Private equity giant TPG is seeking a wide range of would-be real estate investments as executives see favorable investing conditions.
TPG is moving toward closing on its $2.7 billion acquisition of Angelo Gordon. The investment firm, with dual headquarters in Fort Worth, Texas, and San Francisco, has billions of dollars in dry powder waiting to be deployed into the real estate sector, TPG CEO Jon Winkelried told investors during the firm's second-quarter earnings call on Tuesday.
"Within real estate, we are seeing signs of an improving backdrop for deployment, and we are well positioned with $6 billion of dry powder at quarter end and our latest opportunistic fund," Winkelried said. "The significant market dislocation is creating unique opportunities for us to acquire high-quality assets that rarely become available for sale. Our pipeline continues to build as we source investments across numerous geographies and within attractive subsectors such as life sciences, data centers, industrial and student housing."
Interest rate increases over the past year in the United States, Canada and the United Kingdom have led to higher financing costs and forced many would-be buyers to the sidelines, leaving properties available. Industry executives, including Brookfield Asset Management's Bruce Flatt, have said this week that more opportunities are emerging than at any time since 2009 in the Great Recession.
As for TPG, it isn't wasting time in making its real estate moves, with two big deals recently announced.
TPG Real Estate, the real estate investment arm of the alternative asset management firm with $139 billion of assets under management as of June 30, established a joint venture with Austin, Texas-based data center provider Digital Realty through one of its dedicated opportunistic real estate fund series, TPG Real Estate Partners. In the deal, which was in late July, TPG acquired a majority stake in three hyperscale data centers in Northern Virginia. Digital Realty will maintain a minority interest in this portfolio while continuing to manage the day-to-day operations of the properties.
The three hyperscale data centers are capable of producing about 104 megawatts of IT capacity. The company said the properties are leased to investment-grade tenants, declining to disclose tenant names. Digital Realty is expected to receive about $1.3 billion in gross proceeds from the joint venture, with those funds expected to pay down debt and be used for other corporate purposes.
Meanwhile, in partnership with Anchor Line Partners, Alloy Properties, an affiliate of TPG Real Estate, acquired a five-building life science portfolio in Cambridge and Waltham from California-based real estate investment trust Alexandria Real Estate Equities in a deal totaling $365 million. The deal, highlighted as one of the top property sales for the second quarter in the Boston market by CoStar, closed in June.
The deal in the Boston area "highlights how we can play offense in a tough market and build value in our portfolio of companies through strategic add-ons," Winkelried told investors. He added the investment firm was able to acquire these properties in the Boston suburbs on "a proprietary basis as a direct result of our deep sector expertise."
Across TPG's platforms, Winkelried said his team is seeing "a notable increase in transaction activity" and is well positioned to continue that momentum. He added that the firm deployed $2.8 billion in the second quarter, with an aggregate of yet-to-close transactions representing an incremental of $5.5 billion the company has yet to deploy. These expectations include deals pending with TPG Real Estate and the firm's other platforms.
On the real estate side of TPG, Winkelried said there are a couple of "very attractive" opportunities the firm has taken advantage of, but there's more on the horizon. The company's new real estate credit platform Treco is also in the market seeking would-be investments.
"Given what's going on in the real estate market where there's meaningful dislocation, financing obviously has become much more difficult there overall," he said. "Clearly, there's been an uptick in the nature of the dialogue there, where there are, in some cases, funds or owners of assets that have to do something based upon needing to sell certain assets that are high-quality assets in certain cases because those are the ones they can sell. So, we feel pretty good about that opportunity that's in front of us there."
Growing Business
TPG has yet to close on its expected acquisition of Angelo Gordon but received approval from the Federal Trade Commission in July. Winkelried told investors he expects to see more opportunity once the two companies combine with an expanded capital base. Angelo Gordon has relationships with about 500 institutional limited partners, while TPG has about 600 of those relationships — with only about 100 of those ties overlapping, he told investors.
The company expects government approval in time for its anticipated acquisition closing in the fourth quarter. More than 150 executives are working on the integration between the two companies.
Winkelried told investors he anticipates the acquisition to be "even larger" than originally expected, with part of that being driven by Angelo Gordon being able to offer private credit through its newly raised $1 billion asset-backed fund with dislocation in the market and fill in gaps when it comes to financing.
"This is a place where I think private credit is just really beginning to come into its own with respect to providing asset-based financing, specialty asset-based financing in the market, particularly given what's going on with the regional banks and contraction of availability of liquidity," Winkelried added.