EUROPE – Dutch asset management giant APG has entered the UK residential property market, acquiring part of a £350m (€416m) portfolio with local property company Grainger.
The €325bn manager said in a joint statement that it had invested £158m in a new unit trust, GRIP, to buy part of G:res1, one of Grainger’s property funds.
Grainger will contribute its 26.2% stake in the fund, as well as an additional £9.1m in equity, resulting in a £59m commitment.
At its height, the G:res1 portfolio included nearly 2,200 units, located primarily in London and the south east of England.
GRIP will be granted first right of refusal over a set number of properties, in line with its Greater London-centric investment criteria and will continue to be managed by Grainger.
The unit trust will pay management fees to the company it said were “broadly in line” with market rates, with the potential to earn additional performance-related fees.
Robert-Jan Foortse, APG’s head of European real estate, said the asset manager had a long history of investing in residential property, although its exposure had largely been gained from Dutch holdings to date.
“Prospects for the Greater London rental market are promising, and we are enthusiastic about adding this exposure to our portfolio,” he said, adding that the manager had been a shareholder in Grainger for several years prior to the current partnership.
“This transaction demonstrates our willingness and aptitude for working with investment managers to modernise, recapitalise and extend the life of existing vehicles owning good quality real estate,” he said.
Grainger’s investment in GRIP will be a pre-requisite for its acting as the portfolio’s property manager.
However, chief executive Andrew Cunningham highlighted the long-term investment opportunities that came through partnering with the Dutch pension manager.
“We see APG’s commitment as a clear acknowledgement of UK residential property’s growing appeal as an institutional asset class,” he said.
The investment forms part of APG’s strategic real estate pool, which in 2011 underperformed its benchmark return by 5.6 percentage points.
However, it fared significantly better in 2010, when its 21.9% annual returns were well above the 6.6% benchmark.
The manager additionally has a tactical real estate pool and at the end of last year allocated around 10% of its assets to property.
The announcement comes the same day Palmer Capital said it would allocate £50m to opportunistic residential land deals in 2013.
According to the fund manager, UK residential land has proven “profitable” over the past two years, as it has bought potential development sites in Abderdeen and London commuter towns Harlow and Reading.
The increased emphasis on plots comes after the UK government revised planning regulations to make it easier for developments to get underway.
Palmer said the additional allocation would focus on plots worth £1m-5m, but also consider joint ventures with land owners, where the manager would cover the costs related to gaining planning permission.