Patrizia’s value-add raise comes amid thinning competition

Only 41 European value-add funds were in market last year, the lowest total since PERE began tracking the space in 2014.

Augsburg, Germany: Patrizia's headquarters

The latest fund from Patrizia Immobilien’s long-running TransEuropean series has reached its second close on €250 million, half its fundraising target.

With TransEuropean VII, Patrizia has capitalized on strong demand for European value-add investment amid a thinning field of competitors.

This is the first TEP fund brought to market since the German firm acquired the initial sponsor, London-based Rockspring Property Investment Managers, in 2017. With an additional €200 million in commitments in the due diligence phase, the fund is poised to reach its €500 million goal this year.

Paul Hampton, head of international fund management at Patrizia, credited the fundraising success of TEP VII to the longevity of the 27-year-old series. It is particularly pleasing, he said, against “the backdrop of a competitive marketplace where institutional investors have choice.”

As managers target value-add strategies to meet surging investor demand, Hampton tells PERE, the field has felt more crowded as of late.

However, PERE data shows the opposite to be true. Only 41 European value-add funds were in market last year, the lowest total since PERE began tracking the space in 2014. The number of funds in the strategy peaked at 64 in 2015.

Hampton said the numbers may not reflect the true scope of the European value-add market because of the emergence of core-plus funds, whose strategies can overlap with that of value-add vehicles.

“Over the last 12 to 24 months, we’ve seen a number of new funds coming to market, many of which have been badged as ‘core plus’, targeting lower overall levels of return,” he said. “That said, it is not always easy to distinguish the underlying strategies and the risks being taken from some of their value-add fund counterparts.”

The number of pan-European core-plus funds in market doubled between 2014 and 2017, from 15 to 30, according to PERE data. Last year, however, the total fell to 17. Similarly, opportunistic funds targeting the continent also hit a five-year low in 2018, with just five funds closing on $3.43 billion, compared to averages of 13 and $8 billion, respectively, from 2008 to 2017.

Hampton said another appeal of the TEP brand is its continuity. While many European managers saw turnover after the global financial crisis, the TEP team has stayed largely intact since the series launched in 1992. During the past quarter century, the team has deployed €2.8 billion across seven funds, with the series generating a gross internal rate of return of nearly 13 percent since inception.

To date, Patrizia has raised 70 percent of its capital in the fund from repeat investors and committed to acquiring five assets in Madrid, Barcelona, Berlin and Paris.