Invesco has reached its final target of €750 mln for EVAF II, its follow-on European value-add fund.
EVAF II, managed by Kevin Grundy, has raised an additional €200 mln since the third close announced a year ago and expects to deploy up to €1.9bn with leverage.
Mike Bessell, Invesco Real Estate’s managing director, European investment strategy, told PropertyEU that the fund will focus on repositioning assets for the post Covid recovery.
‘There are plenty of good deals to do. One of the key drivers for opportunities at the moment is the increasing focus on ESG and therefore the reassessment by existing holders of assets of the capex costs that are going to be needed to sustain buildings at the right quality.’
Bessell said this ‘brown discount’ is ‘definitely starting to push some deals to the market that in the past might have had some degree of extend and pretend. So while we’ve not got the financial distress there was 10-12 years ago, there is a good stream of deals to do from sellers who don’t want to flag their disposal too widely.’
While prime property values have stayed strong, thanks to low leverage, supportive lenders, and the ongoing dearth of yield in other assets classes, Invesco has seen price falls in higher risk real estate assets, like properties with short leases or capex requirements.
Bessell highlighted the variance between markets and sectors which is based partly on the structural transitions that Covid has speeded up and partly on shocks to sectors which Invesco believes will return to normal, pre-Covid levels in due course. Last year European deal volumes were 22% lower but while hotel transactions fell 66%, logistics increased 10%.
Similarly, volume decreases varied across countries: they were relatively small in the Netherlands and CEE but halved in Spain which saw its tourism industry hammered.
The EVAF II fund is targeting various themes including conversion of buildings to urban logistics, hotels or residential for sale.
It has residential-for-sale projects underway in Madrid and Turin and, Bessell revealed, has bought a 220,000 m2 land plot in Casei Gerola, Greater Milan, with a building permit for a logistics park. EVAF II will develop one of the first buildings in Italy to be LEED Platinum on the site, during 2022.
Bessell said the lower returns from PRS make this form of residential more suited to a core investing strategy. Invesco’s open-ended European Living Fund, launched last year and targeting a 4% pa gross income return, plans to have invested its initial capital by the end of the year and a number of additional investors are looking at investing at that point.
The fund prefers to forward fund developments rather than buy standing investments, as it has done in Bossey in France near Geneva, SeiMilano in Italy and Copenhagen in Denmark.
The latest, the Bossey project, will have 115 flats which takes Invesco’s exposure to 35 residential investments and 8,310 units across all its European investing strategies.
Invesco has made half a dozen investments in Copenhagen residential in the last 18 months, not all for the Living Fund. Deals are sourced by local partner Rubik Properties.
Bessell said that the manager’s new mandate for UBS Wealth Management clients announced last month would be ‘a gradual ramp up. That’s not to say we wouldn’t like an initial €1 bn, but a steady stream works better for investing in line with our existing programmes.’
