Round Hill Capital in €200m first close for European multifamily fund

The affordable housing-focused European Residential Income Fund II is the manager’s second European discretionary fund.

Residential real estate manager Round Hill Capital has raised €200 million in the first close of its European Residential Income Fund II, PERE can reveal.

The equity haul comprised commitments from institutional investors, both existing and new clients of Round Hill, including pension funds, insurance companies and asset managers across Asia, North America and Europe.

Michael Bickford, founder and chief executive officer at Round Hill, told PERE the €200 million was in line with expectations for the first close, albeit not a “hard target.”

Michael Bickford
Bickford: Rental housing has proven resilient throughout market cycles

“We are continuing to discuss the strategy with prospective investors and have significant capacity to deploy further capital into the multifamily residential real estate sector,” he said.

The firm will target income-producing multifamily housing assets in what it termed “micro-locations.” These are specific parts of a city’s housing market.

In terms of geography, the firm is targeting markets including Germany, the Netherlands and the Nordics.

The assets are to be affordable, measured by the firm as costing a tenant less than 25 to 35 percent of their gross monthly income.

The fund has a 10-year term and is targeting a net IRR of 8 percent to investors, including an average annual cash distribution of 5 percent.

ERIF II marks Round Hill’s second European discretionary fund as well as its ninth vehicle in the European core-plus, income-producing residential strategy.

Bickford cited the defensive nature of the rental housing market, particularly the multifamily asset class, as rationale for investing in the sector.

“Investors see multifamily as a strong, resilient long-term investment, which can provide secure risk-adjusted returns in a low yield environment,” he said. “For these reasons, investors are actually increasing their asset allocation to accommodation.”

He added: “Rental housing has proven resilient throughout market cycles, remaining shielded from cyclical trends.”

The high level of resilience of the sector boils down to its solid long-term fundamentals, including tenants’ prioritization of rent payments and continued tenancy, according to Gemma Kendall, head of multifamily investment, EMEA at consultancy JLL.

“The multifamily sector is driven by a persistent need for housing and flexible lease-terms. Contractions tend to be shorter, while periods of growth are prolonged,” said Kendall.

JLL found that the multifamily sector accounted for nearly two-thirds of total residential investment in the second half of the year across Europe.

Thomas Westerhof, head of residential investment, continental Europe at advisor CBRE, added that the rent performance of the European multifamily sector has generally sustained, particularly in Germany, the Netherlands and the Nordics.

“Stabilized, available opportunities and pricing are increasingly driving capital into upcoming multifamily markets,” Westerhof told PERE.

Further supply versus demand shortages are set to remain for some time, as lockdown measures have adversely impacted the residential development pipeline, specifically the “for sale” markets, according to Westerhof. This is prompting traditional residential and commercial developers to switch strategies from “for sale” to developing build-to-rent, he said.