APG invests £158m in London resi club

Europe’s largest pension fund asset manager has made a strategic investment in a London-focused residential investment club born from the liquidation of another fund.

Algemene Pensioen Groep (APG) has invested £158 million (€187.9 million; $250 million) in a large portfolio of rented residential properties across the UK.

Europe’s largest pension fund asset manager with €325 billion of assets under management has acquired the properties from a fund in the middle of being liquidated and managed by Grainger, the UK’s largest listed residential property company.

APG’s investment has instigated the formation of a London residential focused investment club called GRIP that may include other institutional investors in the future. Grainger is recycling the proceeds of its investment in the fund to make a strategic investment in the club also.

The properties were held in a fund called G:res1 which was launched in November 2006 with an initial portfolio of 1,480 units in 38 developments across the UK. It since grew to 2,170 units in 56 blocks and clusters of properties – about 90 percent of which are located in London and the south east – with an investment value of £412 million.

In June 2011, the investors in the fund sought to liquidate the vehicle and Macquarie Capital, the investment advisory arm of Australian bank Macquarie arranged the club and brokered the sale at a valuation of £349.5 million. APG’s investment in the club was £158 million while Grainger co-invested £59 million comprising proceeds from its stake in G:res1, valued at £50.7 million, and an additional £9.1 million of equity. The club has been structured to attract one or two other institutional investors.

Grainger will provide fund, assets and property management services to GRIP and has created a dedicated management team for this purpose led by fund manager Michael Lamyman.

Going forward, GRIP is expected to grow with further investments in leased blocks of residential property, again predominantly in London.The club is expected to generate core returns but there is the chance of further upside as its mandate includes the possibility of investing in development.

Robert-Jan Foortse, APG head of European real estate, said: “APG has a long history of investing in residential real estate, mainly in the Netherlands. We believe prospects for the Greater London rental market are promising and we are enthusiastic about adding this exposure to our portfolio. APG has been a shareholder in Grainger plc for several years and we are pleased to expand our relationship with Grainger via this partnership. This transaction demonstrates our willingness and aptitude for working with investment managers to modernise, recapitalise and extend the life of existing vehicles owning good quality real estate.”

Grainger described the transaction as being consistent with its plans to grow its fund and third party asset management business. The company’s chief executive Andrew Cunningham said in an announcement on the tie-up: “We see APG's commitment as a clear acknowledgement of UK residential property's growing appeal as an institutional asset class, as well as a significant endorsement of Grainger's expertise in the UK residential sector and the strength of our operational platform. We look forward to working with APG to drive long term value within GRIP.”