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Internos evolves with maiden fund

London–based Internos Real Investors has raised €75m from German institutional investors for the first close of its debut real estate investment fund. In so doing, the firm has evolved from a fund management consolidator to become a traditional private equity real estate firm.


Internos Real Investors, a London-based pan-Europe real estate investment firm, has reached a major milestone in its evolution by holding an first close for its first real estate investment fund.

The company, which was started in 2008 by Andrew Thornton and Jos Short, formerly of Invesco Real Estate and Pramerica Real Estate Investors respectively, announced this morning the collection of €75 million of capital commitments for the Internos Hotel Real Estate Fund – an investment fund focused on Europe’s hotel sector. In so doing, Internos has evolved from a fund management consolidator to become a traditional private equity real estate firm as well as this closing was its first since its inception.

Though Internos already manages 14 existing vehicles, most of these were inherited when it took over management contracts from Australia’s GPT Halverton as well as the management of two Merchant Place Funds and two further funds from Invista Real Estate Investment Management.

The strategy had been to amass assets under management – which now stand at €2.1 billion – taking advantage of the consolidation that has been occurring in the sector as capital and real estate market conditions led to weakened platforms falling by the wayside.

By raising its first fund under the Internos brand, the firm now has fresh capital for new deals. Indeed, the capital, raised from four German institutional investors, has already been put to work. Internos has exchanged contracts to buy four hotels in Germany and the Netherland as a seed portfolio, with a total investment of more than €100 million. Debt for the deals was provided by Germany bank Bayern LB.

The firm said the four hotels were three and four star assets with long, stable trading records, located in major cities in Germany and the Netherlands and operated by three different major hotel groups under long leases. The fund’s investments are expected to deliver dividend yields of 7.5 percent-plus and IRRs of 11 percent-plus.

Significantly, the fund gives investors a degree of control making it close to a club structure in some governance respects.

To raise the maiden vehicle, the company gained a license from Germany’s Financial Supervisory Authority, BaFin, to operate a German ‘Spezialfonds’, putting the company alongside a small select group of investment managers with a KAG licence including Aberdeen Asset Management, La Salle Investment Management, Cordea Savills, Warburg Henderson, Pramerica Real Estate Investors, Schroder Property, and Morgan Stanley. German Spezialfonds are the preferred investment vehicles for German institutional investors and were formulated over 30 years. Their structure is well-established and offer investors tax-exemptions.

Jochen Schaefer-Suren, who joined Internos in January 2011 from Invesco Real Estate as a partner and head of the hotel and leisure division, said: “To be successful we knew we had to design a ‘core’ hotel investment strategy and thus, even more conservative than in the past, i.e. exclusively focused on the core euro-zone, stronger tenants and existing stabilised hotels, with a very conservative 40 percent loan-to-value financing yet still offer attractive returns. We also structured it as a club deal with German institutions with the right tax and regulatory structure, i.e. a KAG, with well-aligned interests and investor control.” 

Short, executive chairman of Internos, added: “By reaching first close of our maiden hotel fund in a very challenging fund raising environment, we have passed a critical milestone in the fund’s development. With the all-important ‘first close’ now behind us, we can look forward to raising further equity once the initial tranche is fully invested in line with our core strategy.”

Internos was founded by Thornton, former chief operating officer of Invesco Real Estate Europe and Short, former chief executive officer of Pramerica Bank real estate private equity, a few months before the collapse of Lehman Brothers. It currently has around €2.1 billion of assets under management and offices in London, Amsterdam, Luxembourg, Frankfurt and Paris.