BentallGreenOak to Invest $11 Billion in Japanese Real Estate
BentallGreenOak will accelerate real estate investments and hiring in Japan, joining a growing number of global firms that are betting money can be made as local companies offload property assets.
The Canadian firm plans to invest more than ¥1.6 trillion ($11 billion) in Japanese property through 2027, mainly in office buildings and hotels, according to BGO's Asia Chairman Fred Schmidt.
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Asia's Private Markets Appeal
00:00 Maybe we can start, though, with the macro, because, of course, that's not only what everyone is wondering about and navigating at the moment what it looks like for private markets in particular. When you think about the changes that we're seeing globally, both in terms of the relationships we're seeing across countries as well as just the state of macro interest rate differentials, volatility in markets, perhaps we can get started with you hearing about how you're navigating that for your clients. Thank you. So when we look at the private market environment right now, the it is a choppy environment with a lot of volatility, uncertainty especially on the macro foreign policy swings, interest rates of all as you talk about. How do we navigate into sort of environment? So I picked where we have been doing private equity investments for the last 35 years. We have always advocated diversification, diversification across sectors, across geographies, across different asset classes. Stayed true to the long term objective of generating sustainable, attractive investment returns. And by that we mean really solid value creation. Operationally, that's that's a very key factor for us. Number one. And number two, to navigate this sort of a challenging environment, one should look at where the macro megatrends are. So which are the megatrends with the very strong tailwinds, Right. So a picture we talk about to make investments. So we lean into megatrends, like, for instance, technology and innovation that's pervasive across all end user markets. So by itself, that's a diversified strategy. We talk about health care. Everybody knows, you know, it's aging population. You look at how much is the global health spend. That's estimated to be about 10 trillion, which is easily, you know, a very big percentage of the global GDP. And by the way, out of that 10 trillion. 20% of that is wasted. So clearly, there's a lot of inefficiency. It's very dysfunctional, the health care system. So when when you have situations like that, there's a lot of opportunities that one can look at. I'll just stop you. So we'll pick up on a lot of that, too. But, Johann, a lot of people could argue your company, Blue Owl, has been very much in the center of another megatrend, which is that move not just to private equity, but to private credit, to real estate. And Blue Owl has grown tremendously in the last couple of years on the heels of those megatrends. How are those megatrends impacted by the macro volatility of today? Yeah. Thanks a lot. And it's a great question and thanks for Bloomberg and of course, Standard Chartered helping us here today. It's a great honor for those of you that don't know Blue all that well. We have 273 billion leading asset managers, but we are also in the forefront of private wealth, which is a subject today. More than 110 billion of our assets under management are actually in the private wealth space. We are also one of the largest credit managers with 140 billion. Direct lending is about 100 billion of the platform. The platform is purpose built. It's about stability. It's about downside protection. It's about creating a very strong income for clients, which truly works regardless of the market environment. So we feel also that this opportunity is truly an opportunity for private markets in general to showcase and to high highlight wealth clients, family offices, the importance of asset allocation of having destabilizing assets in your portfolio. So the world is by no means rosy, but when we look through our lens of 400 borrowers on the platform, they are by large growing. They still have like single to high single digit revenue and EBITDA growth. So it's it's actually quite encouraging. So I believe in the long run, this environment will also show clients the purpose of private markets in the portfolio. It will just help to increase the allocations and the awareness as such in person. Both of you have said so far is another mega-trend wealth in private markets. Jason, how is wealth management changing the texture of private markets? How is it changing the type of demand and the types of products that are meeting the demand of new investors? It's definitely a fascinating time. So we see a lot of changes happened in Asia in private wealth market. So you see the declines here. They are getting more and more mature, sophisticated. If you're talking wisdom, five years ago, probably a lot of them, they are chasing after those pre IPO sort of fast money. If you talk to those families, high net worth individuals, they were talking about asset allocations. They are more global and email across different asset class credit, real estate, secondary buyouts, some much more sophisticated I think according to a statistic, around 7 million high net worth individuals from Asia, which is a huge pool of capitalists, new type of capitalists for equities. I think in general, if we compare with in the US or Europe, let's say this type of investors, they allocate around 15 to 20% to loss, to deprive equity. Compare with Heinz Asia, I guess more or less 5 to 10%, which explain why growth here is 20%. The Hong Kong and Singapore, we see a number more or less. And for example, in Hong Kong low you have a. About 2700 from the office as of now, and they're pretty confident you'll be 3000 from the office by the end of the year. That's show how strong this claim based. Yes. And on the other side for the piece is thanks to the