Sovereign Wealth Fund Direct Real Estate Investing is Making a Comeback

Posted on 09/13/2021


Global sovereign wealth funds with large balance sheets are making a comeback in the real estate sector as inflation proliferates and central banks maintain support. Sovereign investors are funding platforms with real estate managers who have access to unique deal flow. For example, Mubadala Investment Company became engaged with Round Hill Capital on a Dutch Residential Investments strategy platform. This partnership will target some of the largest Dutch cities with a high number of young professionals and families looking to take their initial steps up the property ladder. Technology giants like Amazon.com, Inc., Microsoft Corporation, and Tencent Holdings Limited are creating demand for more datacenters, feeding the frenzy of internet growth and e-commerce habits. Another notable deal in 2021 is when a subsidiary of the Abu Dhabi Investment Authority (ADIA) acquired a significant minority stake in southeast Asia-focused digital infrastructure platform EdgePoint Infrastructure. Formed by the DigitalBridge Group, Inc., EdgePoint focuses on developing, acquiring, and operating telecommunication towers, distributed antenna systems and related infrastructure in Southeast Asia. Another noteworthy deal includes Abu Dhabi-based Mubadala Investment Company forming a joint venture with Crow Holdings to develop US$ 1 billion of Class A industrial properties in the U.S. Crow Holdings was originally founded by U.S. real estate developer Trammell Crow who built a massive property empire. The themes of residential housing, data centers, and logistics are key for sovereign investors in 2021 and likely 2022. Distressed real estate investing is left to fund platforms and allocations to real estate funds for SWFs in many circumstances.

Direct Investments by Sovereign Wealth Funds in the Real Estate Sector

Source: SWFI.com (SWFI Global Asset Owner Database)
QUERY: Direct Investments. Equity-Bias. All Types (transactions). Announced Dates.
3Q 2021 (annualized)* (1H 2021 + ((4Q 2019 + 4Q 2020)/2)

The annals of sovereign investor real estate investing follows market cycles; however some have acted contrarian in some manners. For example with regard to office real estate, Norway Government Pension Fund Global made splash back in unlisted real estate by investing in a 47.5% interest in an office property located at One Memorial Drive in the City of Cambridge. This is despite the U.S. office market not recovering from the COVID-19 pandemic in terms of overall sales volumes. In the end, public funds are seeking durable cash flows and yields in the preferred asset classes.

With regard to the East, Asian and Gulf-based sovereign wealth funds are watching the urban Chinese real estate market unfolding and seeing if the Chinese government will provide ample support. Troubled China Evergrande Group may have to deal with the country’s biggest-ever debt restructurings. Risk is being priced in as Evergrande’s U.S. dollar bonds are trading near 30 cents.

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