Letterstone and Starr set up EUR 1bn CEE investment fund

London-based fund manager Letterstone Group and private investment company Starr International have established a new European company to invest up to EUR 1bn in real estate developments in Hungary, Slovakia and Romania. The vehicle will also invest in Ukraine at a later stage.

Letterstone and Starr, headed by former AIG boss Maurice R. 'Hank' Greenberg, have provided initial funding of EUR 100mln to the new, five-year Netherlands-based investment fund, LS Real Estate Ventures, to acquire EUR 500mln of development investments in Eastern Europe over the next 15 months.

Starr International has the option to increase LS Real Estate's equity by a further EUR 150mln in increments of EUR 50mln. With debt, the fund will have up to EUR 1bn to invest.

Letterstone's offices in the target countries will identify the fund's investment opportunities. The investments will consist of a mix of multi-sector investments in existing property, properties with alternative use potential and new-build developments, The joint venture says the target return for each investment will be 20% or more. The initial geographic split will be: Hungary 40%, Slovakia 30%, and Romania 30%.

Noting the fund is being created at a time of high market volatility, poor investor sentiment and tightening credit, Letterstone said Central and Eastern Europe has seen increased levels of investment, and the growth in these levels is expected to continue in the near future at an increased pace. 'Our focus is on building in the path of economic growth, and our chosen markets highlight this,' Letterstone CEO's Simon Hill said.

The fund will have an initial term of five years, after which its board will evaluate the vehicle's future. 'Following any agreed liquidation, the fund will dispose of all of its assets over a two-year period at the end of which the fund will be wound up,' Letterstone said.

Letterstone, formed in May 2002, is a property fund manager with projects in excess of EUR 400mln focused on selected markets in Central and Eastern Europe.

Starr International Company was incorporated in Panama in 1943 as a private financial services holding company with about $20bn in assets worldwide.