technology development. Thanks to the partners with private banks when they're getting stronger, more local footprint. So with our platform, we can, you know, provide the deal flows, interesting products to those investors. We have been working with many partners, including standard charter banks locally, which has been very successful. I think it's a combination of a lot of factors which making the Asia problem worse. Particularly interesting, though, when you think about the Asia private wealth market. What are you finding most that clients want? Traditionally, that might have been private equity to your point or even some of the fast money products, but it seems to be changing in terms of the types of investments that wealthy investors are seeking. Yeah. So when we look at clients in Asia for a long time, Asian investors are very familiar and comfortable investing in the stock market. Fixed income. So when they want to try something a little bit more complex, like the alternative asset class, they tend to prefer shorter duration solutions, evergreen funds, semi liquid. I'm sure all of us have heard of that. Of late. Secondaries is attractive. I'm sure Jason can talk a lot more about that because there is that hesitation when they hear that, oh, a fund has a term of ten years. That's a bit of a burial, a mental block. You know, even though private assets is very enticing because it's got the potential for double digit, very strong returns, but that requires patient that's suitable for clients with an illiquid part of wealth. You know, it's funny, it's hard to have a private markets conversation and not jump right to that hot topic of liquidity these days. Johann How do you find yourself a blue out changing the types of products you make to meet that demand for liquidity? These are inherently investments that are longer term in nature, yet investors might want the ability to have their money back faster. Yeah, no, it's a great question. And when Blue Owl started in 2016, we built the private wealth business as a true equal alongside the institutional business. What is truly needed for private wealth to be successful? I always called it three ingredients. You need to have the right capabilities. Stable downside protected returns with an high income generation works any given day for private things in private wealth for individual clients. Second one is the accessibility. No matter, you have the greatest capability and strategy. If you're coming to drawdown, form it with a ten plus plus, you eventually not reaching all the clients in the market. So we had our first evergreen strategy since 2017. We have been the pioneer in that segment. And yeah, it's eventually a long and a strong component of our business. The first ingredient is having people on the ground, our clients, our partners, they really need the partnership. They need us to help them bring up the penetration in in the region significantly. Jason, you mentioned 5 to 10%. From my conversations with some of the leading private banks, we are talking about 3 to 5% on average in Japan. We are talking about less than 1% of private markets in wealth portfolios. So the opportunity is phenomenal. So we are really talking about the very early stage where there's obviously a lot of room to grow here as well. I will ask more about how liquid you think this market can really get. But Jason, you and I were kind of joking a little earlier that the word secondary in these markets used to have to come with an explainer after. Now, a lot of people just know what it is because it's gotten so popular and a lot of that is because of those big institutions needing to sell. Now, how much do wealthy individuals understand the product? How much demand is there now that you are looking at secondary activity, pick up so drastically when it comes to the private market universe? Yeah. So secondary now is getting more and more popular and well-known. So I think if you talk into the high net worth individuals five years ago they were popular. Consider you are a public manager with you in secondary but now I think is quite well known. So basically we are buying the LP portfolios from the big institutions for the liquidity reasons or regulation reasons. And we also sometimes work with GP's to find a solution for the underlying assets. It's quite an exciting moment for you as well because just looking at the Asia assets, there is a liquidity needs as this statistic shows again. Before 2018. The DPI of Asia Phones Average league is about 0.7. If you compare ways to average violence in US and Europe that die before 12, 18 years, about 1.1. So it's left behind. There's a lot of reasons. And it's not only one country, it's a whole regions. So I wanna expand Why? The reason is because there's so many reasons behind it. But which means there's a liquidity needs and for the sellers who also. SS they are willing to pay but relatively deep discounts for those good assets. Now a lot of times you see assets who will go IPO in the next six months easily. You have two times where to buy. They're willing to get a discount, 30 or 40% discount because there's a huge imbalance of buyers and sellers for their assets. So that's for of assets for the sellers in this region. They are also very active. In the past seven or eight years, the institutions has building up their private equity portfolios. Now, coming to a period of time that consider to sort of rebalance the portfolio for various reasons. Sometimes years the regulation change denominator factors, you know, geopolitics play a big role nowadays, etc., etc.. So social institutions very actively approaching us and our peers to consider a secondary sale given there's also a balance of demand, the buyers and sellers. So that is calm has been interesting as well and a very good assets. We're talking about global bluechip names, top names like top 20 names. Yeah. So I think that's also very interesting. The 30 to 40% number is really interesting to me. For