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Brookfield reaches €725m first close for core-plus fund – Exclusive

The European vehicle represents the latest offering in the Toronto-based alternative asset manager’s lower-risk, lower-return fund series.

Brookfield Asset Management has expanded its open-ended core-plus real estate fund series into Europe, PERE has learned.

The Toronto-based alternative asset manager has raised €725 million in the first close for the fund, Brookfield Premier Real Estate Partners Europe, which Brookfield first began marketing about nine months ago. The equity haul comprised commitments from Brookfield and a group of fewer than 10 large institutional investors. Limited partners included insurance companies and sovereign wealth funds from Europe, the Middle East and Asia.

Brookfield expects to bring in more investors into the fund as the manager deploys the capital over the next 18-24 months. “We anticipate coming across larger transactions for which we would need co-investment capital,” Zach Vaughan, Brookfield’s head of real estate for Europe, told PERE.

Zach Vaughan

The fund’s strategy will be diversified across geographies and primarily focused on the region’s five largest markets of France, Germany, Spain, the Netherlands and the UK. Through the vehicle, Brookfield will invest in a range of property sectors, excluding hospitality.

To date, Brookfield has invested about 3 percent of the fund’s capital in a single transaction, the €100 million acquisition of an office asset in Paris. However, Vaughan said that many potential deals were delayed during lockdown because the firm was unable to see assets. However, Brookfield’s fund currently has an “active pipeline” that has been growing as the region emerges from lockdown, he said.

“We’re seeing more deals in last 30 days,” Vaughan noted. “Our pipeline is continuing to build, particularly as Europe continues to open up. We’re in active review of about €1.5 billion of transactions.”

Value-add/opportunistic is the most-favored real estate strategy for investors for 2020-2021, according to an audience poll conducted during a Goodwin Procter webinar last week. The risk-return profile accounted for 40 percent of responses, compared to 25 percent for core-plus.

However, Vaughan said the current opportunity set for opportunistic investments is limited compared to that of core-plus: “We haven’t seen yet a large volume of distressed transactions. That will come as credit-driven events unlock assets. We continue to see a lot of assets that are terrific long-term assets where business plans may be longer than what you would need in an opportunistic setting but where the profile doesn’t fit a very core buyer.”

Core investors typically are seeking more than 10 years of secure income from an investment, whereas a core-plus strategy typically offers less than 10 years of income duration but opportunities to enhance cash flows through active asset management, he explained.

Brookfield has been investing in European core-plus real estate since the early 2000s on a deal-by-deal basis. One of the firm’s most high-profile transactions in the strategy was its 2015 acquisition of Canary Wharf through the takeover of its owner, London-listed property developer Songbird Estates.

The firm established its core-plus real estate funds business in 2016 with the launch of its first vehicle in the strategy, the US-focused Brookfield Premier Real Estate Partners. 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 December 31, BPREP was generating a since-inception net internal rate of return of 7.5 percent, against a 9-11 percent target, and an investment multiple of 1.1x, according to the Q4 2019 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.