Despite a couple of key departures, TIAA-CREF’s formation of a new real assets group will mean growth, not contraction, for its real estate business.
When a company embarks on a restructuring involving one of its most significant businesses, questions are bound to be raised.
Such was the case when TIAA-CREF announced earlier this week the formation of its new real assets group, which would bring the New York-based financial organization’s real estate, agriculture, timber, infrastructure and energy teams under one umbrella.
The move’s biggest impact will be on real estate, since the other underlying asset classes have already been part of the same natural resources and infrastructure division for some time. Real estate is the sole outlying business being brought into the fold.
Significantly, TIAA-CREF also revealed in the same announcement that its top real estate executives – global head Tom Garbutt and chief investment officer Phil McAndrews, both longtime veterans of the company – are planning to leave the firm after a transition period. The firm told PERE that it is not intending to find replacements for those positions. Instead, Chris McGibbon, head of Americas real estate, and Mike Sales, head of European and Asia Pacific real estate, will become the most senior property-focused professionals at the company.
By virtue of this senior executive loss, the formation of the new real assets division did not shine a positive light on TIAA-CREF’s real estate business, especially when one also considers that real estate was the only business within the new division to suffer senior departures.
Moreover, Jose Minaya, the executive tapped to lead the real assets division, does not have a real estate background. All of these factors raise questions about how real estate, the largest underlying strategy in the real assets division, will fit into the new platform going forward.
Real estate – which accounts for approximately $90 billion of TIAA-CREF’s $100 billion in real assets – is a far more mature strategy for the organization, which has been investing directly in commercial real estate for more than six decades. By comparison, the company has been active in natural resources and other real assets for more than 20 years. In light of this, one might assume that real estate could be a less significant driver of future growth for the company than the other strategies within real assets.
Interestingly though, the talk within the firm is understood to contradict that notion. While the company will seek to build out its operations across the real assets spectrum, PERE understands that real estate is still expected to lead future growth of the real assets division, certainly from a dollar perspective. Although TIAA-CREF already has built a large real estate platform, the company still sees areas of significant expansion in the asset class, particularly Asia, where it currently has only a small presence in terms of both staff and AUM. Indeed, the region could potentially represent the bulk of the real estate business’ future growth. TIAA-CREF also is seeking to increase its investment offerings in the US by potentially moving further up the risk spectrum into value-add and opportunistic strategies.
Garbutt, who is retiring, was instrumental in driving the growth of TIAA-CREF’s real estate business, which primarily was making debt investments through the company’s internal account when he first joined. During his 34-year tenure, he helped real estate to develop into a $90 billion enterprise, bolstered by the company’s expansion into third-party investment management and the acquisition of Henderson Global Investors, among other initiatives.
Without Garbutt, TIAA-CREF’s real estate business certainly will change, but its significance to the company is expected not to.
