Colonial First State seeks 'enhanced core' through A$500m Australia retail fund

The real estate division of Colonial First State Global Asset Management has started fundraising on an investment fund aimed at Australia's 'sub-regional' and 'neighbourhood' shopping centres.

Sydney-based Colonial First State Global Asset Management, Australia's largest fund management business, has begun fundraising on a retail real estate investment fund, seeking up to A$500 million (€380.5 million; $495 million) in equity commitments from institutional investors.

CFSGAM Property, its real estate division, has started fundraising for its CFSGAM Property Enhanced Retail Fund, a vehicle through which it will invest in 'enhanced core' properties. This is expected to comprise a mix of assets with solid and growing income distribution, with potential for capital growth through active asset management, including tenancy mixing, leasing, and targeted redevelopment programmes, the firm said in a statement.

Labelling the risk strategy an 'enhanced core' proposition, Colonial is targeting institutional investors for which it is expected to generate an IRR of more than 11 percent a year after fees. In keeping with its moderate comparative risk, the firm is to deploy gearing at between 15 percent and 25 percent loan to value.

The fund will be used to buy assets of between A$25 million and A$125 million.

Angus McNaughton, head of wholesale property funds for CFSGAM Property, said: ?We are seeing Australian shopping centre yields at or near cyclical peaks, particularly sub-regional and neighbourhood sub-sectors. Our dedicated capital transactions team has identified a nationwide pipeline of potential acquisition opportunities for CERF.”

Colonial has more than 25 years investing experience in Australian retail real estate. The firm currently has more than 40 centres of under management and a team of more than 620 staff dedicated to the sector.

The firm said it expected a first closing of A$250 million this quarter for the closed-ended, eight year fund.

It has appointed Pacific Capital, an Australian real estate advisory firm, as placement agent. Pacific Capital director Robb Macnicol said: ?International investors recognise the strength and stability of the Australian economy and he benefits of its exposure to high growth Asian countries, particularly China.?

Colonial First State Global Asset Management is the asset management business of the Commonwealth Bank of Australia. It had A$152 billion of funds under management at 31 October 2010. Its real estate arm, CFSGAM Property, currently manages approximately A$18 billion in real estate funds via both listed trusts and private funds.