AXA Investment Managers - Real Assets will invest 'up to €2 bn over the next three years' via its recently launched Development Venture IV fund, the fund's manager, Denis Morel, told PropertyEU.
'The fund raised over €600 mln and will be able to invest up to €2 bn over the next three years, including leverage and proceeds we make in this time from any disposals,’ Morel said. ‘We expect this fund to be fully-invested four years after the first closing, so three years from now.'
AXA IM - Real Assets announced the final close of the opportunistic fund yesterday (16 November), marking the latest in a series of development funds. Development Venture IV will focus on development across all stages of the development cycle, including green and brown field sites, as well as properties in need of significant refurbishment.
‘We want to focus on the UK, Germany, France and Spain, although we will go after the best opportunities,’ Morel said. ‘If we see the greatest opportunities in the Paris area, we will invest more there. Similarly, if we see more opportunities in Berlin, we will go for that,’ he added.
The fund, which has an eight year life, has already made its first acquisition. Assembly Bristol is a 1.5 acre development site in Bristol’s city centre in the UK. Morel is currently looking at further opportunities in the Paris region, he said.
Morel is targeting deal sizes in excess of €200 mln and will also look at deal sizes of €300 mln or even above, he said: ‘The fund is opportunistic so it goes where the best opportunities are but I expect it to mainly invest in offices, given that we have a target deal size of at least €200 mln. The fund could be 100% offices, although it will likely have a retail and residential component.’
Investor interest came from 17 investors across 9 countries, of whom more than 50% were repeat investors, according to AXA IM. Interest was broadly split between North American, European and Asian investors, according to Morel. He declined to comment on the target annual return off the fund, although he said that as ‘an opportunistic fund, our target return should reflect that.’ (Opportunistic funds typically offer an annual return of between 10% and 15 %.)
The new-found popularity of development funds has, in part, been driven by the fact that many European lenders are still not keen to finance development projects, thereby creating a financing niche. ‘From a lending perspective, many lenders are still averse to development, especially spec financing,’ said Nigel Almond, Head of EMEA Capital Markets research at C&W. ‘In terms of Grade A office space, there is not a lot in the pipeline, which can create development opportunities.’
There are currently 20 Europe-focused opportunistic real estate vehicles on the road, including those with a development component, targeting $11.9 bn (€11.1 bn) of investor capital, according to Preqin. The largest is Blackstone’s Real Estate Partners V fund, which raised €5.5 bn in the first closing in June. Blackstone is expected to grow the fund to above €7 bn, creating its largest ever dedicated European real estate fund. The group declined to comment on whether the fund would invest in development opportunities. Swedish private equity group EQT is also capital raising for its opportunistic fund EQT Real Estate Fund 1, which has a target size of €500 mln, according to Preqin. So far this year, 54 opportunistic real estate funds have closed globally, raising an aggregate $37.1 bn, according to Preqin.
AXA IM – Real Assets has managed over 250 projects totaling €13.2 bn since 2000. Development Venture IV represents the fourth generation of development funds launched, with €1.2 bn of equity invested or committed across 30 projects. AXA IM –Real Assets had €70 bn of AUM globally as of end-September 2016.
