EUROPE - The Baltic states saw next to no real estate investment activity in 2010, but local developer and fund manager BPT has secured seed capital to launch a fund targeting the region.
BPT has raised an initial volume of capital from Nordic and Swiss investors for its BPT Baltic Opportunity fund and is aiming to raise a total of €100m this year.
The company is expecting to raise most of the capital from Nordic investors, including pension funds and multi-managers.
According to Real Capital Analytics, only three real estate transactions were recorded in Estonia in 2010, while none were reported for Lithuania and Latvia.
But BPT said investors seeking investments with higher yields than those being offered by core western European markets should begin looking at the Baltic states and that it expected Nordic investors to be the first movers given their familiarity with the region.
Tarmo Karotam, fund manager at BPT, said: "The Baltic economies were among the quickest in Europe to politically embrace the economic challenges of the financial crisis, making the necessary changes and budget cuts.
"The reward now shows in their macroeconomic progress, fuelled by rising exports and gradually decreasing unemployment numbers.
"The recent economic correction has naturally echoed in the real estate markets, where prices have dropped as much as 40%."
Karotam added: "These days, the market has stabilised at very attractive yield levels, presenting some of the best investment opportunities in a decade."
BPT Baltic Opportunity is targeting strong cash-flow investments in good locations, with a projected return at the fund level of more than 15%.
BPT has already secured seed capital stake in the new fund, with an additional pool of capital expected to be raised at the next closing on 16 March 2011.
"Many Nordic investors understand the long-term potential in the Baltics, and they recognise the timing is now," Karotam said.
"The interest toward the product has been increasingly positive both from private and institutional investors."
Bettina Knudsen, head of investor relations and marketing at BPT, added: "No doubt, core is king these days, but core also has a dramatic effect on the medium and long-term returns. Managers know you need a little risk to keep your overall results competitive in future.
"These days, that can be difficult to find without venturing outside the EU comfort zone. Our argument is that investors actually have an option inside the EU with an interesting macro case behind it and a solid core/core-plus asset strategy."