comparison's purposes, Yale is offloading their assets at about a 10% discount. Why is there such a big difference between what you're seeing in the US and Asia? Yeah, I think so. First of all, the underlying assets is a bit different. So relatively speaking, the Asian portfolio used to have more girls VC type of investment Compared with Europe, U.S. is mainly buyouts. So you have more control, you have good cash flows, which you can predict the cash flows, you can make the models, right. So you need to factor in those uncertainties because of the underlying asset types. Squirrel's HSBC's a lot of them. So naturally, if you're talking compare with this portfolio, you have a big CapEx discount over there and there's a even bigger imbalance of buyers sellers for their assets. So very limited capital chasing after those asset secondaries, which, you know, they can have this fortunate to have the luck to pick the only, the best. Attractive quite interesting discount. Yeah. Versus in the US Europe markets you have a lot of secondary players. It's a more mature market. Let's put this way, you know it's interesting. It gets to another point on the underlying assets. When people think private, they think that the marks don't move around a lot, that there's not volatility based on what else is going on in the world. How do your clients react to that? Yeah. Do you find that they are looking for a greater conversation with their managers to see what's going on on a regular basis? So a lot of our clients come to us, you know, expressing their interest and desire for secondaries. But investing in secondaries requires a different sort of skill sets because it's about pricing your portfolio. There's always a price for a portfolio, right? If something is going really cheap, big discount, sometimes there's a good reason for it, you know, so so familiarity of who the underlying managers are. The GP's is very, very important. So we have a small secondary business as well it picked, but the way we do it is quite different from, you know, other bigger platforms. We only buy secondaries bilateral from the existing relationships that we have. Reason being we are familiar with the GP's, we have underwritten them, We know, you know, what is there, are they aggressive or are they more conservative when they value the underlying portfolio company To your point? Because when do you say it's, you know, 1.2, should you, should you give a 10% discount or should you do a ten 30% discount? Now, it's not just qualitative, right? It's about peeling the onions. Right. And understanding what is inside this portfolio, which are the written drivers in there. And if you are already invested in the GP, you would have been following the underlying portfolio companies and therefore you can underwrite. It's not about plugging in, you know, your input assumptions into your cash flow modelling and then it spits out a number you have to be competitive. And the other thing that I would say is that a pigtail we don't put on leverage, you know that different models will do secondary transactions for what we do because we are on a lot of the OpEx, the advisory committee. So GP's are quite protective about who they allow into the LP list. All right. So whenever if as an investor you want to sell, you need to get GP consent and sometimes the GP would rather keep it within their own network of LPs. And as being in the industry for very long, we've cultivate a very good relationship. It's an easy call, right? You just place a call, you got to be quick, right, because it doesn't wait too long. So Johan, it's really interesting because what I'm hearing here is that there is a lot of transactional activity happening because of the way people are changing what they want to own. Very simply, a little bit earlier, you said that downside protection is something that your investors are seeking credit by definition is less risky than equity. What do you think is driving this much interest in private credit? And you mentioned some numbers around institutional ownership across different parts of Asia. What's going to drive more interest at this point? Yeah, I think it's the the feel very much that is more similar to what clients already experience in their public market portfolios. Eventually in the fixed income funds, some of the Evergreen funds, whether it's a BDC, it's a non traded read, it's more the feel of a very stable and if slow growth type of an income generating product which they are already used to. So like if I dial back ten years ago, I used to work with a leading asset wealth manager in the region. We did about 3 to 4 private market deals a year, one credit, maybe one real estate, one private equity, maybe one in secondaries. It's a lot of training going in from the relationship manager population in educating. Again, the former ten year plus plus is eventually not too easy. I think the big game changer in all honesty, where some of these income generating evergreen product, it started with real estate. First it came with private credit or direct lending. Next, we see it now in infrastructure. We see it in secondary is coming in. It's the convenience for clients to allocate to these portfolios. What's the cutting edge of liquidity needs right now? How liquid are these products and where will they be a year from now? Rightfully, it started with products where there is naturally inherent underlying liquidity as well, like in real estate, where you have an actual income generation in credit, where you have natural income generation, asset backed financing, you even have a maturity component of the underlying asset in there as well. I'm not going to make a comments on the private equity policy. I leave this to the eye of the beholder on that part. I think secondary is obviously you are mitigating Chekhov effects as well. And of course it's also written into terms. You can subscribe monthly, you can redeem quarterly with a certain limitation in place which ultimately