Peakside eyeing failed sales for its incoming PREF IV fund

Peakside Capital, the European private equity real estate business spun out of Bank of America Merrill Lynch a decade ago, is targeting deals hampered by the ongoing coronavirus crisis for its fourth opportunity fund, Peakside Real Estate Fund IV.

PERE can reveal the Frankfurt-based firm has raised €160 million in a first closing for the closed-end fund. It has set a fundraising target and hard-cap of €350 million for the vehicle.

The primary target sectors for Peakside will be logistics and light industrial properties, although selected hotels and retail properties will also be evaluated, principally for use-conversion purposes.

Founding partner Boris Schran said: “We already see selected opportunities, mainly from failed sale processes and auctions. We also see the opportunity to be in the most hard-hit sectors like retail and hotels, mainly hotels. Retail is going through a structural change. Hotels are driven more by specific pricing and here we expect to see a quick recovery once covid is resolved.”

The equity in the first closing for PREF IV came mainly from European institutional investors, comprising pension funds, insurers and financial services organizations, although some family offices and high-net-worth individuals also committed capital. Most were re-upping investors from the fund series’ prior funds.

Stefan Aumann, another of the firm’s founding partners, said fundraising initially started at the end of 2019, but was paused as the pandemic ensued. “We were in the starting blocks, but then events really started to hit and almost everyone was busy handling themselves. There were lots of analysis and risk management requests to handle. And so, we really only picked up the pitch book again in June and fundraising started in earnest after the summer.”

Peakside’s current assets under management have a gross asset value of approximately $1.4 billion and are held in the firm’s PREF II and PREF III funds.

The firm declined to comment on the performance of these vehicles, but PERE understands that PREF II is producing a gross IRR of around 40 percent, a gross equity multiple of 2.3x, a net IRR of approximately 25 percent and net multiple of about 1.8x. PREF III, meanwhile, is projecting a gross IRR of about 30 percent, with a gross multiple of 1.7x, a net IRR of 20 percent and a net multiple of 1.5x.

While he would not be drawn on performance, Schran did say, “The portfolio we have is resilient. There was very little risk management to be done.”

He said the portfolio rent collection rate across the assets, mainly comprised of offices and logistics properties, was 97 percent through 2020, with the firm suffering only two cases of insolvency.

He said that PREF IV, which is expected to reach a final closing by Q1 next year, was yet to deploy any capital, though one large asset situated in one of Germany’s big seven cities has gone under exclusivity.