With a target of €1.25bn, property investor Hines’s second European value-add fund is set to almost double the fire power of its predecessor. For Paul White, fund manager of both, it will be an opportunity to address some lingering regrets.
“There were some cities that we were disappointed not to get exposure in in fund 1,” White tells EG in the days following the new fund’s first close at €627m.
“That would include Paris, Munich, Frankfurt and Madrid. And, importantly, because of timing, we were cautious about London and the UK. So my expectation is that fund 2 may have a slightly different focus at times in its investment period and may fill in some of those gaps.”
Already, the office-focused Hines European Value Fund 2 has also struck deals for an office development in Munich and a residential scheme in Madrid. “And we’re certainly working on London with a different type of confidence now,” White adds, with the firm also in exclusivity on a mixed-use office and retail development in London’s West End.
Chasing yield
At its first close, the new value-add fund is already almost the same size as its predecessor, for which Hines raised €721m between mid-2017 and mid-2018. That fund has since been invested in nine deals across the UK, Germany, Denmark, Spain, Italy and Poland.
White expects a second close for the new fund later in the year and a final close before 2021. If it hits its target of €1.25bn, the team thinks it will have purchasing power of almost €3bn.
There is a lot of equity capital out there in the world and not a lot of yield or higher return asset classes
– Paul White, fund manager, Hines European Value Fund 1 and 2
Thirteen investors have so far committed to the new fund, which launched in September 2019 and targets a net IRR of 11-13%.
“It’s no secret that there is a lot of equity capital out there in the world and not a lot of yield or higher return asset classes,” White says. “For some years now, institutions with future liability streams that are obliged to match them have struggled to do so from their conventional mix of fixed-income and equities.”
If investing in core real estate “is more akin to fixed-income exposure”, White adds, value-add investments can often offer higher returns. “That can be a helpful ingredient in the wider portfolio of these institutions at a time like this, when yield is lacking.”
Journey to the core
White says the new fund will continue the first vehicle’s hands-on approach to asset management.
“We’re looking for assets that have incumbrances to value; issues we believe we can resolve with our skillset, opportunities to create value because they haven’t been optimised yet,” White says.
“Every project we undertake will, when completed and sold, be a true core product – but it isn’t when we buy it. We’re navigating the journey between what we can acquire and the arbitrage in pricing that we can acquire it at, and the core product we can sell, adding value in every which way we know how.”
White also wants his new fund to follow in the footsteps of Hines’s Pan European Core Fund in being benchmarked against GRESB, which tracks the environmental, social and governance strategies of real estate investments.
Such measures should help the fund to differentiate itself even in a crowded market, White hopes.
“Even in a flat broader market backdrop, the skillset we are physically applying on the real estate creates new value and creates returns across cycles and across markets,” he adds. “This really feels like our time.”
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