Hines closes third European value-add fund above target

Houston-based manager Hines has raised €1.6 billion against a €1.5 billion target in the final closing for the third fund in its European value-add series, Hines European Value Fund 3 (HEVF 3). The firm has also announced that HEVF 3 will henceforth be rebranded to Hines European Real Estate Partners III (HEREP III).

The vehicle, launched in January 2022, joins a list of nine value-add real estate funds with a sole focus on Europe that have reached a final close so far this year, PERE data shows. It is the second largest both in this value-add cohort and among all private real estate funds closed to date with an exclusively European remit. Topping the table is NREP Nordic Strategies Fund V from Copenhagen-based manager Nrep, which closed on €3.65 billion in May.

HEREP III received commitments from 35 investors, in addition to Hines’ own co-investment. Most investors in the fund are institutional pension funds and insurance companies. According to PERE data, Danish public pension fund Laerernes Pension was among them, having committed €75 million to the fund last year.

Of the total commitments, 57 percent came from existing investors in the HEVF series. Hines European Value Fund 2 amassed €1.1 billion against a €1.25 billion target in 2020, and the first fund in the series reached a final close in 2018 with €721 million, surpassing its target of €500 million.

Speaking at a roundtable event at the firm’s London office last week, Hines’ chief investment officer for Europe, Alex Knapp, said despite the above-target raise in under two years, being on the road “hasn’t been a walk in the park.” Against a challenging macroeconomic backdrop, investors are curtailing their real estate allocations and many lack available capital to invest, he explained. Despite this, Hines attracted €620 million of the fund’s total in 2023.

Paul White, senior managing director and HEREP series fund manager, said the fund’s investments are divided into three principal themes: brown-to-green office conversions in prime cities, logistics developments and purpose-built student accommodation schemes, mostly via conversion of existing office buildings.

“With this fund, we have introduced development into the HEREP series for the first time,” said White. “We can’t improve buildings that don’t already exist.”

The fund is close to 20 percent allocated, with Hines having so far deployed more than €300 million of equity across four transactions. These include the acquisition from the faltering flexible workplace provider WeWork’s liquidating investment fund of the mixed-use Film House in London, which Hines will refurbish to multi-let; a logistics site close to Leipzig for the development of a warehouse park; a PBSA tower development in Barcelona; and a brown-to-green office refurbishment in Cologne.

Going forward, White expects further deployment opportunities to arise from “motivated” sellers, rather than distressed situations. These include listed real estate companies – particularly in Germany and Sweden – sellers with syndicated equity positions, and developers with unviable business plans that cannot service the debt attached to their land.

He does not expect institutional investors with direct real estate holdings to inject much liquidity into the market, however. “Institutions don’t want to be the canary in the coalmine for true values across portfolios. They also don’t want to sell now and then regret it later if values recover,” he said.

With regards to Hines’ own exits from earlier investments in the HEREP series, White said that asset sales previously planned for 2022 or 2023 have in some cases been postponed as a result of the market dislocation. “We’ve had to adjust our exit strategy, but we have not been pushed into the ‘motivated seller’ camp.”

In its European suite of products, the HEREP series sits alongside the Hines European Core Fund, an open-end diversified vehicle launched in 2006, and Hines European Property Partners, an open-end diversified core-plus fund established in 2022.

Hines ranks 13th in this year’s PERE 100 ranking, having attracted $13.6 billion in capital commitments over the previous five years through March 2023.