Aviva Investors launches second UK recovery fund

UK-based asset manager Aviva Investors has launched a second UK real estate recovery fund focusing on the acquisition of secondary assets.

The UK Real Estate Recovery II Fund has completed a first close of about £90 mln (€107 mln) and has a target size of £250 mln.

The fund is ungeared, will invest in UK commercial real estate and target a return of 8-10% per annum (net of fees) and a distribution yield of 6-6.5% per annum. The new fund will carry out intensive asset management such as lease re-gearing and refurbishments to reposition its assets. It will opportunistically sell assets once individual business plans have been completed and maximum value realised. The fund has a life of five years.

It will be managed by Anna Rule, manager of the UK Real Estate Recovery Fund which was launched in 2009. That fund raised £223 mln, investing in 17 assets over a 12-month period. Rule: 'This is a strategy designed to capture the outperformance of secondary real estate. On a risk-adjusted basis, it is segments such as industrials and offices outside of Central London that currently look the most attractive. Yields are high in these sectors by historical standards, and are particularly so, relative to prime real estate and other low-risk, income-producing asset classes; we believe we are in the early stages of a recovery with yield compression driving strong returns over the next few years.'

Aviva Investors' 150-strong team manages over £22 bn in real estate assets across the UK and Continental Europe.