protects all the existing investors in the portfolios as well. But again, I believe the convenience is a massive game changer because you're reaching a wider audience from relationship managers, from clients that are willing to allocate and to build up in a location, draw on funds. Still incredibly important as long as it's differentiated, you have the right strategy meeting the client needs as well. You know, one of the reasons I was so excited to come to Hong Kong was to see what cross-border investing look like today. And Jason, you run a Greater China variety. And what do you think it is that investors in this region, you know, inter region really want? Is it to invest more locally or are they looking for more opportunities through their fund managers to have exposure abroad, especially given what we're seeing really change underneath the surface in front of us, the changing relationships in the globe? Yeah, it's a very good question. So I think it's very interesting. I see it both ways. Need to be more local, even more local. So it's not like one single largest market you can deploy. 80% of your money. Is that easy? Here you need to understand this is a region of like 13, 15 big economies, and each different countries have a different investment thesis. You have developed countries which are mobile driven carve out from big chapels. You have growing markets, which is exciting with a lot of sort of pre IPO growth stories, VC, etc. And you know, so different regions, you have different investment scenes and you have a different focus of sectors as well. You know, say if you're talking about logistics in some countries and mainly focusing on e-commerce growing. So you're putting on e-commerce, well, housing developing project there versus in some developed countries it's a global IDC, IDC's, you know. So even the logistics. Different countries also very different sizes as well. So that's why I had to be extremely local to monitor. So it's opportunities. So in Asia, it's not like a one big economies that give you a narrow spectrum. In terms of the risk return profile here, it's much wider spectrum, which is more exciting, but you also more risky. So you can't have a phone, give you a ten times return, but you also can have a fund which is, you know, 0.2, 0.3, which is possible making the managers was already on the ground even more important. So the clients seem to be very selective, which to work with us to make sure they have a good local presence, local team to find the best opportunities, best partners in each countries to find the good returns. And I would say cross-regional investment is also important because we see also the supply chains. Now, it's not only one country, so it's moving around from China. That's also, say, Japan. So there's a lot of cooperation there as well. You know, India, Southeast Asia, I think we mentioned there's a lot of corridors here in the area. So it's definitely very, very important and there's investment opportunities there. You see a lot of cross-border success of consumer brands, regionally, you know, A.I, cross-border collaboration, etc., etc.. I can give a lot of examples of that. So that's also very important, I think. So yeah, both ways. You know, it's interesting, over the two days, of course, this is my favorite moment of the week, if not the year. My second favorite moment of the week is actually Thursday's U.S. 30 year Treasury bond auction. And of course, it's because people are looking so closely at US assets and the demand for them. Johann, When you talk to clients across Asia, do you find that that interest is waning or are they looking more towards Europe instead or even more locally? How do you navigate that tension? No, it's a great question indeed. It's like there is an element of that wholeheartedly. We see that. But one thing I've learned in 19 years of being here in this region and affiliated to wealth, that's first and foremost, always a home base. That's true probably for every market. But other than the home base, US is a real large overweight in every client's portfolio. And while we see conversation for clients obviously shifting to Europe and there are definitely great opportunities Japan, India or other markets, it's literally impossible whether you are focusing on public markets or private markets to ignore the US. So and one thing I also learnt, never bet against us and never bet against the US dollar in these 19 years here as well. So there is momentarily arguably shift and from an asset allocation perspective, I think it makes all sense. But when it comes to scalable solutions, when it comes to finding opportunities again, like truly scalable, which have an inherent element of protection implemented as well, it's hard to ignore the US in all honesty. I want to ask you both this question too, but I'll make we really focus on it first. I think this is one of the harder questions because you have India, you have Japan. There are so many areas with so much promise, Which is the favorite among your clients. In Asia or just globally, Asia? Well, it really depends on where tickling is. You know, if you just look at China, right, valuation has come off. Is this actually a good opportunity? But for non-Chinese clients, they may think twice because of exit. It's not quite proven. Challenges in navigating that. When you look at India, I think there's a lot of buzz. There's a lot of startup, a lot of innovation. There's a lot of entrepreneurship. But the exits? Well, there has been some exits, but I guess it's it's not quite a very well proven as yet to be seen. Valuation is also quite intimidating. And when you look at Southwest Asia, I think it's really depending on your cup of tea, Right. Southeast Asia. Some people say that it's not shallow. Some people think that this is a great opportunity because, you know, on the one hand, people talk about globalization. What's what's the what's the opportunity When you have rising, you talk about regionalization. Right. So