French group Primonial’s newly-launched Luxembourg asset management platform has started fundraising for its inaugural pan-European real estate investment fund, PropertyEU can reveal.
The company, Primonial Luxembourg Asset Management, expects to hold a first closing for the residential-focused vehicle within one or two months, Primonial Group's managing director and Primonial Luxembourg CEO Laurent Fléchet told PropertyEU.
‘The fund received the green light from the local financial authority CSSF three weeks ago and we have already secured some big clients in Europe,’ Fléchet said.
The vehicle will follow a core-plus/value-add strategy and aims for internal rate of returns of around 10% using ‘a reasonable level’ of leverage, he added. Geographically, it will focus mostly on residential assets in France, Germany, Belgium, Italy and the Netherlands, while taking a more cautious investment approach on Spain.
Although Fléchet declined to comment on the targeted fundraising volume, he said the fund is planned to ultimately hold assets worth around €500 mln. ‘It is easier these days to raise equity than invest in good product,’ the 53-year old manager said. ‘For our first residential fund, we decided not to target a very large amount of equity and preferred to be cautious and raise an amount which is in line with our capacity to find assets in selected markets where we have a local presence. This will allow us to deliver capital gains within the next few years.’
Primonial – traditionally more of an office specialist – has been expanding aggressively in the healthcare property segment and recently announced plans to diversify its portfolio further by building up a €4 bn European housing portfolio. Residential assets currently represent around 6% of the group’s total real estate portfolio but are planned to grow to around a quarter of total assets in a three-year period.
Commenting on the new residential strategy, Fléchet said the timing is ideal for such a move. ‘We believe the potential for rental growth in a number of places including Grand Paris, Berlin, Leipzig and Milan is much bigger in the residential sector than for some office submarkets and that the capital gains we can achieve from residential assets in these locations will be higher than what we could have had investing in offices in these cities. At the same time the yield spread between offices and residential – which used to be 200-300 basis points up to a few years ago - is now only 50 bps, offering a good opportunity for investors like ourselves to become a major player in this market.’
This article first appeared in EuroProperty, the weekly publication of PropertyEU.
