In 2013, CBRE Global Investors acquired 161 N. Clark Street, a 49-story office building in Chicago, on behalf of a consortium of Korean investors led by Korea Post.
Located in the Central Loop submarket of downtown Chicago, the 1 million-square-foot property is 93% leased to a diverse roster of high-quality tenants with limited turnover. “This trophy-quality asset in one of the largest office markets in the United States is a strong fit with the fund’s investment strategy,” said Jeffrey Torto, Managing Director and Portfolio Manager for CBRE Global Investors’ U.S. Managed Accounts Group.
With its broad geographic scale and regional expertise, CBRE Global Investors has a unique ability to migrate capital across borders efficiently and effectively. As a result, CBRE Global Investors is a leader in separate accounts.
“Having real estate experts based in the client’s home country helped to facilitate communications in the same language and time zone, and allowed us to work around the clock on this assignment,” Torto explained. “This, coupled with on-the-ground experts in the target market, enabled us to create a seamless cross-border solution.”
The transaction was the first separate account transaction in the U.S. for CBRE Global Investors with Korean investors, who are increasingly seeking opportunities abroad.
“Interest rates are low and the equity market is sluggish in Korea; hence, investors are increasing allocations to alternative investments,” said Mark Jun, Director, Asia Pacific, CBRE Global Investors. “However, the domestic real estate market is very competitive right now, so investors are looking in Europe and the U.S. to find properties.”
The Clark Street property appealed to the group because it offered a high cash yield, which is scarce in first-tier markets such as New York and San Francisco. In addition, the investors saw some value-add opportunities in the asset. The CBRE Global Investors team plans to implement a $14 million capital campaign to upgrade existing amenities and building systems and to maintain the property’s existing LEED Silver certification. It also plans to aggressively market the improvements to attract new tenants and accommodate existing tenants’ expansion needs.
The transaction was challenging on multiple levels. “We were able to source a transaction that met the investors’ goals in terms of return and quality, and execute on it in an accelerated time frame,” Torto noted. “Foreign investors typically require multiple tours of the market and have a long approval process, and the transaction took place in a changing interest rate environment with a complex tax and regulatory structure. We were able to navigate all of that and consummate the transaction with the seller.”
The investment by the Korea Post-led group is indicative of a larger trend. In March 2014, a collection of large Asian insurance companies awarded a $200 million discretionary global mandate to CBRE Global Investors’ Separate Accounts Group to build a core/core+ real estate portfolio in the U.S. and Europe. The mandate, which is expected to grow over time, will target both debt and equity investments across property sectors in the top 25 markets in the U.S. and in large cities in the U.K., France and Germany.
CBRE Global Investors has seen significant growth in its separate accounts platform, which provides clients with more customization and control over how their capital is invested. In 2013, the firm raised $3.3 billion of capital for separate accounts, including $1.2 billion to be invested cross-border.