Patrizia is acquiring a portfolio of 10 residential assets in Barcelona for about €600m for its pan-European Living Cities fund.
“For the fund, the investment in Barcelona is a milestone, with around 1,200 beds and takes us to €1.3bn of incoming producing assets in the fund,” Sebastian Dietert, fund manager of Living Cities Fund, told IPE Real Assets.
The open-ended vehicle, which was launched more than three years ago, has raised close to €1bn over the past 12 months, taking it to €1.5bn.
The properties in Barcelona have been built recently, between 2019 and 2021, or are due to be completed this year.
“We are confident they will perform well and meet our business expectations,” Dietert said.
Dietert said a cultural shift was taking place in Spain, away from a market predominated by owner occupiers. “Now we see that the topic of flexibility, moving to vibrant cities is proven and therefore we are ramping up investments there,” he said.
The living preferences of younger households in Spain are changing and increased down-payment requirements to get onto the housing ladder, he added.
Patrizia has been using its Living Cities index of 149 urban centres across Europe to identify the best loations for its residential fund.
“The index is key for the fund and that is why it will be used as the guideline to invest in cities that are the most liquid and in demand,” Dietert said.
This has enabled the fund to invest beyond the larger cities to include the likes of Aarhus, Rotterdam and Potsdams.
“We want to build an income-producing stock of residential real estate, which is sustainable, for clients, and with emerging locations,” Dietert said.
Patrizia recently acquired a student-housing portfolio in Denmark, a residential scheme in Ireland with around 1,500 units, and a build-to-rent development in Reading, UK, with 281 apartments.
Dietert said. “The Living Cities fund focuses heavily on ESG, high quality locations, all within walking distance to schools, kindergartens, supermarkets.
“We use data intelligence to assess and compare the quality of the locations or districts within cities, even to postcode level, to help make our investment decisions.”
Data intelligence means that Patrizia scouts the market using publicly available data, combined with its own data sets and algorithms to evaluate the performance of locations within cities and down to street level.
Inflation concerns fuelling investors appetite
Patrizia is seeking to raise more capital for the fund to take to at least €2bn this year.
The vehicle recorded 10.7% year-on-year return in the third quarter of 2021, and is on track to beat its annual target of 6-7%.
“Over a 10-year period we aim to achieve an average 6-7% total return each year in the market,” said Chilten Allen, head of funds capital markets. “The key for us is to be the market fund of choice and outperform the market.”
Investors’ appetite is coming from pension funds, insurance companies and other types of investors worldwide, he said, adding that “many investors are underweight in residential”.
He said: “We are [also] seeing an uptick in interest from investors because of concern regarding inflation in the near future.
“Residential is great because shorter leases allow you to catch the inflation quicker than commercial leases [and] investors are definitely looking at residential for that.”
Living Cities complies with Article 8 of the EU’s Sustainable Finance Disclosure Regulation (SFDR). “Having ESG-proof quality assets and this inflationary-linked income in the fund is a key strategy,” Allen said.