FRANCE - A €150m joint venture between Pramerica, the European subsidiary of US insurer Prudential Financial, and French developer Groupe Hoche is to invest in sub-institutional-sized Paris residential assets on behalf of US pension funds.

The partners will look at smaller assets than those targeted by private equity investors and have already agreed to acquire three Paris residential assets with an aggregate value of €25m. The JV has signed contracts for two further assets over which local mayors have pre-emption rights under French law.

The focus will be on Paris and other French cities, including Toulouse and Lyon.

Asked about the operations-intensive nature of small-lot acquisitions, Phil Barrett, managing director of Pramerica's merchant banking group, told IP Real Estate: "That's why we do it with a partner. We manage the relationship tightly, and they do a lot of the work."

He added that further deals were likely with the same partner for commercial and retail.

The joint venture's focus on secondary assets is an indication that prime property in Paris, as in some other European capitals, is currently overpriced.

"Most people have the view that core prices are high," said Barrett. "But just as we announced with our residential strategy at the end of 2010, we're taking offices located in a largely residential sites and converting them back into residential. They were secondary office but we've reconverted them back into prime residential."

The Pramerica—Hoche JV will be investing capital committed to a real estate fund that raised capital before the financial crisis and closed in 2008.

"Raising an opportunistic fund in the current climate would be pretty tough. This fund closed in 2008 but we're still within the investment period," said Barrett.

The vehicle will include an undisclosed percentage of leverage, although Barrett pointed out that this kind of leverage was "less difficult" because French residential is usually sold off-plan with forward commitments to acquire the social element in residential bloc deals.

The French joint venture follows the announcement earlier this year of a similar €82m structure to develop Swedish residential.