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      • Every little helps when it comes to hitting yield targets
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      • European real estate investment managers continue to be well capitalized even as prime yields tighten, placing a greater emphasis on being more creative in the quest to find value.
        By: Jonathan Brasse
        Published: 17 March 2017
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        The volume of capital available for real estate investment decreased for the first time since 2011, revealed global property services firm Cushman & Wakefield at this year’s MIPIM conference in the south of France.

        A damper on what was otherwise a sunny property fair? Not really, Cushmans said, reminding everyone that the drop to $435 billion was both moderate, at 2 percent lower than last year, and is also the second highest volume on record. Further, as far as Europe is concerned, a 9 percent decrease to $130 billion is more a reflection of euro-dollar currency exchange rates than anything else.

        The capital support currently being enjoyed in the sector in the region was evidenced further by some significant raises for core funds revealed this week: London-based Tristan Capital Partners raised €800 million for its Curzon Capital Partners 5 Long-Life fund, the money collected in just three months; Charlotte-based Barings Real Estate Advisors hauled $506 million, approximately half its target, in a first closing for its first European core fund, Barings European Core Property Fund; and Paris-headquartered AEW Europe amassed €415 million for its Europe City Retail Fund against a €400 million target.

        “Europe continues to show strong signs of recovery and economic growth which should continue to support allocations to the region,” the Cushman report said.

        So raising the capital appears to be a relatively straight-forward affair, the managers that were dotted along Cannes’ La Croisette admitted. Far trickier a task is getting this capital deployed effectively. Core yields remain at record lows and there is a slight, yet palpable, tension in the narrative at the moment suggesting a fear of being caught by interest rate movements.

        “The deals are there, but where is the creativity,” one German pension fund investor asked in a sit-down with PERE. This investor is keen to keep deploying but he is seeing managers accept lower returns by not assuming what he would describe as in fact acceptable risks, for instance acquiring well located buildings that require a little reconfiguring.

        Some of these managers might have done well to wander into "the bunker", otherwise known as the Palais des Festivals. Downstairs and to the left was the innovation area where start-ups like ParkBee were presenting their technology. ParkBee is a firm seeking to better utilize underutilized office car parking spaces. Via a 50:50 income share agreement, the Netherlands-based firm is hoping an increasing assortment of landlords will lend the 16 or so hours a day of estimated vacant car parking they own to the firm to rent out via its smart technology to would be users, thereby adding income where there previously was none.

        Bolting on streams such as this to the income profile of a building is not going to turn a 3 percent into a 4 percent yield, but it will certainly contribute to the bottom line, the firm’s founder told PERE.

        Given the continual flow of capital into the sector, as witnessed during the week-long jamboree, it is in angles like this, that managers may well need to pursue in order to keep the money satisfied. As one famous European grocery store says: Every little helps.
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