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New funds target resilient real asset market segments

Although the economic effects of Covid19 have cast a shadow of uncertainty over the real estate markets of Europe, investors are looking forwards and a number of new funds have been established. Among the latest is property investment manager ECE Real Estate Partners’ new preferred equity fund.

The fund is backed by a portfolio of three neighbourhood shopping centres in Germany which have a collective market value of more than €500 million, ECE REP says.

The ECE Preferred Equity Fund already has capital commitments from institutional investors totalling more than €100 million. ECE Real Estate Partners has also issued a €100 million bond to finance the acquisition of the portfolio.

And, in a statement, ECE REP said strong alignment of interest has been secured by the Otto Family acting as an investor in the common equity component of the structured transaction.

Fund targets long-term investors

ECE REP explained that the fund is targeted at long-term investors striving for high income and regular distributions but who are also looking for downside protection in a market which is attractively priced but undergoing structural changes.

ECE’s fund management unit already has €100m commitments for the new vehicle

The initial assets include the Linden-Center Berlin, Hallen am Borsigturm Berlin and Marstall Ludwigsburg, which together have a lettable area of 125,000 sq m and comprise 270 units. The centres were previously owned by the ECE European Prime Shopping Centre Fund, a closed ended value-add fund.

“During the recent months, with a significant offering of everyday necessities, the three centres have impressively demonstrated the resilience of neighbourhood retail destinations as an asset class. Our bond has received an investment grade rating, underlining the high quality of the portfolio,” said Volker Kraft, managing partner of ECE Real Estate Partners.

The ECE REP fund debut follows a trickle of other recent fund launches such as Tokoro Capital’s TKO-I LP fund.

Tokoro Capital was launched by ex-Brockton Capital executives Sanjay Sethi and Max Bassadone. Their fund, which has €100 million of capital commitments is backed by a major European institution as ‘cornerstone’ investor and, with leverage, is likely to have about €250 million to invest in its initial target markets, London and Paris.

Tokoro said that establishing the fund, “underlines the continued appetite amongst investors to deploy capital into real estate and particularly into funds with no legacy assets.”

Azoro’s €680m raise will target leisure hotels

Madrid-based European private equity real estate manager Azora also announced in July that it had raised €680 million for the launch of new fund Azora European Hotel & Lodging. Azora said that this was €80 million above the fund’s initial target of €600 million.

Once it reaches its hard cap of €750 million, AEHL will have more than €1.5 billion to invest in leisure hotel opportunities across Europe. A significant proportion of the portfolio is expected to be located in Spain.

Azora said commitments were signed throughout the lockdown period and, “demonstrate investors’ continued confidence in both the long-term performance of the tourism industry despite the impact of Covid-19”.

Azora has already secured a portfolio of 10 hotels comprising 2,800 keys and located in resorts on the mainland Spanish coast as well as four city centre assets in Madrid, Lisbon, Brussels and Bilbao, which are to be repositioned as urban lodging concepts with a total of 1,200 beds.

Azora believes that regardless of the short term impact of the Covid19 crisis the European hotel market represents “a compelling opportunity underpinned by attractive supply-demand dynamics.”

“It is a highly fragmented market which has attracted limited institutional capital investment to date, with 62% of the European hotels being independently owned compared to just 30% in the US, resulting in an opportunity to source underinvested and undermanaged assets for repositioning.”

Meanwhile AXA Investment Managers Real Assets has had final close of its second comingled European infrastructure debt fund, European Infrastructure Senior (Floating) 2 which raised   €1.05 billion, exceeding its original target.

AXA IMRA said the capital was raised from a diverse pool of institutional investors from across Europe and Asia.

While some fund managers are clearly taking an optimistic view of the prospects of real assets, the sector is suffering in the short term.

In its Q1 2020 market survey launched in early July INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, said that owing to the negative effects of the covid-19 pandemic the survey revealed the lowest quarterly performance since Q4 2012.

INREV quantifies impact of covid-19

Total real estate returns dipped to 0.22% from 1.80% over the previous quarter, with capital growth slipping from 0.37% to -0.47% and distributed income falling from 1.43% to 0.68%.

The association said declines were recorded across most strategies: Core fund performance decreased from 1.71% to 0.28%, while value added funds fell from 2.96% to -0.73%. UK funds registered the deepest drop from -0.15% to -2.46%, partly reflecting their mark-to-market valuation approach.

Henri Vuong, INREV’s director of research and market information, said: ‘Collectively, these data point toward an environment of down-side risk and we should anticipate lower expectations for real estate performance in Europe in the medium term.”

But she added: “Unlike the immediate aftermath of the global financial crisis, the market is not over-leveraged and funds are sufficiently well capitalised to be able to restructure their debt if required.” Total global real estate assets under management (AUM) hit a record €3.2 trillion at the end of 2019, according to the Fund Manager Survey 2020, which is published by ANREV, INREV and NCREIF. The result was 15.7% up on 2018’s €2.8 trillion.