New UBS JV to tap demand for high-yield property
Asian investors seeking high-yielding foreign property assets are a key target for a new joint venture between UBS Global Asset Management and Australia’s largest private property developer.
The deal, signed yesterday, gives the Swiss firm first right of refusal over Grocon’s A$2 billion ($1.8 billion) construction pipeline, which includes investment-grade commercial and residential developments. The JV can also buy non-related third-party assets in the open market.
The joint venture, UBS Grocon Real Estate, plans to amass assets worth $10 billion over the next five years, with much of its capital expected to come from Asian institutional investors.
“We expect to see strong demand from sovereign wealth funds and public pension funds in Asia, in particular [from] Korea, Malaysia and China, where there are large pools of capital relative to the amount of investment-grade real estate stock on offer,” says Trevor Cooke, Asia-Pacific head of global real estate at UBS Global AM. “We have already been talking to some of these funds about the joint venture, and the feedback has been positive.”
Cooke says Australian property appeals to Asian investors for its stability and high performance. “Institutional investors will always have a home-market bias, but there is still a need for international exposure and diversification.
“Australia is geographically close and appealingly transparent,” adds Cooke. “Commercial office space is underpinned by 10-year leases, and annual yields in cities like Sydney and Melbourne are around 6%, which is a spread of 200-300 basis points over Asian commercial property.”
About 50% of current investment flows into Australian property comes from offshore, he estimates, with “a large portion of that coming from Asia Pacific”. Last month China Investment Corporation bought into a three-tower complex in Sydney in a deal worth more than A$400 million, while Singapore-listed Suntec Reit and Aims AMP Capital Industrial Reit are negotiating deals for Australian office towers worth a total of A$770 million.
UBS Grocon Real Estate will be based in Sydney and chaired by UBS Global AM chief executive John Fraser, while Daniel Grollo, CEO of Grocon, will be a non-executive director.
The JV is likely to approach large institutions on a managed-account basis. “There is a growing desire by investors to have more influence over their portfolios, so while we may consider launching fund-type structures, we expect deals to be done on a club, separate-account basis,” says Cooke.
Grocon has been in the real estate business for nearly 50 years and has completed A$20 billion in investment-grade real estate deals over that time. It built the A$800 million Liberty Place complex in Sydney, which the company seized control of during the global financial crisis and which now serves as ANZ Bank’s headquarters in the city.
Other landmark properties include Crown Casino in Melbourne and the Governor Macquarie/Governor Phillip Towers complex in Sydney (once home to UBS’s offices before the bank moved up to road to Chifley Square).
Grocon’s A$2 billion development pipeline includes two residential redevelopments in Melbourne: the Carlton Brewery conversion and 85 Spring Street.