Aquila Capital is taking German pension fund capital into Spain’s residential sector, targeting development sites.

The Hamburg-based asset manager is investing in central Barcelona and Madrid, focusing on projects in late phases of development.

Rolf Zarnekow, head of real estate at Aquila Capital, said the firm is targeting an annual return of between 14% and 17% from the strategy. By the end of its investment term in 2019, the strategy should result in a total post-tax return of between 155% and 175%, the firm said.

Aquila is using a German Spezialfonds structure, with institutional investors able to invest up to €100m.

With assets in the pipeline and a first deal completed in Madrid, Zarnekow said there is “very little blind-pool aspect” to the fund.

Rather than hold residential assets and benefit from rental revenues, Zarnekow said the vehicle will sell apartments at a time of renewed appetite from first-time buyers.

At its 120,000sqm Villaverde complex in the south of Madrid, Aquila will sell 800 of its 1,200 apartments at affordable prices. The subsidised, €200m scheme is due for completion in early-2017 by joint venture partner InmoGlacier. The scheme is the largest residential project in the Spanish capital.

Although Spain’s residential sector is dominated, Zarnekow said, by owner-occupiers – with a low interest-rate environment making buying more financially viable than renting – the firm has not ruled out retaining some units for tenancy.

Improvements in the Spanish economy and a return to the lending market by the country’s banks had increased prospects for the residential sector, he said.

Zarnekow said that, since 2013, Aquila had been watching the residential sector in Spain, where it has so far invested in hotels with a value-add approach.

“We expect to see stronger competition for residential assets next year,” he said. “So far, there’s been very little new construction and a lack of offer – many construction firms went bankrupt.

“The residential market is improving as the economy improves.”