Europa Capital to hold €200m first close on Fund IV

The London-based private equity real estate firm is due to complete the first round of fundraising next month for its latest Europe-focused real estate investment vehicle, which is seeking to raise €750 million in capital.

Europa Capital expects to hold a first close late next month on approximately €200 million for its fourth opportunistic real estate fund, Europa Fund IV, which will focus on investing in the European Union, Norway and Switzerland.

The timing of the first close, as well as the anticipated final close in mid-2013, was noted in documents from the Los Angeles County Employees’ Retirement Association (LACERA), which approved a €50 million commitment to the fund last week. The $39 billion pension plan, which will sit on Europa’s advisory board, previously committed $25 million to Europa Fund III, a €731 million European real estate fund that launched in 2007.

Fund IV, which is targeting a gross internal rate of return (IRR) of 25 percent and a net IRR of 20 percent, will focus on: the repositioning of real estate assets into institutional quality; loan restructurings where a new infusion of equity is required; acquiring prime assets from motivated sellers; and recapitalisations of assets or loans where the fund will act as the new borrower or sponsor.

Similar to its predecessor, the new fund will pursue investments in the range of €15 million to €40 million of equity, “which are generally too small for large institutional investors and too large for local investors,” John McClelland, LACERA’s principal investment officer for real estate, and Amit Aggarwal, real estate investment officer, wrote in a memorandum to the pension’s board of investments. The fund primarily will invest in the more liquid European real estate markets in Europe, such as the UK, Germany and France.

Since Fund III, Europa has undergone a significant change of ownership, with the Rockefeller Group International (RGI) acquiring a 75 percent stake in the firm in October 2010, the real estate officers stated in the memo. However, they noted that RGI is not involved in the day-to-day operations of Europa, has no staff in Europa’s offices and is not involved in managing any of Europa’s funds. RGI, along with Europa management, will co-invest 10 percent of the fund, up to a maximum of €50 million, which will include a €10 million investment by Europa’s founding partners, Charles Graham, Noel Manns, Peter Cluff and Robert Martin.

In its recommendation for Fund IV, however, The Townsend Group, LACERA’s real estate consultant, noted that RGI’s acquisition of a majority stake in Europa “may place additional pressure to grow revenues and launch new products, which may divert key man attention away from the fund.” Indeed, in seeking to build its platform, the firm has expanded ownership in the firm from the four founding partners to 12 equity partners and intends to hire additional employees to source other business opportunities. In particular, Europa seeks to develop new investment products that will complement its opportunistic fund business and has hired new staff to head up the new initiatives, such as Mike Birch to oversee its mezzanine finance initiative and Tim Turnbull, the former chief investment officer of real estate for Hermes, to lead a new core fund platform.

Prior to its investment in Fund IV, LACERA invested $144 million in European real estate, including private commitments to Europa Fund III, CBRE Strategic Partners European Fund III, CBRE Strategic Partners UK Fund III, Hunt UK Realty Partners, Carlyle Europe Real Estate Partners III, as well as a public investment in European Investors Securities.

Separately, the pension also approved a real estate co-investment of $29.4 million in a multifamily project in the San Francisco Bay area in partnership with CityView Bay Area Fund I, a commingled real estate fund sponsored by CityView, a Los Angeles-based investment firm. The pension’s 75 percent interest in the co-investment is projected to earn a 12.4 percent return over an anticipated 18-month holding period.