UK – Legal & General Property is talking to investors in its fully invested UK Property Income Fund (UKPIF) about launching a £1bn (€1.1bn) follow-on vehicle.
UKPIF raised £300m in equity from institutional investors in 2010-11, which it finished deploying last month, together with £130m in leverage.
The new fund would seek to continue the strategy of targeting income-producing core and core-plus assets with large lot sizes, although the fund's manager Charlie Walker said it might move slightly up the risk curve to take advantage of market opportunities.
That Legal & General Property was able to invest the capital – committed by 14 institutional investors from the Middle East, Denmark, UK, France, Finland, Switzerland and Japan – quickly is likely to bode well for its efforts to raise a successor.
Walker, speaking to IP Real Estate at the MIPIM property convention in Cannes, said it was important for investors to know their committed capital would be put to work.
He said he was talking to existing and new investors, some of which were unable to invest in UKPIF at the time.
A number of real estate managers are seeking to launch UK funds that target assets outside the prime and core end of the market, but there have been question marks over whether there is enough investor appetite in the market.
CBRE unveiled the results of its latest investment intentions survey at MIPIM, which showed a growing interest in "good secondary" and "opportunistic/value-add" assets.
The report said the implications were "that the trend towards greater investor interest and activity in secondary assets, evident since the final quarter of 2012 in some European markets, will gather pace during 2013".
Legal & General Property's new fund would target large assets where the manager hopes to benefit from an "illiquidity discount" and "the positive yield premium offered by properties requiring asset management expertise".
The last deal for UKPIF was a £116m portfolio of 48 trade parks.
The new fund will also continue to offer investors the ability to choose a preferred level of gearing between 0% and 50% loan-to-value.
Walker said this facility was very useful for bringing together investors with different requirements when it came to leverage.
Legal & General Property is targeting a size of £1bn for the new fund once factoring in leverage.
The fund will aim to deliver 8-9% returns for those with an ungeared exposure and 12-14% for those employing leverage.
