UK - A number of large UK corporate pension funds will take advantage of a neglected segment of the real estate market through a new fund managed by First Property Asset Management (FPAM), a subsidiary of First Property Group.
Several bluechip pension schemes, all advised by Stamford Associates, have committed £106m (€120m) of equity to FPAM's UK Pension Property Portfolio LP, which will target lot sizes between £3m and £15m.
FPAM is targeting this specific lot size range because it falls between the lower end of the market dominated by private investors and the larger institutional market.
"Sub-£3m you are knocking against private investors, and that market is actually quite hot at the moment; north of £10-12m you start knocking against institutions; and in the middle somewhere there is quite a nice area to play," said Ben Habib, chief executive at First Property.
A growing number of pension funds and institutional fund managers may look to this lot size range as the UK real estate market becomes increasingly competitive.
Another UK fund launched this week by Clavis Walden is targeting a similar transaction size of between £2m and £6m for the same reason.
Habib said FPAM would be in a strong position because unlike most other investors in this segment of the market the fund is investing with pure equity.
"A lot of people who operate in the sub-£10m bracket do need gearing to buy, so we've got a competitive advantage over the geared buyer," he said.
The fund will initially refrain from using leverage but may introduce gearing at a later stage, subject to the unanimous approval of its investors.
The pension funds investing in the seven-year, closed-ended fund are described as bluechip companies and "household names".
The fund has been designed to pursue a core strategy but may stray into core-plus territory, focusing on well-let but slightly higher yielding mainstream commercial properties with an absolute return objective.
Habib said First Property was concerned about the state of the occupational market in the UK, with rents declining and vacancies rising.
However, he explained this was why the fund was pursuing a defensive strategy targeting assets where "the rent was clearly sustainable".
Real estate in the discount retail sector, supermarkets and affordable office blocks would be top of the list for this strategy.
First Property will co-invest £1m in the fund and will earn annual management fees (based on the value of assets) and additional performance fees if targets are met.
Habib said FPAM was bidding on three or four properties, and was going through due diligence on two other assets, currently under offer.