TIAA Henderson Plans $500 Million European Debt Fund

Jul 15, 2014 8:10 am ET

(Company corrects assets under management in first, sixth paragraphs of story published on July 8.)

July 8 (Bloomberg) -- TIAA Henderson Real Estate, a venture with about $24 billion under management, plans to raise 300 million pounds ($500 million) for a European debt fund as the company bids to grow by almost 30 percent in the region and Asia over three years.

The London-based company will start raising money in the fourth quarter and expects the fund to begin lending this year, said Michael Sales, managing director for Europe. TIAA Henderson, 60 percent controlled by TIAA-CREF, will lend in Europe to boost returns as rising commercial property prices make acquisitions less attractive.

“Commercial real estate debt still offers attractive risk- adjusted returns,” Sales said in an interview in London. “We’d like to have billions under management in the next five years.”

European investment managers are taking advantage of rising demand for property loans, filling the void left after banks curbed lending to meet stricter capital rules. Goldman Sachs Group Inc. raised $4.2 billion for real estate debt this year, its second such fund since the credit crunch. Axa Real Estate Investment Managers said it raised 485 million euros from Danish pension funds for a new debt fund in April.

The debt fund, which would initially finance only U.K. properties, would be TIAA Henderson’s first outside the U.S., where the company has most of its assets under management. It’s looking to spread risk by lending in Europe, returning to Spain and Italy to buy buildings and more than doubling its Asian holdings.

Asian Acquisitions

TIAA Henderson manages about 17 billion euros of properties in Europe and less than 1 billion euros in Asia. The company aims to have about 22 billion euros in those regions within three years.

In Asia, where the company has five properties including an office building in Sydney, a luxury apartment tower in Bangkok and two mall developments in China, additional growth will probably come from acquiring competitors, said Sales.

“We’re looking out for interesting platforms and teams of people to grow that business,” said Sales. “To truly call ourselves global, Asia needs to have a few billion euros behind it.”

In Europe, making profitable investments is becoming more difficult as prices approach record highs, said Sales.

“In Western Europe and the U.K. core property yields are back at where we were at the peak in 2006,” said Sales. “We’re getting to levels now that may go beyond fair pricing, but at the moment we’d say property is fairly priced.”

Madrid Deal

TIAA Henderson is negotiating to buy a retail building in Madrid for about 35 million euros in what would be its first Spanish acquisition since 2010, Sales said. The company will add at least 250 million euros of Spanish real estate within two years, and plans to spend a similar amount in Italy.

In Germany, TIAA Henderson owns shopping malls and suburban big-box stores valued at about 2 billion euros and expects to add another 350 million euros of retail and logistics properties within 12 months.

TIAA Henderson was formed by Henderson and TIAA-CREF, the Teachers Insurance & Annuity Association of America. TIAA-CREF owns 60 percent of the venture and Henderson owns the rest.