Barings launches pan-European value-add RE fund – Exclusive

The investment manager’s latest property offering is an expansion of its pan-European strategy, which includes a core fund said to have now reached €1 billion in equity.

Barings Real Estate Advisers is coming to market with its first value-add pan-European property fund as it continues to expand its presence in the region, PERE has learned.

Barings European Value Add Fund I is understood to have a target of up to €300 million in equity, according to a source familiar with the matter. Barings declined to comment, but PERE understands that the firm recently began marketing the fund to existing investors.

The real estate investment manager’s latest property offering follows its pan-European core fund, Barings European Core Property Fund, which is now understood to have reached €1 billion in equity. That fund was launched in 2015 and held a first close of €506.11 million, of which €330.27 million came from third-party capital, according to filings with the Securities and Exchange Commission. As of January, the fund had amassed €830.58 million, of which €654.74 million was raised from third-party investors.

The new value-add vehicle will be seeded with a portfolio of five assets Barings acquired with capital from its parent company, Mass Mutual. Similar to its pan-European core fund, the firm will focus on investments in major property types and major gateway cities in the region, but target higher returns – typically 12-14 percent – than the 7-9 percent it is seeking for its core strategy. The fund’s investments will predominantly involve transitional assets that will be converted into core properties during a short hold period.

One of Barings’ prior value-add real estate investments included 8 Waterloo Place, which was acquired in 2014 and underwent an extensive renovation. Barings is said to have originally underwritten rents of £80 per square foot for the building, which is now fully leased, but was ultimately able to achieve an average rent of £100 per square foot.

European real estate funds are understood to be attracting greater interest on a relative basis from institutional investors than those in the US, the world’s largest property market, given the former is further behind the US in its economic recovery.

During the first half of the year, six European value-add funds raised a total of $4.56 billion, according to PERE data. While this volume was more than the aggregate $4.38 billion collected during all of 2017, it was down significantly from a peak of $12.86 billion raised for the strategy in 2014 across 36 funds.

Barings European Value Add Fund I is more modest in size than the top 15 largest European value-add funds currently in market, which range from CBRE Global Investors’ CBRE Value Investors II, with a €1 billion target, to Hines’ Hines European Value Fund, with a €500 million equity goal.