The Netherlands’ largest retirement fund has just had one of its busiest years ever for Asia Pacific property investment, its regional head of real estate told AsianInvestor, "and this year is shaping up to be the same", despite the challenges posed by the coronavirus pandemic.
“Asia is still offering far better returns and far better growth prospects, with somewhat greater certainty, than the other markets as we contemplate a post-Covid era,” said Hong Kong-based Graeme Torre during a phone interview earlier this month.
He declined to provide specific numbers on the amount it invested into Asian property last year. But the fund’s exposure has grown strongly, despite both the obstacles posted by the pandemic and the evidence that some other large asset owners are showing more caution on the asset class.
Two years ago APG had around 10% of its entire €474 billion ($586 billion) portfolio invested into private real estate assets, with €5 billion of that in Asia Pacific. As of November, the fund’s global assets under management had reached €560 billion as of September, and the regional property allocation has also swelled further, but Torre would not say by how much.
His team has expanded accordingly, to 15 today from nine in early 2018, three of those joining last year, the latest on December 1. This reflects APG's swift overall headcount expansion in Asia, and notably China, in recent years.
The retirement fund has also built up its partner network with an eye on building its real asset exposure. In October, for instance, it unveiled an alliance with Korea’s National Pension Service through which the two funds will target mega-deals in property and infrastructure.
FOCUS AREAS
APG invests in real estate, as in other asset classes, on the basis of what it sees as megatrends, such as the rise of e-commerce and accelerating urbanisation in Asia.
"We're not like an opportunity fund investor that has to make its money over the next three to five years," explained Torre. "We're investing for a perpetual fund and on the whole are looking for strategies that match that long-term duration."
Hence, APG has particularly intensified its Asia Property focus on logistics, data centres and rented residential, like numerous other investors. “Those are the three main sectors we focused on in the last 12 months,” Torre said.
The pension fund manager committed $350 million to a $1 billion development joint venture alongside Canada Pension Plan Investment Board and logistics developer ESR. Unveiled in April, the JV will invest in and develop an industrial and warehouse logistics portfolio in the Seoul and Busan metropolitan areas of South Korea.
Logistics and data centres will benefit from the long-term structural trend of the rise of e-commerce, Torre noted.
That is a widespread view. Industrial/logistics was named the most popular property sector for investment, overtaking office for the first time, in CBRE’s Asia Pacific Investor Intentions Survey, released in January.
Meanwhile, housing has become even less affordable around the region, so investing in rented residential “makes a lot of sense”, said Torre.
COVID IMPACT
While Covid has cast some uncertainty on how much office space may be needed once lockdown restrictions ease – given more flexibility may be afforded to staff around remote working – Torre remains confident that things will return largely to how they were pre-pandemic.
Indeed APG has partnered Godrej Fund Management on a $500 million office development platform, which announced its first close at $250 million yesterday (January 18).
Other real estate assets were far worst hit by the virus outbreak than office assets. Hotels, hospitality and retail particularly suffered (see graph below).
“In the hotel sector, we suffered like everybody else for the last 12 months,” Torre said. “We're now looking for distressed opportunities in hospitality, so our hotel brands can enter the market at a better entry price.”
APG has a hotel platform in India, where the management teams have worked hard to keep people employed and maintain the business in a very difficult environment, he added.
Meanwhile, "parts of the retail sector are in need of reinvention", Torre said. “In some markets, that was apparent prior to the pandemic – we are looking for the partner that can present a formula for reinventing retail where that is needed.”
Making additional investments in any real estate sector in 2020 was not easy, and remains a challenge. Last year's travel restrictions and local lockdowns limited the ability of APG to conduct the on-the-ground due diligence that is so essential to investing in property assets.
“We’ve used our existing partners to enable us to get money to work,” said Torre. APG also hired local consultants and provided them with inspection checklists, as well as using drone footage, Google Maps and other tools.
“None of that replaces walking the streets and driving around a district,” he conceded. “But we had confidence in and familiarity with our partners and the locations. So for the asset classes that we knew, it was easy to make a judgement on the investing ideas that were brought to us."
That said, Torre feels APG “would have struggled to underwrite a deal in a new sector with a new partner or in a new city or country”.
Asked for data on the past and target performance of the pension fund's property portfolio, a spokeswoman told AsianInvestor it did not provide details of either.
