Cromwell's European fund business Valad is seeking a second close for its newly launched European Cities Income Fund (CECIF) by Q1 2017, the company’s CEO David Kirby told PropertyEU.
The Sydney-listed company announced the launch of its first major fund in Europe earlier today after securing commitments from institutional investors and the acquisition of a €205 mln seed portfolio comprising three Dutch assets. With the exception of Cromwell Group itself, which took a small participation of €20 mln, the other investors are all European, Kirby said.
Investors in the first closing include PFA Pension, the largest privately owned life insurance company in Denmark. ‘The second closing will include more international investors,’ Kirby noted. Cromwell is also likely to provide more capital following its initial inlay, he added.
CECIF is an open-ended fund targeting income returns of more than 5% and a total return of 8% from assets located in key selected European cities. Kirby is targeting €2 bn in gross asset value over a two-to-three year period with leverage of 30-35%.
The new fund has a core/core+ profile and marks a break with Valad’s strategy which was focused primarily on the value added space in Europe. ‘The fund is a natural fit’, Kirby argued. ‘We are extremely hands-on and are seeing a lot of assets in the market that need active asset management to bring them back to core. And even when you have core assets, as we do in this case, you need to treat them as value add from day one to maintain that level.’
Dutch seed portfolio
The three Dutch assets that are part of the seed portfolio comprise three prime office assets located in Amsterdam, Rotterdam and The Hague that were acquired in an off-market deal. The assets include the 33,400 m2 Central Plaza in Rotterdam, the 8,700 m2 De Ruijterkade building in Amsterdam and the 5,700 m2 Koningskade building in The Hague. All the buildings are let on long-term leases backed by strong covenants with an average lease length of more than nine years.
Valad acquired Central Plaza at end-2014 from Unibail-Rodamco as part of a 112,000 m² office portfolio sold by the French retail giant. Last year Valad teamed up with US private equity company York Capital to buy a portfolio of seven offices from the Dutch Chamber of Commerce including the two offices in Amsterdam and The Hague. The Chamber of Commerce has leased back the Amsterdam office, but in The Hague, the building is currently being refurbished and has been fully leased to ABN Amro Bank. The refurbished building will have a Breaam Excellent rating.
The European cities fund will invest predominantly in retail and leisure, industrial, office and some specialist property sectors in the 29 locations identified by Cromwell’s research team as cities with long-term rental growth potential and strong liquidity. 'We have researched and carefully analysed 163 European cities and selected 29 which we believe will generate sustainable, and resilient, long term returns for investors,' Audrey Klein, head of equity, Europe, commented. 'These cities will be the future focus of the fund,' she added.
Kirby said the definition of Europe also included London although the company does not at present own or manage any assets in the UK capital. 'The pricing is sharp at the moment, but London is definitely on our radar. If we see a good real estate deal, political bumps like an election or Brexit won't stop us. We're a long-term fund; we're in for the long haul.'
Cromwell’s European funds management platform manages €4 bn of real estate assets and investment capacity across its 26 funds and mandates. The platform covers approximately 338 assets and 3,400 tenants, managed by local teams totalling around 190 people in 22 offices and 14 European countries.
Cromwell Property Group is an ASX-listed Australian REIT with €6.9 bn of total assets under management across Australia, New Zealand and Europe.