ASEAN is actually a big opportunity as well. But I just want to extend beyond that So you can talk about us, undeniably us. I think it's it's very big economy not to be invested in a lot of clients overweight there. So clients, some of the clients we're seeing that, you know, they're thinking about maybe doubling down because they're so overweight and they're. Right. So where can you doll it down? Well, if you're comfortable in Asia, there's a lot of opportunities, but it's very fragmented. Again, one needs to be careful because the rule of law is not the same everywhere in Asia. And then you have to deal with foreign currency. Right. Do you want to hedge? How do you hedge? But I just wanted to spend a minute about Europe. So picked is European bank. Right. So when you when you look at Europe, interestingly, real estate is getting very attractive. All right. You can now look at real estate properties, opportunities at 30, 40% discount. You know, the replacement value compared to a few years ago, the number of the day. Yeah. And then the other think it's the divergence, right. We talk about interest rate. Just look at U.S. and Europe, the central banks policy when it comes to interest rate, ECB has gone the fastest and the quickest. Right. With the last cut just two days ago is at 2%. U.S. is still hovering at 4.5. I think they want to take a bit more time to to figure out whether or not there's going to be inflation impact. So when interest rate goes down, what it means is that you can expect an uplift in your real estate valuation. And the second thing that a lot of people don't quite appreciate, it's the long term structural oversupply. Sorry, undersupply. So oversupply in Europe. Okay, that's too much. Sorry, Undersupply. All right. Because they have very arcane zoning rights. Permits as such is very difficult to get a permit to build new contracts, new properties. And so there is an undersupply as such. You wouldn't believe this, right? Just look at London. Do we think London is going very well despite its attractiveness as a financial hub? Right. Last year it only grew by 1%, but the rental growth for residential was up 11.5%. That's phenomenal. Now, just just in contrast, just to finish it off, in contrast, let's pick another city in USA, Austin. For those of you who have been to Austin, Texas is a booming city and a booming state. All right. The unemployment rate is at the lowest, even below the national average. The residential rental has actually plummeted 23%. Why? Because it's overbuilt. So U.S. overbuilt. And Europe under bills so explored is opportunities. It's quite an interesting one. I will confirm we have been spending an enormous amount of time in real estate as well. Jason, you know, just to kind of comment more on where people are going. You talked about the regional opportunities, the diversity of the opportunities. Where is drawing the most interest and why? I mean, the regions and within the region within Asia. Okay. I was about to say Europe. Otherwise, I'm going to make you choose your favorite location. Yes. So, again, I mean, Asia, different countries, they have, you know, presents different very different opportunities and different countries. You know, it's all have its exciting opportunities there. So, I mean, if you look at to deploy your assets, there's a few very big economies. That's where you should probably consider to start with, of course, China, India, Japan, Korea, Australia, ASEAN is definitely big. I mean, just compare in the equity history. If you just go through the lines, probably, you know, the countries that have mentioned with proven managers provide assets. So again, I think because there's not one single countries, I will. Be very careful if you putting too much of your allocation into one region in one countries, given there's been so much volatility here. So something Pan region knows Asia, we have the managers can balance. They have all the teams in different in place, but each year they have a different seems different regions as their priorities. I think it will be better to work with instead of, you know, have double down in one of the countries. If you have a high risk, high return profile, you know, some of the countries maybe very interesting, very low values and two stories of very interesting technologies you'll want to be on. I think as asset managers, I would still be cautious, still aiming for a long term or a more steady that's not upward at times. You know, Johan, I'll leave you with the final word here, because I didn't get to tell you this. I've covered Blue Owl since before it was $1,000,000,000 company. And so Europe has actually been one of the places that it's been growing a lot. And so to the point that we and Jason have been making. Why? Right? I mean, why is it drawing so much interest, especially from investors in Asia? It's easy to see why this year, but why in the long term sense. Why in the long term sense in Europe. Mm. I think yeah. Again I think comes down to scalability of the market. Clients are arguably quite allocated to the US by now and you'll find other large pockets of assets that are scalable, that have downside protection inherently implemented in the business in Europe as well. You have the healthy direct lending industry, if you have a real estate market, eventually have a healthy secondary market in Europe, it really shows the signs of scalability where we are investing as a company arguably and heavily as well.
Bloomberg
2 hours ago
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BlackRock Sees Muni Buying Opportunity Ahead of Strong Season
BlackRock Inc. strategists say it's time to buy municipal bonds as supply is ample and prices are favorable ahead of the summer. Munis have weathered a number of challenges including rising interest rates, tariff chaos, US deficit concerns, a hawkish Federal Reserve and the US losing its last top credit rating, according to strategists led by Patrick Haskell in a Tuesday note.
