By Gail Kalinoski, Contributing Editor
TIAA-CREF and the Swedish National Pension Funds AP1 and AP2 have formed a joint venture to invest in European office properties that is being seeded with $2.52 billion in existing assets and could add another $2.29 billion in investments over the next three years.
TIAA-CREF’s affiliate, TH Real Estate, brought the two organizations together and will manage the platform, providing investment and asset management services. The transaction is expected to close in September.
The newly formed investment vehicle will be called Cityhold Office Partnership and TIAA-CREF will have a 50 percent stake while each of the AP funds will have 25 percent stakes. The JV will start with 15 properties, nine coming from the TIAA General Account and six from AP1 and AP2. The assets total 2.7 million square feet and include 12-14 New Fetter Lane and One Kingdom St., both in London; Tour Areva, Paris, and Atlantic Haus, Hamburg, Germany.
London, Paris and Hamburg are among the Tier 1 cities being targeted for core investments. The others are also in Germany – Munich, Frankfurt and Berlin. The investment program will also look for value-add opportunities such as leasing, renovation and development opportunities in those Tier 1 cities and stabilized core investments in Tier 2 cities including Madrid, Milan and Amsterdam.
“Our investing partnership with AP1 and AP2 – like-minded investors who share our long-term investing horizon and focus on high quality assets – enables us to further diversify TIAA’s existing European office portfolio across asset, tenant and market exposures while establishing a broader platform to expand our European investments,” Phil McAndrews, senior managing director and Chief Investment Officer of TIAA-CREF Global Real Estate, said in a prepared statement. “Working collaboratively with two established players in the European office space is exactly the type of growth opportunity we envisioned for TH Real Estate when we launched the firm in 2014 and acquired full ownership earlier this year.”
TIAA-CREF bought out the remaining 40 percent stake in TH Real Estate from its joint venture partner, Henderson Global Investors, for $122.7 million in April. When it announced the transaction, TIAA-CREF stated it wanted to accelerate the growth of its global real estate platform and expand its asset management business. TIAA-CREF, the New York-based financial services organization, has been investing in real estate since 1934 and has about $869 billion in assets under management, including TH Real Estate’s $28 billion spread across 50 funds and mandates.
AP1 and AP2 established Cityhold Property AB in 2011 to invest in real estate in major European cities.
“Now that Cityhold’s property portfolio is being merged with TIAA-CREF’s European portfolio of commercial real estate, we have successfully enhanced and diversified the portfolio of European real estate, in line with the strategy originally outlined for the company,” Eva Halvarsson, CEO of AP2, said in a prepared statement. “Moreover, with TH Real Estate, we gain an operating partner of considerable expertise, especially with regard to local markets.”
“The greater capital base provides the vehicle with better opportunities to make good long-term investments in commercial properties in a number of selected large European cities,” Johan Magnusson, CEO of AP1, added in his prepared statement.
TIAA-CREF and AP2 have been investing together since 2011, including in TIAA-CREF’s timberland strategy and two farmland investment partnerships across North America, South America and Australia.
AP1 is one of five AP funds in the Swedish national income pension system and has assets in a global portfolio comprised of equities, fixed-income securities, real estate, private equity funds and hedge funds. AP2 is one of Northern Europe’s largest pension funds and also has assets invested worldwide.
TH Real Estate, on behalf of TIAA-CREF, has already been shopping this summer in Europe, acquiring a 50 percent stake in Factory Annopol, a retail park in Warsaw, Poland, and Factory Krakow and Futura Park, two outlet malls in Krakow, Poland, for about $70 million.