Investec launches UK real estate equity strategy

Investec has established an equity strategy to invest capital in UK real estate on behalf of global investors, PERE can reveal.

The UK- and South Africa-registered bank, which has a loan book of around £3 billion ($3.8 billion; €3.5 billion) in UK real estate, is looking to channel capital from global investors into real estate equity investments.

This marks the first time that Investec Bank plc, the UK arm of Investec, has sought to raise third-party capital for real estate equity investment. The wider banking group also has a South African property investment business, Investec Property, which invests in, develops and manages real estate across the country.

Investec REALIS, as the UK strategy is named, will deploy £250 million in acquisitions on a deal-by-deal basis over the next two years. The bank is targeting a 15 percent net IRR for its investors, which will include institutions, family offices and high-net-worth individuals. Investec will commit equity to every acquisition.

Of the initial deployment target, £125 million to £150 million will constitute equity, with leverage for the strategy’s investments capped at 60 percent.

Investec REALIS is led by Yon Papageorgiou, who joined Investec as head of real estate equity investments in August 2022. Previously, he was investment director at Paris-based real estate private equity firm TwentyTwo Real Estate.

Papageorgiou tells PERE that the strategy was launched to capitalize on strong demand from Investec’s investment banking client base to access differentiated opportunities within core UK real estate sectors.

“We believe it’s a very attractive entry point in the UK real estate market as of today,” he says, citing significant repricing, inflation tempering, low unemployment rates and low vacancy rates for higher-quality assets.

“As a South African-founded bank, there has always been a strong willingness among our clients to invest overseas to hedge against currency movements. When the UK is benchmarked against Europe and the US, we believe it has repriced quicker than other markets. The pound is also relatively weak compared to the dollar and the euro, making it an extremely attractive market to invest into,” he adds.

Office, logistics and purpose-built student housing are among the property types targeted by the strategy.

The first investment was the acquisition in March of 255 High Street, a recently refurbished, 45,500-square-foot office property in Guildford. The asset was secured by commitments from some of Investec’s private banking clients in the UK, Switzerland and South Africa.

Papageorgiou says the strategy initially will offer investors access to real estate on a deal-by-deal basis only, but this could evolve over time into the creation of a fund.

“Some transactions are well suited to deal-by-deal, such as when we’re making a distressed acquisition on a standing stock asset,” he says. “Others are more suited to platform investments, where we would aggregate investments to create value, or if there’s significant risk around planning or development we’d rather invest via thematic funds.”

Papageorgiou says the bank will leverage its large network of real estate manager clients in the lending business to screen opportunities and source off-market deals.

“A lot of our lending is in the more value-add/opportunistic space, which also gives us unique access to well-established operating partners,” he adds.

Ticket sizes will average between £20 million and £50 million, which Papageorgiou sees as the “sweet spot” in terms of competition for deals. “Generally it prices out the HNWI clients where there’s a bit more competition, but it’s also too small for the large private equity firms, which have been the most successful at fundraising.”