Wealth Fund ADIA Reviews Real Estate Plans as Pandemic Bites

(Bloomberg) -- The Abu Dhabi Investment Authority, one of the world’s biggest property investors, is considering changes to its real estate strategy after some of its major holdings suffered during the coronavirus pandemic, people with knowledge of the matter said.

The sovereign wealth fund is reviewing the performance of its property assets following weakness in a number of the shopping malls and office buildings in its portfolio, according to the people, who asked not to be identified because the information is private. ADIA may consider cutting its exposure to some troubled investments, the people said.

ADIA has shifted in recent years to making more direct property investments and relying less on external managers. The state-owned investor has amassed just under $700 billion in assets, according to estimates from data provider Global SWF, and ADIA has said real estate traditionally accounts for about 5% to 10% of that overall portfolio.

While ADIA will continue to be a major player in property, it could shift its focus for future deals and increase exposure to areas like warehouses, life sciences properties, technology hubs and affordable housing, one of the people said.

Logistics Properties

Its investments in logistics sites in China through a partnership with industrial real estate investor Prologis Inc. are among those that performed well through the downturn, the person said. ADIA bet on the U.K. affordable housing market in 2014 through an investment in Fizzy Living Ltd.

The fund has also been putting more resources into private equity investments, which have outperformed during the pandemic, the people said. The review is ongoing, and ADIA hasn’t made any final decisions on the changes it will make, the people said.

A representative for ADIA declined to comment.

ADIA remains in search of new in-house expertise, including a global head of real estate, following a wave of senior departures. Last year Tom Arnold, a former Cerberus Capital Management executive, left after more than a decade with the sovereign wealth fund.

Talent Hunt

Pascal Duhamel, the head of European real estate investments, and Anthony Bertoldi, acting head of real estate in Asia, also left the firm in the second half of 2020. Travel restrictions have slowed ADIA’s efforts to recruit replacements for some positions, according to the people.

Pandemic shutdowns have hurt investors in large parts of the commercial real estate market since early 2020. Stay-at-home orders left shops empty and hit the payment of rents to owners of such properties. Offices have also lain dormant, with many companies now reassessing their real estate requirements in light of successful work-from-home arrangements.

In its latest annual review, ADIA warned that hotels and retail properties were the most immediately impacted in early 2020 by the coronavirus pandemic. New office leasing activity was “on the whole, paused,” and tenants were expected to renegotiate leases or explore more flexible short-term space, ADIA said.

ADIA’s Tour Alto, a new office tower in the La Defense district in Paris, was completed in late 2020 without a large pre-lease agreement in place. The first three leases were announced in April, accounting for about 5,400 square meters, or just over 10% of the tower’s total floor space.

The fund also has a stake in the Liverpool One mall in northwest England and owns the Slough Central project, located about 20 miles (32 kilometers) west of London, where it’s pursuing plans to redevelop two existing shopping centers.

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