TPG’s thematic opportunistic real estate strategy

Transcript

My name is Erin Nemser. I'm a partner at TPG. I've been at the firm now for ten years, and I run all of our capital formation and new business activity within the real estate business. We effectively have two equity strategies. Both are focused on being control-oriented investors. One is in the core plus space, and one is in the opportunistic space. When we were starting the business, we very purposefully designed a strategy that we thought was different and complementary to what other real estate GPs were doing in the space and also one that we thought we were well-suited and had the skillset to pursue in a differentiated manner. That strategy is primarily threefold. First, we are highly thematic investors. Second, we are focused on portfolios and platforms as opposed to individual property investing. And third, we are very active managers of the real estate we own, attempting to be transformative in creating value during our ownership to really bend the NOI line and change the character of the income profile of our real estate assets.

We come together twice a year and have a variety of debate and analysis, including macroeconomic presentations from third parties, review of proprietary information coming off of our own real estate portfolio or that of TPG. We generally have two to five new themes at a time that we want to continue exploring. Examples of themes over time have been light industrial, where we were early in 20, 13, and 2014 to identify some e-commerce trends. What we were seeing at the time was significant growth in bulk industrial supply Amazon warehouses near large airports, but what we hadn't seen was the same rental growth or supply growth in infill industrial, so industrial closer into cities that was needed for last-mile delivery. So that was a very large investment theme for us actually across multiple of our funds now. As we look back, our portfolio has been split about 70 to 80% in secular themes, and about 20%, maybe a little bit less at times, has been in more dislocation focused themes where coming out of the COVID crisis, we were able to invest in hospitality at really interesting pricing or things like student housing. Generally, sourcing deals for us is the extension of our theme creation. We're proactively calling the owners and operators of the real estate that comport with the themes and seeing, you know, is there an interest in selling to us just the real estate or an existing platform that we can then transform and grow? We can then go invest in scale and invest on a proprietary or proactive basis so that we can get a better basis in the underlying real estate and hopefully amass something that's strategic that ultimately will be paid a premium to the real estate.

So when we were setting up our business and really formulating our strategy, we saw the ability to create incremental value by investing in platforms or strategic portfolios as opposed to individual property investing. A platform or portfolio strategy can mean a lot of things. It can mean buying an existing platform where there's some level of mismanagement either from the top or from a parent company that's not well-capitalized. It can mean buying an existing platform that's just subscale, and our capital and involvement with the management team can ultimately be the transformative factor that unleashes the value of that company over time. Or it could mean building something from scratch. In that light industrial example that I gave, we did the hard work-- I think over time, it was 14 or 15 transactions, buying portfolios or even individual assets to bring into our platform.

We hired an asset management team incumbent that's been fully dedicated to us, and we grew that portfolio and that platform through strategic add ons and some dispositions over time to create a homogenous portfolio of light industrial assets in the markets that we had identified. As we've invested over time with this thematic premise, we've generally been focused on secular trends, structural tailwinds that we think will lead sectors to outperform overall macroeconomic conditions. The vast majority of what we're focused on today is the secular areas industrial in both the US and Europe, life science in both the US and Europe, residential, particularly in the single-family development for rental space in both the US and Europe, where we think there are really strong underlying tailwinds, and so long as we're investing in our way in building platforms and building portfolios, in attempting to find proprietary investment opportunities, we're able to somewhat navigate what can be a pretty competitive market and find real estate investment opportunities at an interesting basis.