Northern European real estate firm Nrep has restructured its business with the formation of Urban Partners, in collaboration with venture capital firm 2150, credit platform Velo Capital, and private equity investor Luma Equity.
The partner-led structure aims to address complex social, economic and environmental challenges facing cities today by pioneering collective problem-solving that ‘bridges the gap between the interests of capital and cities’, according to the firm.
‘Urban Partners will use a combination of constructive capital and the expertise from its various financial arms to invest in projects that respond to the social, economic, health, and environmental challenges faced by cities,’ says Nrep CEO Rune Kock, who took the chief executive role at the firm last October. Claus Mathisen, former leader of Nrep, has become CEO of Urban Partners.
‘By bringing together different types of expertise and capital Urban Partners intends to analyse all factors required to decarbonise and regenerate the urban environment, rather than real estate or climate tech in isolation,’ Kock adds.
For Nrep, the new arrangement also provides an expanded fund-raising platform to broaden its ambitions still further. While the initial structure shares some €20 bn in assets under management, shortly after its formation in May, Urban Partners raised some €3.65 bn of firepower for Nrep to make further investments.
Creating Urban Partners
‘There was a long-term vision for the Urban Partners structure,’ Kock says. ‘Nrep has always been a partner-led business, and Urban Partners is owned by the same partners that owned Nrep.’
Kock explains: ‘Velo is a platform created in Germany that was acquired by Nrep; we added Nrep people to the existing firm. Luma Equity is a business created by a former partner of Nrep in Sweden who decided to expand into traditional private equity, now brought under the Urban Partners umbrella. Likewise, 2150 is the dedicated venture capital firm that we launched in 2021 to invest in urban technology and accelerate real estate’s sustainable transition.’
Fund-raising activities
Nrep has been raising capital for a series of investment funds for around a decade, dubbed the Nrep Nordic Strategy Funds (NSF). The formation of Urban Partners coincided with fund raising for a fifth fund, NSF V, to the tune of €3.65 bn of capital commitments.
The new fund is the fifth and largest vintage in the NSF value-add series and the majority of the commitments to the fund came from existing Urban Partners investors. The total investor make-up is globally diversified, predominantly comprising pension funds, insurance companies, and sovereign wealth funds. The fund was significantly oversubscribed and had a total demand from investors surpassing €4.2 bn.
Kock notes: ‘In the face of a challenging global fundraising environment, the NSF V fund attracted unprecedented investor demand, making it the largest European focused value-add real estate fund to date.’
Through NSF V, Nrep invests to address underserved real estate segments across the Nordics and selected Northern European markets. The focus is on residential rental properties, modern logistics facilities, care homes and offices, where the company can create value through customer-centric and decarbonising solutions.
Adds Kock: 'The significant scale of NSF V enables Nrep to make a meaningful impact through our focus on customer-centric and decarbonising real estate strategies, and set a positive example for the industry to follow and ultimately scale.
‘By focusing on structurally supported sectors and demographically driven trends, we have the proven ability to create value across cycles whilst demonstrating the commercial viability of brown to green real estate transition strategies.
‘In the context of recent global macroeconomic disruption, we expect to be in a uniquely competitive position as attractive opportunities arise and markets stabilise, particularly when combining NSF V’s investment capacity with our open-ended fund, which is also actively deploying.'
NSF V has a substantial pipeline and has already committed approximately one-third of its capital.
Its 33 investments so far include the Vällingby Centrum project in Stockholm, the historic commercial centre forming the basis of the widely replicated 15-minute city, which was acquired with an environmental and social sustainability-focused enhancement strategy.
It also includes the initial homes for OsloBolig, a unique third housing sector coalition with Oslo Municipality and other partners, and; the Eteläesplanadi 2 office building in Helsinki, where Nrep will undertake an ESG-focused refurbishment and install its flexible workspace concept.
Asset classes
In its areas of focus, Nrep is arguably playing to its strengths. Kock notes that Nrep ‘was founded on logistics; this was our first strategy and something that we identified as having a significant tailwind, with the growth of e-commerce.’
He adds: ‘We saw a few, very large, rapidly expanding players needing modern space. This was an opportunity to build the right connections and invest in the future, and that’s something we continue to do. Now, logistics is an area which has already repriced since the outbreak of war in Ukraine.’
Elsewhere, its tastes are broad. ‘We have living investments that range from bespoke strategies in student housing and elderly care, to more traditional multi-family residential – all of that will continue. Cities need to be able to offer quality accommodation to these demographics.
And the housing situation in the Nordics, as in other countries, is at a stage where affordability is a real issue. The only way is to build more housing. We want to help meet targets and make sure that we build the right product at an accessible price point.
‘Offices is something that remains an interesting theme and we in fact have a new strategy for this asset class. It’s in a different cycle compared to the US in Europe, we haven’t seen the same supply-demand issues, and we see a large opportunity in driving brown to green refurbishments.
I think this will be a fairly large part of what we do going forward; I genuinely believe that we have to reuse what has already been built, if you look at what is going on with cities and the planet.’
New geographies
While Nrep was born in the Nordics, which remains its chief territory, the firm launched an office in Warsaw a few years ago. ‘We are doing logistics in Poland and some living assets, out of that office,’ Kock confirms.
‘Last year, we also decided to enter Germany with a small team. That has not reached the same stage as Poland yet, so it’s still a start-up; we have done one investment in the living sector for a pre-existing platform. We are working our way to build up a permanent, strong presence.’
Nrep is perhaps best known across Europe as a sustainability pioneer for thinking laterally about environmental issues and functioning cities.
Kock says that the firm feels a sense of responsibility around this, to the extent of imposing a carbon tax on itself. ‘We are not sending money to anyone,’ he explains, ‘but when we underwrite investments, we add in an additional line of costs that become higher and higher the “dirtier” the asset you want to acquire. If you invest in better assets, future returns will be better. It’s about making sure that our investment teams aren’t making purely financial decisions, or are at least factoring in aspects that affect the planet in multiple ways.’
He adds: ‘We can also demonstrate that assets with a greener profile trade at better prices, and attract better rents from tenants.’ According to recent research from Cushman and Wakefield, he notes, the premium on green leases can be as much as 8%. ‘As we have grown in awareness of how the occupier market responds to green buildings, it has also become easier to justify those investments that take us from brown to green.
'That is an opportunity to concretely transform assets which risk becoming imminently obsolete into a relevant energy and carbon class. It really takes blood, sweat and tears to bring some buildings up to scratch, but if you’re good at it, you can make a good business out of it, and that’s something we want to specialise in.’
