TIAA-CREF

The US teachers’ pension fund has been active in Europe since 1995, often working with local partners. It recently entered the German market and has plans to launch sector-specific fundsTIAA-CREF is a real property heavyweight, with $60bn (€47.7bn) invested worldwide, mostly on behalf of the life and pension plans for US college and university employees. Its has exposure to all four quadrants of property investment: public equity, in the form of listed property stocks; public debt, made up of $19bn (€15.1bn) of commercial mortgage-backed security and real estate investment trust debt; private equity, mostly in the form of direct property; and private debt, in the form of $24bn (€19.1bn) of commercial mortgages. The investment manager has invested more than $2.7bn (€2.14bn) outside the US in core, value-added and opportunistic investments. It has been investing in Europe since 1995, always in direct property, and has made acquisitions in the UK, Portugal, Italy, France and Germany. Last year, TIAA-CREF completed one of France’s largest deals, buying a €493m office and logistics portfolio from Standard Life. And earlier this year, it made its German debut, buying a majority share in the €140m Erlangen Arcaden shopping centre. Plenty of buying powerLaura McGrath, managing director of international real estate acquisitions, says TIAA-CREF completed $1.2bn (€0.9bn) of acquisitions in 2005 and would have been happy to do more deals if the right ones had come along. The manager has a similar appetite this year. “We have lots of buying power and continue to be acquisitive,” McGrath says. She adds that the investment manager will continue to mainly look at the core markets where it already has a presence and expertise. “We tend to be deep and not too wide in our investments,” she says. “But we are not constrained and can look at a wide range of locations.” Spain is another likely target. TIAA-CREF’s first European deal, back in 1995, was the acquisition of Kinnaird retail park in Edinburgh. McGrath said the investment manager had been researching investing overseas since 1992. “We saw that globalisation was coming and that it offered us diversification benefits and a wide range of opportunities.” In Europe, TIAA-CREF has a long record of entering partnerships with local players – including Standard Life, with which it is developing Aldermanbury Square, a 25,000m² speculative office scheme in the City of London – and British Land, which it teamed up with to buy Microsoft’s UK headquarters in 1998. McGrath says that as TIAA-CREF’s in-house expertise develops, its need for partners is diminishing in some sectors and markets, such as UK and French offices, where the manager has a long track record, although deals are sourced through a network of local contacts. Invesco Real Estate advised on and will asset manage the French portfolio acquired last year and also the German shopping centre. Despite more than 10 years’ experience of investing in Europe, TIAA-CREF does not have a European office. “We’ve been doing very well running this business from New York so are not likely to change that, although the possibility of a European office is something we look at on an ongoing basis,” says McGrath. Having seen strong yield movements and thus strong performance, TIAA-CREF is under no illusions about the European market getting tougher. “There’s no low-hanging fruit any more,” says McGrath. “We are prepared to take development opportunities, but are very selective. We’ve spent a bit of time looking at Germany and previously felt that we couldn’t compete with local capital, but we are now finding opportunities in some markets there.” Demand from external clientsThe manager’s property expertise is now in demand from external clients as well as its internal funds – both institutional and private investors. Jeff Margolis, managing director of asset management, says TIAA-CREF runs an open-ended core property fund in the US for institutional clients, as well as a number of separate accounts. It is also looking at sector-specialist funds and a value-added fund, which may invest overseas. Margolis says the core fund is “a good foundation for real estate investment” and could also appeal to non-US investors. The manager also runs a global property fund of funds, which is likely to be opened to external clients and could attract European investors. As well as attracting European money to the US, TIAA-CREF has also been approached by US institutions who want to get access to European property through separate account mandates. Margolis says: “We’ve been managing real estate for 60 years and our knowledge is very broad and very deep. We’ve also been investing internationally for a long time.” www.tiaa-cref.org An academic backgroundTIAA-CREF has $370bn (€294.7bn) in assets under management, with more than 3m college and university workers and retirees in its schemes. The Carnegie Foundation formed TIAA-CREF in New York City in 1918 as the Teachers Insurance and Annuity Association of America (TIAA), with an endowment of $1m from the Carnegie Corporation of New York. The company’s mission was to provide life insurance and retirement plans to professors and employees of colleges and universities. The College Retirement Equities Fund (CREF) was launched in 1952.