The UK's revival continues to gather pace as funds believe the potential value outweighs the potential challenges, while investor sentiment to Asia Pacific is beginning to improve. Richard Lowe reports
International interest in the UK real estate market has shown no signs of waning in recent weeks. This was evidenced by the ability of Rockspring Property Investment Managers to raise more than €400m in equity from 12 pension funds and institutional investors from Europe and Australasia for its UK Value Fund. The fund seeks to find value across the UK and is not limited to specific sectors and geographies. It can even invest in joint ventures and other fund vehicles, as well as bricks and mortar assets.
Rockspring said investors were attracted to the fund's strategy. Danish pension fund AP Pension was one of the 12 to commit, and head of property Peter Olsson said the fund "had a compelling business case".
AP Pension has been focusing on the UK more than other markets recently. It has built up an exposure to real estate in Asia Pacific, but new investments here are not on his agenda at the moment. The same cannot be said of the 10 European pension funds that have committed more than €200m to CBRE investors' new fund of funds vehicle, CBRE Asia Alpha Plus Fund. It will also be interesting to see if Aberdeen Property Investors launches a third pan-Asian fund of funds vehicle, following a number of press reports this year that they are seeking to do so.
There has been undeniable trend among institutional investors to focus on their domestic markets and core real estate in mature western markets during the recession years. However, given the long investment horizons of these investors it would be folly to think they no longer want to capitalise on the long-term growth story of Asia Pacific. Jeremy Plummer, head of global multi-manager at CBRE Investors, said the limited economic growth forecast in Europe in coming years was actually putting pressure on investors to reverse the above short-term trend. "Having some allocation to a higher growth region makes a huge amount of sense," he said.
Despite renewed interest in Asia Pacific, the UK market continues to be one of the main targets for fund managers and institutional investors. LaSalle Investment Management launched its Balanced UK Property Fund, an open-ended fund that will seek to offer international investors exposure to a diversified portfolio of high-quality, income producing properties. LaSalle said it expected the UK market to perform strongly over the next five years as a result of yields still being high and an expected long-term rebound in rental values. The fund manager admitted that some assets in the UK had become over-priced during the rally of the last six months, but it expects to see opportunities in the second half of the year as the number of properties coming on to the market increases.
"We have been considering launching this fund for several years and believe that now is the right time for this type of long-term investment vehicle," said Andrew Bull, manager of the fund. "We estimate that yields still have some way to go before fair value as a whole is breached, and past trends suggest the UK property cycle offers at least a two-year window to buy into attractive returns following a downturn."
Henderson Global Investors achieved a successful first closing of its Central London Office Fund II, having raised more than £90m (€108m) from a number of European and North American institutional investors. The five-year discretionary fund will focus on well-located assets with the potential for active management and improvement. The fund's primary strategy is to acquire assets, reposition them and sell them into an upward moving market. Henderson has a performance target of 10% per annum and a performance fee payable only on realised returns at the end of the fund's life.
Elsewhere, Dutch pension fund asset manager PGGM invested €75m in Standard Life Investments' UK Shopping Centre Trust. "This investment gave us immediate and 100% access to an unleveraged portfolio of prime assets in an important sector of the UK commercial property market," said Mathieu Elshout, senior investment manager at PGGM. Investors in Legal & General Property's Industrial Property Investment Fund approached the fund manager to open the vehicle to additional equity commitments. This resulted in £80m more equity, which will be drawn down over the course of the year depending on acquisition opportunities.
Pramerica Real Estate Investors successfully raised £150m from a number of investors including Dutch pension fund investor APG Asset Management for its European real estate debt strategy. The capital will be invested in directly originated real estate mezzanine finance and debt-like preferred equity opportunities, seeking to take advantage of financing gaps not currently being filled by banks and other senior lenders.
"The dramatic shortage of debt capital in the commercial real estate markets has created significant borrower demand in the short term, which we expect will increase and endure as the markets evolve in the face of looming capital shortfall," said Jack Taylor, managing director and head of Pramerica's global high yield debt initiative.
Pension fund BPF Bouw has placed its directly held Dutch real estate portfolio into three funds, which other pension funds can invest in, thereby allowing it to reduce its domestic weighting and reinvest capital in global property markets. The pension fund's real estate investment arm Bouwinest (formerly BPF Bouwinvest) will manage both the three sector-specific (office, retail and residential) funds and BPF Bouw's international indirect portfolio.
Dexia bank and private equity firm Gimv have launched an infrastructure and real estate fund targeting Belgian institutional investors seeking exposure to the Benelux markets. The fund raised €80m from a number of investors, including the pension fund of the Belgian construction sector, and is looking to raise more. The fund will pursue a low-risk strategy, providing periodic cash distributions to investors.
Henderson Global Investors has also begun marketing for an Austria fund, on behalf of its German business Warburg-Henderson KAG. Warburg-Henderson Österreich Fonds Nr. 2 is aimed at institutional investors in Germany, Austria and Switzerland, and will focus on core to core-plus retail and office properties in Vienna.
"The Austrian real estate market is ideally suited for investors who want to diversify away from existing investments in Germany," said Eitel Coridaß, managing director at Warburg-Henderson. "Like Germany, the robust letting market - a result of the strong economy - demonstrates stability. But in addition, the proximity and close links with central Europe offer further growth drivers."