Aviva ends fundraising early on £140m

The London-based firm has foregone its £250 million target for its latest UK Real Estate Recovery Fund in order to capture opportunities now.

Aviva Investors, the London based firm, has called time on its fundraising effort for its latest UK Real Estate Recovery Fund in order to put capita to work as quickly as possible.

The company – which is the investment management arm of UK insurer Aviva – has held a third and final close on UK Real Estate Recovery Fund II on £140 million (€168 million; $231 million), short of its £250 million target.

Announcing the decision, Aviva said it was “mindful of the speed with which the real estate industry is currently moving” and decided that a delayed final close would not be in the interests of investors, despite interest in the fund coming from additional investors.

The fund was launched in September last year and it is targeting UK commercial real estate with a focus on secondary assets with a target return of between 8 and 10 percent per year net of fees. The fund is buying assets with equity and is using no debt.

Anna Rule, manager of the fund, said: “We have aimed to take advantage of the short-term opportunity in the pricing gap between secondary and prime real estate. Since launch, investment activity has already seen the purchase of 13 assets with a collective value of around £75 million. The fund has therefore deployed a significant amount at an early stage of the current cyclical upturn, thus benefiting from attractive market pricing.”

News of the fund close comes as Aviva says it sees an improvement in the medium term prospects for European real estate. Darren Sriharan, global real estate analyst at the company, said there were “encouraging signs of resilience” in Europe’s real estate occupier and investment markets.

He added: “As the economic recovery slowly gains traction, regional occupier markets are expected to improve further. Evidence that the worst of the economic downturn is behind us is positive for rental prospects over the medium term, even if a pronounced rise in rents is unlikely.”

Noting how the investment market is also heating up, Sriharan said while demand for core markets remained robust, there had been a pronounced change in investor sentiment toward peripheral markets where a rebound in prices is set to take shape.

“Probably the most significant risk to Europe’s real-estate markets is the increasing threat of deflation and this should be monitored closely. The weakness of the financial sector remains a concern with credit conditions tight and lending to businesses still contracting,” he explained.

“We are maintaining a focus on countries where macroeconomic risks are lower such as Germany and the Nordics. Additionally, we have identified prime Irish real estate as an attractive market with the cyclical recovery well underway.”