Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. ALTERNATIVES
September 21, 2015 01:00 AM

Expertise, growth behind real estate manager acquisition push

Bentall Kennedy deal is latest in move by larger firms to expand offerings

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Sun Life CIO Steve Peacher said the company is on the lookout for more acquisitions, possibly more real estate firms.

    Insurance company Sun Life Financial Inc.'s acquisition of $22 billion real estate money manager Bentall Kennedy Group is the latest example of a growing trend of larger firms looking to expand or start a real estate investment business.

    Worldwide real estate mergers and acquisitions accounted for 9.8% of the $2.2 trillion transactions in 2015 through June 30, up from 8.9% of the $1.8 trillion in worldwide mergers and acquisitions in the first half of last year, according to Thomson Reuters data. Real estate mergers and acquisitions activity is approaching the 2007 peak of such deals, Ernst & Young noted in a recent report.

    Other acquisitions include GAM Group's announced acquisition in August of the real estate finance business of Renshaw Bay LLP; Apollo Global Management LLC's August announced purchase of a majority interest in AR Global Investments; Ares Management LP's $2.55 billion deal in July for real estate and energy manager Kayne Anderson Capital Advisors LP; and Rockefeller Group's purchase of TA Realty last October.

    Total assets under management purchased in all of these transactions, including Sun Life's acquisition of Bentall Kennedy, is at least $73 billion.

    Buyers are hoping to cash in on investor demand for real estate investment. Acquisitions are an easy way of getting quick expertise in real estate or an area of real estate the buyer is lacking. It also provides an instant boost of assets under management that would otherwise take years to build. Sellers are looking for homes with larger companies that have broad access to capital or to cash out the real estate executives who built the firms, industry insiders say.

    “I have definitely, this year, seen a substantial pickup of real estate mergers and acquisitions activity,” said Irwin A. Kishner, a partner at law firm Herrick, Feinstein LLP, New York, who specializes in M&A. He is also chairman of the executive committee of the law firm, which has a large real estate practice.

    “It's one-stop shopping. It's ready to go, all nicely wrapped and packaged, and is another service to offer to clients,” Mr. Kishner said.

    Large private equity firms are very interested in buying boutique real estate firms to capitalize on continued investor interest, he said. Mr. Kishner declined to identify potential buyers.

    Mark Grinis, partner and real estate private equity leader in the New York office of consulting firm Ernst & Young LLP, said the trend is “not a tidal shift, but it is an important one and it provides an indicator of some of the pressures that remain in the middle market.”

    Mr. Grinis declined to provide examples. However, when Apollo Global Management acquired AR Global, Apollo noted the acquisition would more than double its real estate assets under management to $27 billion.

    Plum targets

    Real estate managers investing in the middle market have become plum targets.

    Larger firms were able to raise money after the financial crisis in 2009 and 2010, and returns of the funds raised in those two years are proving to be very good, Mr. Grinis said.

    “It was the ... larger managers that, despite substantial headwinds, were able to raise and invest during that time, and they were rewarded for it,” Mr. Grinis said. “It perpetuates, it validates the performance of some of those larger managers, and it validates a thesis of re-upping as new funds by those larger managers are formed.”

    The result is that smaller, middle-market managers can't get love from investors.

    The bigger managers with larger funds are getting most of the capital. Some 95 real estate funds closed this year as of July 31, raising a combined $69 billion with an average size of $728 million, the highest on record, according to data from Preqin, a London-based alternative investment research firm.

    By comparison, the average size of a real estate fund raised in 2014 was $444 million and in 2012, $252 million.

    Real estate managers in the market are facing stiff competition: 425 funds were seeking to raise a combined $149 billion as of July 31. It is taking longer to raise a fund than ever before, with the average time of 19.8 months, a record high, Preqin data show. This is up from 19.5 months in 2014 and 14.2 months in 2010.

    “You put those three patterns together and it continues the thesis that the big will continue to stay big,” Mr. Grinis said.

    Some companies such as Toronto-based Sun Life are building their real estate investment management expertise to compete against the big firms.

    Prior to the Bentall Kennedy acquisition, Sun Life had about C$5 billion ($3.8 billion) in commercial real estate holdings and C$13 billion in commercial mortgages in its general account as of June 30, said Steve Peacher, president, Sun Life Investment Management and chief investment officer of Sun Life Financial.

    Sun Life also managed two limited partnerships targeted to Canadian pension funds: The roughly C$310 million Sun Life Canadian Real Estate Fund and the approximately C$200 million Sun Life Canadian Commercial Mortgage Fund.

    Sun Life buildout

    “The acquisition of Bentall Kennedy is part of our buildout of Sun Life Investment Management,” which the insurance company launched as an institutional asset manager in Canada in 2014, said Mr. Peacher, who is based in Wellesley Hills, Mass. It now has about C$47 billion in real estate assets.

    Since launching its money management subsidiary, Sun Life also has acquired liability-driven investing managers Ryan Labs Asset Management and Prime Advisors Inc.

    “Our intent is to bring the kinds of asset-liability management skills and private assets classes (such as private fixed income, commercial mortgages and real estate) that we've used within our general account for decades to other institutional investors,” Mr. Peacher said.

    Some real estate professionals, who declined to be identified, said the downside of a smaller firm being bought by a larger money manager is that it is more difficult to maintain the entrepreneurial spirit within a larger, established company.

    “Bentall Kennedy will retain its brand and operating processes,” Mr. Peacher said. “Incentives will continue to be driven by the success of Bentall Kennedy.”

    Sun Life is looking for more acquisitions, which could include other real estate money management or mortgage firms, Mr. Peacher said. “But any acquisitions would need to be complementary to Bentall Kennedy and would probably be done under Bentall Kennedy,” he added.

    Ronald M. Dickerman, president of New York-based real estate firm Madison International Realty, said while the average close is taking longer, larger managers are closing funds in record time, giving them more control over the fees they charge while investors are pressing smaller real estate firms for lower fees and more favorable terms.

    Meanwhile, investors want smaller firms to be “laser-focused on one thing ... when in theory (the firms) would be better advised to have more than one product to diversify their revenue streams,” Mr. Dickerman said.

    This conflict creates an environment in which good, smaller real estate firms become takeover targets for the larger firms. The poor-performing firms will go out of business, he said. n

    Related Articles
    Managers expecting lower returns from real estate sector
    Managers expecting lower returns from real estate sector
    Apollo terminates deal with AR Capital, modifies RCS Capital deal
    Recommended for You
    Money stacked
    TPG AUM rises 5% for quarter, 17% in year
    Kewsong Lee
    Carlyle's billionaire founders reached a breaking point with CEO
    Carlyle's head of consumer, media, retail leaves firm
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    July 29, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit