Brookfield Asset Management has completed its initial round of fundraising for its first European core-plus real estate fund, Brookfield European Real Estate Partnership, having amassed equity totaling €1.14 billion, PERE has learned.
The Toronto-based alternative asset manager began marketing the fund in September 2019 with a €1 billion fundraising target and held a first close of €725 million in July. The fund’s limited partner base comprises fewer than 10 institutional investors, including public and private pension plans, insurance companies and sovereign wealth funds from Europe, the Middle East, Asia-Pacific and North America. The group includes both new investors and those that have invested in other Brookfield strategies. Most of the investors had not previously invested in the firm’s other two core-plus real estate funds, the US-focused Brookfield Premier Real Estate Partners and Brookfield Premier Real Estate Partners Australia.
All the commitments had closed during the covid-19 pandemic. “This was not fully pre-committed prior to lockdown,” said Zachary Vaughan, head of European real estate at Brookfield. “This was finalized during lockdown or after.”
Brookfield plans to substantially deploy the €1.14 billion before reopening the fund to additional investors. “What we want to do is put a portfolio together prior to opening it up to further capital,” he explained.
The vehicle will be diversified across markets and sectors, Vaughan said: “I would say it’s pretty mixed across residential, some logistics and a few larger office transactions and living-based alternatives like student housing.” The fund will be primarily focused on the region’s five largest markets of France, Germany, Spain, the Netherlands and the UK.
Vaughan adds that the fund’s pipeline has continued to grow and now has reached more than €2 billion in equity. “We’re pretty confident we’ll have several more transactions to announce in the next few months,” he said. Brookfield has invested over €50 million of equity in its first investment in 42 rue de Paradis, an office building in Paris.
Because of the covid-19 crisis, “we have adjusted our near-term assumptions around the velocity of deployment and specific asset-level underwriting,” Vaughan said. “Long term, we still think the markets are well-positioned and we haven’t changed our views about the longer term returns we can generate.”
Compared to Brookfield’s opportunistic Brookfield Strategic Real Estate Partners fund series, which has an average three-to-five-year hold period, BEREP has a hold period of seven or more years. “It’s dictated by the risk profile and in many cases business plans that have much longer timeframes to evolve,” Vaughan remarked.
For example, Brookfield is working on a transaction in a large office building in a major city. Although the asset has a good existing tenant base, the firm sees the potential to reconfigure and re-lease the space over time. “There is going to be work to be done in the next five to seven years on this asset. But we have a lot of confidence in the market and in the sector over this period of time,” he noted.
Brookfield is raising its latest core-plus real estate vehicle at a time when most investors committing to Europe property funds have backed value-add and opportunistic strategies. Indeed, just 2 percent of equity gathered during H1 2020 for European real estate funds went to core-plus, compared to 64 percent for opportunistic and 29 percent for value-add, according to PERE data, which includes fundraising for closed-end funds. By comparison, core-plus accounted for 12 percent of total European real estate capital amassed during full-year 2015.
The firm established its core-plus real estate funds business in 2016 with the launch of BPREP, its first vehicle in the strategy. Later that year, Brookfield raised $900 million in the fund’s first close. As of November, the vehicle had attracted $2.89 billion in commitments, according to a filing with the US Securities and Exchange Commission. In the fourth quarter of 2018, the firm followed up with the launch of Brookfield Premier Real Estate Partners Australia.
As of March 31, BPREP was generating a since-inception net internal rate of return of 7.6 percent, against a 9 percent-11 percent target, and an investment multiple of 1.1x, according to the Q1 2020 real estate performance report from the Los Angeles Water and Power Employees’ Retirement Plan. The pension committed $75 million to the fund in October 2018. However, the New York City Employees’ Retirement System, which pledged $91 million to BPREP in 2016, reported an 10.7 percent IRR and a 1.31x equity multiple in its August 2020 performance review.