First acquisition in Spain for KGAL’s new resi impact fund

New impact fund KGAL Core 5 LIFE has reached first closing and has acquired its first asset, a newly-built, sustainable residential property with 142 units in Málaga, Southern Spain.

The residential building KGAL has just acquired in Malaga, Spain

The BREEAM-certified asset, acquired from Spanish developer Neinor Homes, was built in 2021 and its one, two and three bedroom flats and four commercial spaces are almost fully let at affordable rents. The property includes an underground car park with 215 parking spaces and six e-charging points.

The building is energy-efficient, has solar thermal panels for water heating, smart meters for energy and water, and very low CO2 emissions. In addition to affordable rents, social impact features include good infrastructure and barrier-free features such as ground-level entrances, ramps and lifts. There is also a communal kitchen and co-working space.

There is a proptech angle as well, as almost all the building and service functions can be done through an app – a first for Spanish rental management.

Málaga, Spain’s sixth largest city, has a flourishing economy which is attracting several multinational tech companies. Its population of around 580,000 is expected to grow by 10% by 2031, increasing the demand for affordable housing.

“The new market cycle in real estate presents challenges for all investors,” said Florian Martin, managing director, KGAL Investment Management. “But as this first investment of our impact fund shows, it also offers opportunities that didn’t exist 12 months ago.”

KGAL said it is conducting exclusive negotiations on further transactions in Austria, the Netherlands, Spain and Ireland.

The Core 5 LIFE (which stands for Living Impact Fund Europe), one of the few Article 9 residential funds with a European focus, has received capital commitments in the hundreds of millions shortly after its launch, KGAL said, taking advantage of the current market cycle with increased initial yields, and it is scored against stringent ESG criteria.

KGAL Core 5 LIFE invests in seven Western European countries with liquid housing markets and positive demographic trends. Affordable housing and high energy efficiency are important pillars of the fund’s strategy.

“Sustainable real estate investments should achieve better long-term rental and value growth against the backdrop of high energy costs and tightening EU regulation,” said André Zücker, managing director, KGAL Investment Management. “At the same time, our investment approach protects against costly retrofits and stranded assets.”

With a planned share of at least 80% core properties, KGAL Core 5 LIFE will have a stable portfolio, while with up to 20% core-plus investments it aims to generate above-average returns. The target volume of the Article 9 fund is €400 million of equity, with leverage of up to 45%.

“What makes KGAL Core 5 LIFE unique is its ESG scoring model, developed together with established external ESG experts,” said Zücker. “We measure the fund’s environmental, social and governance objectives against more than 30 criteria – far above and beyond the industry standard.”