First Property returns to UK market, raises £182m for RE fund

The London-based real estate fund manager cites Brexit as the key factor, following a 10-year hiatus since the financial crisis. 

First Property Group has raised around £182 million ($237.8 million; €207.5 million) for its fourth UK-focused fund, which will target offices and business parks in second-tier cities.

The London-based real estate fund manager, led by chief executive Ben Habib, held a first close on the seven-year fund last week after receiving commitments from eight undisclosed institutional investors.

First Property made a co-investment of £3 million to the fund, Fprop Offices, and is expected to hold a further close after the next round of fundraising later this year. The firm said it did not have a target figure but once 30 percent leverage and potential further co-investments are factored in the fund could have firepower of up to £260 million.

In a departure from usual practice, First Property will not take fees in return for managing the fund, instead sharing in the profits earned. A spokesman said it expected to earn “significantly” more through this arrangement than via traditional structures. This method would also demonstrate the firm’s confidence in the fund to its clients, he added.

According to First Property, should the fund generate a return of up to 7.5 percent, it will take 10 percent of the profits; a return of 7.5-15 percent would earn it 25 percent of the profits; a return above 15 percent would mean a profit share of 20 percent.

The firm did not disclose projected returns on the fund, but PERE understands that it is aiming for the 7.5-15 percent range, which, in terms of strategy, would place it in core-plus/value-add territory.

In terms of investing, the capital raise marks the fund manager’s return to the UK for the first time since the financial crisis, when it decided to focus principally on Poland and Romania.

However, Habib and First Property said last summer’s EU referendum result has opened doors for investment in the UK. PERE understands that all the fundraising has taken place since June 2016’s vote.

“The UK’s decision to leave the EU has created opportunities on which we, as a niche fund manager, are well placed to capitalize,” said Habib. “Our confidence in the fund’s prospects is also demonstrated by our decision to determine our entire economic benefit from it by reference only to the profits it earns.

“This new fund represents major progress in the growth of our fund management business, with third-party assets under management expected to nearly double. It will also substantially increase our investment in UK commercial property.”

Investors in the firm’s first three UK-focused real estate funds earned an average annual internal rate of return of 23 percent, net of fees and expenses, according to First Property’s website.