TIAA-CREF Teams Up With Swedish Pension Funds to Invest in European Property

U.S. investor TIAA-CREF and Swedish National Pension Funds AP1 and AP2 have teamed up on European office investments.

Their joint venture will combine €2.2 billion ($2.5 billion) worth of 15 properties already owned by the firms, and over the next three years will aim to buy another €2 billion of office space.

By merging the property portfolios, “we’re going to be able to diversity our European office portfolio without any more capital requirements,” said Phil McAndrews, chief investment officer of TIAA-CREF Global Real Estate.

The groups plan to make further office acquisitions in Europe, focusing on London, Paris and cities across Germany.

“We believe there is a case for core assets in Europe,” Mr. McAndrews said.

The tie-up comes amid a surge of demand for commercial property in Europe, where the pace of deal-making in the first half of this year was the strongest since 2007, according to Real Capital Analytics. Investors bought $49.4 billion of office properties in Europe in the first half of 2015, up 17% from the year before, data show.

Returns in real estate look attractive to investors facing low interest rates. In the London neighborhood of Mayfair, home to many of Europe’s biggest hedge funds, the capitalization rate—a measure of yield—was at a historic low of 3.5% in June, according to real-estate broker Cushman & Wakefield. This is still above the yield on 10-year U.K. government bonds, which Tuesday was around 1.87%, according to Tradeweb. 

The new investment vehicle, called Cityhold Office Partnership, will be managed by TH Real Estate, an overseas investment manager owned by TIAA-CREF, which has $86 billion of real-estate assets under management.

The funds will target core assets in major cities because “in the short term, our preference is liquidity,” said Jasper Gilbey, director at TH Real Estate.

Investments can also branch out into areas that typically offer greater returns. The funds can be invested into leasing, renovation and development projects in London, Paris and Germany, as well as target core assets in cities like Madrid, Milan and Amsterdam.

AP1 and AP2 are two of five such funds in the Swedish pension system. Both funds have about 300 billion Swedish kronor ($36 billion) of assets under management.

Source: Wall Street Journal