Round Hill closes on first European fund in 10-plus years

Round Hill Capital has closed on its first European real estate fund in more than 10 years, PERE has learned.

The vehicle, European Residential Income Fund II, raised nearly €440 million of equity commitments from a total of 11 investors comprising a range of state pension funds, insurance companies, financial institutions and family offices. The fund targets core/core-plus returns and is focused on multifamily investment opportunities in markets with positive demographic trends, ongoing supply/demand imbalances and strong transport links.

The London-based residential specialist launched ERIF II in the summer of 2020 and announced a €200 million first close in September 2020. By January 2022, Round Hill had increased ERIF II’s total equity haul to more than €340 million, with new investors from Germany and Japan. The final close brought in an additional €90 million raised from a French listed fund and an Asian public pension fund.

ERIF II’s three-year fundraising period was longer than the typical time in market tracked by PERE. Funds closed in 2022 were in market for 22 months on average for all funds and 19 for real estate-specific funds – the longest time in market over the past five years, according to PERE data.

“A lot has happened in the world over the last few years,” explained Kirk Lindstrom, Round Hill’s chief investment officer. Although the firm had been investing the fund’s capital since the initial close, “covid-19 made investing for many investors more challenging. Once we managed to get out of that we’ve obviously experienced now a war in Europe and subsequent economic disruption. And I think all of those characterize the fundraising period.”

The market uncertainty over the past three years consequently prolonged investor decision making. “People are being cautious,” he noted. “It’s an uncertain environment.” Also impacting the fundraising process was Round Hill’s decision to expand its investor base, with all but one of ERIF II’s limited partners a new investor to the firm.

Lindstrom believed the firm’s “very clear strategy of providing cashflow-based, core-plus returns” attracted investors to the fund. “Over the last few years, fewer and fewer assets and fewer and fewer strategies can really provide that,” he explained. “So, I think that underlying, very simple characteristic is what’s led them to invest in the fund.”

ERIF II marks Round Hill’s first European real estate fund since its predecessor was closed on less than €100 million in 2012. However, Round Hill has raised capital through multiple fund and non-fund structures during that 10-year time period, including amassing over $2 billion since 2019.

Among these capital raises are US Residential Income and Growth Fund, for which the firm gathered $250 million in 2021. The firm also formed a €1 billion student housing partnership with CPP Investments that same year and expanded its Irish housing partnership with QuadReal to €575 million in 2022. Other partners during that time period include Abu Dhabi sovereign investor Mubadala Investment Company and Ivanhoé Cambridge, the real estate subsidiary of Canadian pension plan CDPQ.

With ERIF I, Round Hill focused on investments specifically on Berlin and quickly exited the vehicle as the market improved in the aftermath of the global financial crisis. ERIF II, by contrast, is focused more broadly on countries in the Eurozone, and to date has invested in Germany, Ireland, the Netherlands, Denmark and Finland.

The fund’s investments thus far include the acquisition of a 324-unit build-to-rent development in Aarhus, Denmark in January, marking the firm’s entry into the Nordic country, and the purchase of three new residential assets for an aggregate price of €40 million in Germany and the Netherlands last year. Lindstrom estimates that approximately 25 percent of ERIF II’s capital has been deployed to date, and that the fund’s portfolio should reach €800 million to €900 million in value once the vehicle is fully invested.

Although Round Hill originally had aimed to raise €500 million for the vehicle, “the volume of transactions certainly is not what it has been following all the global instability,” Lindstrom said. “I think we have the right size [fund] for the opportunity set that we see in front of us right now.”

He said the liquidation last year of RHC Europe LLP, the legal entity that employed most of Round Hill Capital’s UK staff, did not have an impact on the fundraise. “The completion of the fundraising illustrates the continued belief by investors in our kind of management expertise,” Lindstrom said.

Round Hill has delivered a 24 percent IRR on realized assets to date.