UK - Schroders has raised capital from pension funds for a new value-added real estate fund, bucking the trend for core investment strategies that have predominated over the past two years.
The fund, which is managed by Columbus Capital Management, a specialist value-add focused division of Schroders' property business, is aiming to take advantage of pricing inconsistencies brought about the market bubble currently growing in the prime end of the market.
The Columbus UK Real Estate has raised £80m in its first closing from institutional investors - among them pension funds - and hopes to triple this over the coming months, before leveraging the capital by up to 50%.
Joe Froud, managing partner at Columbus Capital Management, believes investors' overwhelming appetite for core investments in the UK has led to pricing inconsistencies, which value-add investors can capitalise on.
"There is a great opportunity for a fund like ours, because we can take advantage of the over-inflating of the prime end of the market," he said.
"Anything that has not been long leased to a good covenant has been indiscriminately discounted."
Froud said it took until the end of the 2009 before the fund manager could "gain traction" with prospective investors who were still preoccupied with the rush to prime.
"The problem I had as someone who is very much a value-add investor was that people just weren't interested in value-add strategies," he said.
"They needed to see the value disappearing from the core market before looking to consider more value-add situations."
Froud believes the prime end of the market in the UK is "becoming risky" as a result of the higher prices investors are willing to pay.
He said investors' appetite for core funds is based on the yields on prime property seen in 2009 and not on the prices investors will have to pay over the coming years, which is actually when their capital will be invested in a new fund.
"There was a huge amount of pressure from investors to raise a core fund, because that is what they wanted," he said.
"I was looking forwards and saying, ‘what fund is going to work best over the next two years?' Because that is when we are going to be investing the money - not yesterday."
The new fund is already in the process of acquiring an unnamed shopping centre, which Froud said was "certainly not considered prime but has a huge amount of potential".
Froud is also working with an over-leveraged owner/occupier to buy the property from its lender and then lease it back to the company.
"There are a lot more banks who are actually putting pressure on borrowers to sell rather than foreclosing and actually selling themselves," Froud said.
"That in itself is providing quite a fertile ground of opportunity for us."