Residential real estate manager Round Hill Capital has committed €500 million of equity to invest in Dutch residential, PERE has learned.
The manager formed a joint venture with a Middle-Eastern sovereign wealth fund to build, re-develop and manage properties in the Netherlands via DRI3, a bespoke vehicle launched earlier this year. Round Hill declined to name the sovereign fund.
Round Hill made its first investment for DRI3 during covid-19’s lockdown period in the affordable housing segment of the market. It was a single portfolio acquisition of 14 assets, 12 of which were re-developed offices, across the cities of Amersfoort, Arnhem, Apeldoorn and Deventer. In aggregate, the assets comprise 821 apartments over 358,000 square feet.
The remaining two assets from the portfolio contain another 136,700 square feet of gross floor area that comprise predominantly office space, though also benefiting from residential conversion. “[They are] currently leased to tenants,” Sander van den Heuvel, senior vice-president at Round Hill Capital, told PERE. “Should those tenants decide to leave, we will review our options at that time.”
He added: “If we had the opportunity to re-develop them to residential, we would look to do so, given this is the property type that fits our joint venture.”
The manager said the apartments provide affordable homes for lower-income tenant groups. “There is a significant shortage of affordable homes in the Netherlands and across Europe. We expect demand for them will remain strong and increase following the crisis,” said Kirk Lindstrom, head of investments at Round Hill.
The joint venture’s capital commitment was agreed to this year before the pandemic outbreak.
Although the firm did not disclose its target size, nor the joint venture’s investment window, it said it saw a substantial pipeline of deals for the venture extending to some 2,000 further units. A spike in dealflows, however, is not expected until the second half of the year. ”Over the last several weeks, we have seen an increasing pipeline of potential investments through both structure tender processes and off-market deals and we expect that this will continue to pick up in the second half of the year,” said van den Heuvel.
Round Hill does not expect covid-19’s direct and collateral effects to have a significant impact on the fund’s deployment pace. “For this strategy, we expect to deploy more than €500 million into investments,” said Lindstrom. “The market has been slower recently and this could possibly continue into coming months. But, given the long-term attractiveness of investing in residential property in the Netherlands, we expect we will deploy our committed funds in the near future and not at a significantly slower pace than previously predicted.”
The deal represents the firm’s comeback into the Dutch residential property market after a year away. Last year, the firm sold its bulk of residential properties in the Netherlands to the Swedish real estate group Heimstaden for €1.39 billion. The portfolio consisted of 536 assets with a total of 12,300 lettable units comprised of 9,544 residential units, 77 commercial units, 2,112 parking spaces and 567 other units, such as storage.
“The 2019 sale was a transaction on behalf of one group of investors. But we have continued to invest in the Netherlands and plan to do so in the future,” said Lindstrom. “Our long-term views on the Dutch residential sector remain as positive as in 2014.”
Aside from the joint venture, the company expects to acquire or develop at least 5,000 units of residential real estate in the Netherlands over the next three years. According to Lindstrom, the market’s “fundamentals” remain strong. “The impact of covid-19 has not changed our overall view on the attractiveness of responsibly investing in residential real estate in selected markets in the Netherlands.”