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How BlackRock will invest in European property in light of covid-19

The pandemic has led the world’s largest asset manager to rethink its allocation plan for Europe Property Fund V, which just closed on €1.5bn.

BlackRock Real Assets is now gearing up to invest again in Europe’s property markets, albeit with the covid-19 pandemic having an impact on what sectors and geographies it will deploy capital.

The real assets arm of the world’s largest asset manager has just closed Europe Property Fund V, its latest fund targeting the region, on a total of €1.49 billion. This includes €1.29 billion for the fund plus an additional €200 million for co-investments.

EFV is BlackRock’s largest value-add real estate fund to date and is almost double the size of its predecessor, Europe Property Fund IV, which raised a total of €700 million in 2017.

With EFV, the firm will seek to reposition, rebuild and recapitalize real estate assets across Europe. However, in response to the covid-19 pandemic, BlackRock will invest the fund somewhat differently than it did with EFIV.

“When we launched EFV, we thought we would have a higher allocation to markets such as Spain and Ireland,” said Thomas Mueller, portfolio manager for EFV and EFIV at BlackRock Real Assets. “However, due to the pandemic we are ‘going back to basics’ and will re-focus on our primary and also most liquid markets: Germany, UK, Nordics and France.” In Europe, those four markets have the strongest public finances and healthcare systems as well as lower exposure to tourism as percentage of gross domestic product, the firm said in a statement.

Thomas Mueller BlackRock
Thomas Mueller

In deploying EFV, BlackRock also will seek to capitalize on anticipated market dislocations and invest defensively in sectors with secular tailwinds such as housing and logistics. Mueller noted that over the past 12 months, BlackRock had struggled to find investments with attractive risk-adjusted returns for EFV, which currently has more than 90 percent of dry powder available. However, he expected buying opportunities to emerge for investors that can be patient in the near-term.

“We are at the very beginning of what we believe will be one of the largest market dislocations in our lifetime,” Mueller said. “As the pandemic continues to drag on the real economy until we have a vaccine or drug, real estate occupational markets will start to deteriorate, albeit with a time lag. This should provide EFV with opportunities to help landlords in need of liquidity solutions and to acquire and lease up buildings with increasing vacancy.” EFV currently has more than 90 percent of dry powder available, he noted. 

BlackRock launched EFV in December 2018 with a €1.25 billion target. The fund attracted capital from 39 investors including public and private pension plans, sovereign wealth funds, family offices, insurance companies and non-profit organizations across EMEA, APAC and the Americas. Two of the limited partners were Clwyd Pension Fund and the Florida Retirement System Trust Fund, according to PERE data. All of the capital for the fund was raised prior to the covid-19 outbreak.

Although 67 percent of the capital from EFIV re-upped with EFV, ultimately two-thirds of the latter fund’s capital came from new investors, some of which made sizable commitments to the vehicle. Geographically, the investor base was evenly split between Europe, the Americas and Asia/the Middle East by amount of capital raised. By contrast, EFIV’s investor base was much heavily weighted to the Americas, with almost 60 percent coming from North America.

PERE understands that BlackRock has made 10 exits from EFIV to date, with an aggregate realized performance of a 42 percent return and 2.1x equity multiple. BlackRock declined to comment on fund performance.