The past three years have seen New Zealand’s sovereign wealth fund invest in logistics and data centres in Asia-Pacific – and in grocery retail and residential in Europe and the United States – as it has built up its real estate portfolio to around NZ$4.5 billion.
The investments signify a new era for the fund, which till now has kept its focus on urban development/regeneration projects in its home market – after winding back its offshore property exposure almost a decade ago.
NZ Super has rolled out a global real estate strategy, positioning to capitalise on new opportunities. It can do so because it is unencumbered by legacy assets such as CBD office or shopping centres – both sectors which face structural issues. They bore the brunt of an end to the era of cheap money and rapid growth of online shopping and changes to work pattern post pandemic.
Toby Selman joined the sovereign wealth fund in late 2020 as Senior Advisor, Real Estate. Fresh from Delin Property, where he was Chief Operating Officer, he reviewed NZ Super’s property exposure and set out to draw up a new long-term strategy.
Delin Property is one of the largest developers and investors in logistics real estate in Europe. Selman’s extensive experience in the industry includes a stint in Montreal, where he established a Canadian student housing platform.
“NZ Super didn’t have a well-defined property strategy in the past,” he tells [i3] Insights. “Now we have, and we are focused on industrial/logistics, living and digital infrastructure with emphasis on sustainability and good governance.”
We are focused on industrial/logistics, living and digital infrastructure with emphasis on sustainability and good governance
Going forward, social impact will be a central theme, says Selman, adding, however, that ‘we are in the early stage on that’. When he thinks of social impact, he has affordable housing in mind, along with related sectors. But the fundamental investment criteria is that any investment has to offer ‘compelling relative returns’.
Selman says build-to-rent (BTR) has a social outcome. However, the sector does not yet exist in New Zealand, where legislation is mooted.
“The new government is looking at BTR as a solution to the country’s housing crisis,” he says. “It will need changes to the existing tax regime, as in Australia.”
But he suspects it may be difficult to make BTR work in New Zealand. While BTR is taking off in Australia, he says the economic returns are still challenging. “We consider Australian BTR expensive relative to returns.”
Selman tells [i3] Insights: “Over the last 18 months we have been considering multi-family in the US. The sector has held up well but has been relatively expensive. Since the rise in interest rates, pricing has become more attractive, and we are keeping a close eye on that market.”
To date, NZ Super has turned to the UK, where its BTR and student housing sectors are far more established than in Asia- Pacific. “We have invested in student housing in the UK, and in micro-living in Denmark. We entered the market around two-and-a-half years ago,” says Selman.
Last year, NZ Super invested US$150 million in a fund managed by CBRE Investment Management which is developing logistics in Japan.
The fund has been a long-time investor in senior living, and is a co-investor in RetireAustralia, one of the larger retirement village operators in Australia. Together with Infratil, the trans-Tasman-listed infrastructure company, NZ Super bought a 50 per cent stake in RetireAustralia in 2014. The company owns 30 communities in three states – NSW, Queensland and South Australia – providing housing to some 5,000 residents.
Over the last 18 months we have been considering multi-family in the US. The sector has held up well but has been relatively expensive. Since the rise in interest rates, pricing has become more attractive, and we are keeping a close eye on that market
In 2022, NZ Super and Infratil conducted a strategic review of their investment in RetireAustralia, during which they fielded approaches from other retirement village operators. On conclusion of the review, the partners opted to retain their ownership of the business.
Assets in the living sector are still expensive, but as Selman sees it, capital constraints because of tighter liquidity and the high interest rates property markets are facing globally could help unlock buying opportunities in the near future.
Digital infrastructure, especially data centres, is another asset class on Selman’s wish list. NZ Super has invested in these assets in Asia through the Hong Kong-based pan-Asian group, ESR, and in the US through CIM Group.
The fund made its maiden investment of up to US$115 million alongside vehicles managed by CIM Group, a north American real estate and infrastructure operator, in 2019. The investment in the Novva Data Centre platform has paved the way to potential access to CIM’s pipeline of future data centres. The initial investment involved six data centres at various stages of development and operation.
NZ Super also has a long-standing investment in New Zealand information technology company Datacom, which has a network of data centres in Zealand and Australia. Since acquiring its interest in Datacom in 2012, NZ Super has increased its stake further, after agreeing to acquire a stake relinquished by New Zealand Post in 2018.
NZ Super has committed US$300 million to the ESR Data Centre Fund, managed by ESR, which aims to acquire and develop data centres across Asia and the Pacific to service growing demand for data centre storage infrastructure.
Grocery shopping centres form another asset class that appeals to the fund, which has taken up cornerstone positions in two entities managed by the North American manager, Slate Asset Management.
Slate’s North American Essential Real Estate fund was assembled with NZ Super, who backed it with a US$180-million investment. This fund is a sister entity to Slate’s European Essential Real Estate fund, which the New Zealand sovereign wealth fund seeded in 2021.
Slate has been expanding its footprint in Norway, with the acquisition of a portfolio of 36 essential real estate assets for more than NOK 1.5 billion (A$217m) in 2022.
NZ Super’s investments with Slate provide exposure to what it sees as the best-performing segment of the retail market. It looks at essential real estate as infrastructure that facilitates the distribution of essential goods and services, such as grocery and healthcare assets and associated warehousing and logistics assets.
Selman says the fund does not have specific allocations to any particular asset class. Rather, it operates on a whole-of-fund approach where the investment that offers most compelling returns win the day.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.