INTERVIEW: Catalyst to fully invest new €1.2 bn fund ‘within next 2 years’

London-based real estate and asset management group Catalyst Capital is on a mission to fully invest its new €1.25 bn Catalyst European Property Fund II (CEPF II) ‘within the next two years’, according to Fabrice de Clermont-Tonnerre, a partner at Catalyst Capital in Paris.

‘We would like to try and raise all of the equity - around €400 mln - by the end of the year, giving us around €1.25 bn to invest with gearing within the next two years,’ he told PropertyEU.

Catalyst Capital announced the first close of Catalyst European Property Fund II (CEPF II) at the end of June. At the first close, it raised €150 mln from global institutional investors. Investors include European and US pension funds, funds of funds, family offices and wealth management firms.

In addition, investors in Catalyst Capital’s European Property Fund 1 (CEPF I) have also invested in the latest fund.

CEPF II is a closed-end value-add fund and will run for seven years. It will invest in both office and retail assets in the UK, France, Belgium, Germany and Poland in order to capitalise on the market dislocation between prime and secondary assets. It will target a diversified portfolio of income-producing assets and development and refurbishment opportunities.

‘We have already invested around half of the €150 mln we have raised for CEPF II, which, with gearing, gives us more than €200 mln,’ de Clermont-Tonnerre said. ‘In the second quarter, we invested €150 mln in the UK via two distressed portfolio deals. The portfolios provide good income yield as well as value-add opportunities,’ he said.

The portfolios comprise offices, retail and mixed use assets located in strong regional cities like Manchester and Liverpool as well as in the south-east of England, in cities close to London, such as Winchester and Henley. There are also buildings in the portfolios that could be converted into residential. Further details regarding the off-market portfolios have not been disclosed.

Value-added properties have shot up the real estate food chain to become some of the most sought-after assets today. ‘The only way to get returns is via rental growth or repositioning,’ said Richard Divall, head of cross border capital markets for the EMEA region at Colliers in London. ‘It’s all about value-add at the moment.’

According to de Clermont-Tonnerre, Catalyst Capital is taking ‘a very micro approach because that allows us to focus on the dynamics of a given market’. His firm is, therefore, concentrating on stock selection and creative asset management, as well as vacancy rates and capex options. This can include investing in ‘management neglected’ properties with income that might need a capex injection or a building that will have income for another two years before being vacated. ‘That’s where we see the opportunities. We can find opportunities at prices that make sense in regional cities, although that’s not to say that we wouldn’t look at major European cities, too. It’s just that they are overheated at the moment,’ he said.

The new fund is a natural successor to CEPF 1, which was fully invested in 2012 and has sold off more than 50% of its assets in the past two years. Sales included the Les Atelier du Parc office building in Paris to Deka Immobilien for €155 mln in May last year and the office block at 30-38 New Bridge Street in the City of London to the Corporation of London for €32.45 mln in March 2014.

Office and retail deals are on the rise this year, despite the uncertainty in Europe surrounding the Greek debt crisis. There were €42.16 bn of office deals in Europe, including the UK, in the first half of 2015, up from €40.78 bn in the same period last year. Retail deals soared by almost 40% in the first half of the year, to €32.18 bn across Europe, up from €23.7 bn in the same period last year, according to Colliers.

Despite tensions in the eurozone due to the ongoing Greek debt crisis, de Clermont-Tonnerre is confident that his group’s investment strategy will see them through: ‘It is uncertain what will happen with Greece and the impact the crisis will have on the eurozone but the joy of focusing on investment where there is value to be created at the asset level - and in the strongest European economies - is that it allows you to invest in both boom and bust times. That’s what we did during the financial crisis and it is a method that has served us well for the last 20 years.’

Catalyst Capital had €1.3 bn of AUM as of end-June 2015. Its European Property Fund II is its second discretionary fund after CEPF I.