

“Previously, we have pretty much been focusing on office buildings, as they have accounted for more than two-thirds of the total investment in the real estate space,” Jang said. “During the past couple of years, we have been diversifying into some other sectors, such as logistics and residential.”

He confirmed that the acquisition was introduced by Patrizia and was the first step into the partnership with PFA. And although the two partners are based in Europe, Poba has been involved in the acquisition process that has lasted about six months. The asset owner’s overseas real estate team and risk management team were sent to Europe to inspect several of the assets in the portfolio.

“We didn’t look at every individual asset, however, we did see valuation reports on each of them,” Jang said. “Based upon that kind of information combined with the capacity of Patrizia and PFA, we have been very comprehensive. For final terms and conditions, our team has been in very close contact with our partners and following up on that process.”

PARTNERSHIPS FOCUS

Poba is also looking with interest at US real estate debt investments, and has started to invest more directly via joint ventures and club deals rather than into blindly pooled commingled funds.

This investment model allows the pension fund to get more control through direct investments while still sharing risk with partners, and it also enables Poba to tap into the local knowledge and contacts through its partners in the region.

This isn't Poba's first international alliance with an international asset owner. In 2018, the public pension scheme launched $400 million joint ventures with California State Teachers’ Retirement System (CalSTRS) and Teacher Retirement System of Texas (TRS), respectively to invest in US real estate debt. Poba committed $200 million to each JV. In May this year, it doubled its investment with CalSTRS.

“This investment method definitely has bigger ticket sizes than the typical commingled funds that we commit to,” Jang said. “In those funds, we can typically commit from $50 million to $100 million at most, but we are comfortable with the larger ticket sizes for club deals and joint ventures.”

Michael Bruhn

The portfolio totals 42 logistics properties in France (17), the Netherlands (3), Italy (11) and Spain (11) with 17% of the portfolio located in or around Paris. Indeed 60% of the portfolio is located in France, where e-commerce is expected to increase a little more than in the rest of Europe, Bruhn stated.

“International partnerships are very interesting because our joint knowledge and competences provide the best foundation for making such a large investment in an international market,” he added.

Denmark's largest commercial pension fund is actively looking for further real estate partnerships with Asian asset owners. The partnerships are a part of its ambition to increase investments into Asia Pacific real estate.

PFA had a total AUM of DKK584.976 billion as of end-June with a real estate AUM of €9.5 billion, of which Asia Pacific made up 9%.

The seller is US-based real estate investment manager BentallGreenOak via its fund vehicle GreenOak Europe Fund II.

Logistics properties have become particularly attractive, thanks to the increase in e-commerce. The trend is also on the radar for investors in Asia Pacific. Among them are Allianz Real Estate which in May this year made a targeted investment into logistics in China and Japan.