A California property shop wants to spend $1.25 billion annually on office and retail acquisitions in the Western U.S.
Pendulum Property, led by industry veterans Kevin Hayes and Brian Walker, quietly formed a partnership in April 2020 with Banner Oak Capital, a Dallas-based advisor to Texas Teachers. The pension advisor has committed at least $100 million to an “evergreen” joint venture. It also has seeded a separate $40 million investment vehicle that will act as a general-partner fund, scouting deals to which it will contribute small amounts of equity while lining up major partners.
Pendulum paused investments when the pandemic struck and only now is beginning to put the capital to work. Hayes said the smaller vehicle, with leverage and partners, aims to purchase over $1 billion of properties in each of the next few years. The evergreen vehicle will provide additional investment capacity for direct deals, with or without partners.
“Our venture with Banner Oak Capital Partners gives Pendulum the flexibility to continue to build on joint-venture relationships in new investments and the strength to invest without outside capital when appropriate,” Hayes said.
When the equity commitment from Texas Teachers was closed in the early days of the pandemic, the plan was to invest in five markets: Denver, Los Angles and nearby Orange County, San Diego, San Francisco and Seattle. While those locations remain the focus, Hayes said his team now is casting a wider net and “looking at other markets that could offer outsized returns.”
Pendulum mostly buys office properties, but it also will acquire mixed-use properties with a retail component that Hayes calls “an amenity to the office.” The firm also could buy pure-play retail properties, but those investments likely would be geared toward adding value via new entitlements and redevelopments.
In terms of its outlook on the office sector, Pendulum expects the pace of workers returning to offices to pick up precipitously after Labor Day.
“While there are certainly companies that are going to flirt with hybrid work or work-from-home in an effort to meet employees where they are, we think the advantage in any competitive environment will go to companies that return to full collaboration,” Hayes said. “This dynamic will continue to bear out over time … [but] it’s our opinion that in the next 18 to 24 months that we’ll be back to or exceeding pre-pandemic demand for office space.”
During the pandemic, many office tenants extended maturing leases by 12 to 24 months, Hayes said, meaning that the large amount of lease rollover in the next two years likely will create buying opportunities from firms losing a large percentage of their rent roll.
Pendulum’s first purchase via the $40 million vehicle with Banner Oak and Texas Teachers was last month’s $61.5 million acquisition of a 122,000-sf property in Burbank, Calif., that houses office and content-production space. Pendulum and Long Wharf Capital of Boston bought the building, known as the Link, from a Fortress Investment partnership advised by Newmark. The plan is to lease up the 76%-occupied property to companies that help serve content providers such as Amazon, Disney and Netflix.
To help generate dealflow for the new investment platform, Irvine, Calif.-based Pendulum is opening an office this month in the San Francisco Bay Area. The outpost will be led by partner Jason Lowenthal, who joined July 1 from Embarcadero Capital, a Belmont, Calif., fund operator where he spent more than seven years.
Last September, Pendulum hired partner Daniel Wagman to lead investments in the Los Angeles area. He’s based in West Los Angeles and moved over after a stint of more than six years at Brookfield. Before that, he worked at Eastdil Secured.
Pendulum was founded in 2016 and, prior to the Burbank purchase, owned some $750 million of properties in Orange County and San Diego, totaling 1.2 million sf of office and mixed-use space.
Hayes founded the firm and serves as CEO. He previously opened and led Orange County and San Diego offices for Lincoln Property. Walker joined at formation and took an ownership stake in the firm last year. He serves as president and oversees acquisitions. He previously founded Lotus Real Estate and had stints at CT Realty Investors, Taconic Investment and Clarion Partners.