Hines turns to wealth managers for new ‘recovery fund’

Investors like family offices and high net worth individuals have the opportunity to pour their money into transformative real estate redevelopments planned by Hines, an international real estate company that has announced the first in a series of “tactical” real estate investment funds in January 2022.

Investors have already committed about $590 million in equity to the Hines US Property Recovery Fund. This money gives the fund the ability to invest $1.5 billion immediately. Hines plans to close the fund by May 2022 with a total investment of $1 billion, with buying power of $2.5 billion after leverage.

The fund has already purchased assets like a trailer park in California with the intention of redeveloping it as an industrial one. Other projects could redevelop empty shopping malls into mixed-use town centers or redevelop aging office buildings into apartments.

So why does Hines think the time is right for a redevelopment-focused fund? And why is Hines so keen on small equity investments from investors such as family offices and high net worth individuals?

To find out, we caught up with Alfonso Munk, Chief Investment Officer of Hines – Americas.

This interview has been edited for style, length and clarity.

WMRE: Why is it called a recovery fund?

Alphonse Munk: The recovery is associated with the pandemic, but frankly it is more than that. We are banking on some of the trends that were emerging in real estate before the pandemic and which we believe have accelerated due to the pandemic. People have seen the demise of the mall.… The industry has grown tremendously. Obviously, the pandemic has also put a question mark over the amount of office space needed. People are also looking at residences where they could have a little more space and spaces where they could work.

So there is a lot of old real estate, which is not up to modern standards, be it design, location, sustainability perspective, etc.

The Recovery Fund is going to come in and transform some assets, modernize them, develop them into better future uses, better layouts. We will choose assets that we can reconfigure into new uses. Older commercial assets can become residential…as can office buildings that have become obsolete.

We take what we do every day, which is to operate, develop, transform assets and modernize them and do all the hard work on the asset.

WMRE: Who are your investors in the Recovery Fund?

Alphonse Munk: This vehicle will enable us to offer this opportunity to investors with whom we have not worked so much in the past.

In the past, the majority of our investors were institutions. Often they have minimum investment thresholds, usually $20-30 million.

With the creation of the Recovery Fund and the growth of our unlisted REIT, the Hines Global Income Trust, we are able to bring into our fund investors who have a lower investment threshold…individual investors, family investors, investors in credit and wealth management platforms. There is a lot of capital that is interested in wealth management to invest in real estate.

WMRE: Is there anything about wealth management and your relationship with them in the Hines private REIT structure you have that made you want to do more with them?

Alphonse Munk: Wealth managers are increasing their allocations to real estate. In the past, this was a single digit amount of their overall volume. Now everyone gets more than 10% and 20% of their total portfolio in real estate. They have become more important.

Wealth management platforms are the future.

Second, I think those investors appreciate the hands-on operational approach that Hines brings. We operate the assets. We manage the assets. We develop.

We also provide access to more touchpoints for investors than the major financial platforms. If investors want to learn more about the Hines family or spend time with myself or the CIO, we make ourselves available.

WMRE: What is the average amount an investor is likely to allocate to the Recovery Fund?

Alphonse Munk: For the fund, it’s a wide range, from $500 up to $20 million or $30 million from large family offices.

WMRE: What kind of returns can you offer investors? What kind of feedback do they ask for?

Alphonse Munk: The Recovery Fund is a high yield fund. We aim for a minimum return of 15% to 16%.

WMRE: How do you keep in touch with your investors?

Alphonse Munk: We combine access to technology with a kind of touch and touch access… You can log into your account and view relevant information on purchases or investments. We also assign investors a point of contact. Individual or family investors… Their sophistication has increased. Their questions became more detailed. In the past, perhaps, retail investors were less demanding.

WMRE: Is Hines investing its own capital alongside Recovery Fund investors?

Alphonse Munk: The family is invested in the fund with the employees concerned. Starting with senior management and corporate executives all the way to regional project officers.

Dolores W. Simon