Cromwell Property Group and Valad Europe have launched their first pan-European core real estate fund with backing from Denmarkβs PFA Pension.
Cromwell, an Australian REIT which , now joins a growing roster of managers seeking to build large, diversified open-ended funds in Europe.
The Cromwell European Cities Income Fund has secured commitments from a number institutional investors, including Denmarkβs largest privately-owned insurance company .
Earlier this year, Cromwell CEO Paul Weightman that company was planning to launch a β¬500m European core fund.
David Kirkby, European CEO of Cromwell, said today that such a fund had been on Valad Europeβs βradarβ for some time. The stability of the new Cromwell ownership βwent hand in handβ with that ambition, he said.
The initial capital raise β understood to have come predominantly from European investors β has enabled the fund to buy a β¬205m seed portfolio of Dutch assets.
Cromwell is aiming to reach β¬2bn in gross asset value. This would bring it in line with the two biggest funds in the market β managed by Real Estate and Global Investors, respectively β which ΒιΆΉΣ³» Real Estate understands have surpassed the β¬2bn mark.
Cromwell will also be competing with , and all of which have launched new funds.
Despite anticipation in the industry that Cromwellβs takeover of Valad Europe would facilitate the raising of Australian capital for European strategies, most of the initial wave of capital has been raised from European institutions.
Kirkby told ΒιΆΉΣ³» Real Estate there will be opportunities to target investors in Australia through its local presence there.
He said the fund was targeting a second close in the first quarter of 2017 and it was βlikely to see a big spread of investors internationallyβ.
PFA Pension, which was the only investor named by Cromwell, was not available for comment.
Industry sources say institutional appetite for core open-ended real estate funds is growing as investors face increasing pressure to deploy real estate allocations and find alternative sources of income.
The Illinois Municipal Retirement Fund (IMRF) it is investing in three pan-European open-ended core funds, managed by Invesco, CBRE Global Investors and .
Denmarkβs PFA recently in Morgan Stanley Real Estate Investingβs pan-Asian core fund, targeting returns of βmore than 8%β.
Cromwell is also targeting a total return of 8% and an income return of more than 5%.
Audrey Klein, head of equity for Europe at Cromwell said: βThe historically high yield premium of European commercial property over sovereign debt and corporate bonds currently offers an attractive entry point for institutional investors looking for a long-term total return in excess of 8%.β
Kirkby said investors like PFA were backing the management platform of the company. In Valad Europe, Cromwell bought a company with 190 people in 22 offices and 14 European countries.
βWe have a local presence on the ground that can continue to asset manage the investments that we secure but also drive return,β he said. βThat is really important to investors when they are making the decision.β
The seed portfolio for the fund consists of three office buildings: the 33,400sqm Central Plaza in Rotterdam, the 8,700sqm De Ruijterkade building in Amsterdam, and the 5,700sqm Koningskade building in The Hague. The portfolio has an average lease length of more than nine years.
The fund will invest predominantly in retail and leisure, industrial, office and some specialist property sectors in the 29 cities identified for long-term rental growth and strong liquidity.
Kirkby said: βUK is definitely on our radar, but we are cautious until there is a little settling around Brexit. But we are buying institutional properties for the long term, so if there is good value to be had in the UK we will not ignore it.β
