Kronos Investment Group, a Madrid-headquartered real estate manager and developer, has closed its third opportunistic fund on €210 million, slightly above its €200 million target and lower than the €250 million hard-cap.
PERE understands almost 90 percent of the capital has come from European investors, including family offices and institutional investors, with the remaining 10 percent from US limited partners.
This is the first fund in the firm’s opportunistic series to raise insurance capital, with commitments from two French insurers.
The geographic composition of the fund’s LP base is partly because “it is easier to explain the Spanish recovery to European investors,” one person involved in the fundraise told PERE. Spain, the person explained, is the biggest second home market in Europe, with 20 percent of all residences categorized as summer houses or vacation homes catering to tourists.
The Spanish economy has been on the mend after the debilitating crisis of 2009-2013 on the back of structural reforms. Earlier this month, the Bank of Spain published a more upbeat growth forecast, estimating a 2.4 percent economic growth in 2019 versus its previous estimate of 2.2 percent. Meanwhile the country’s central bank also reportedly expects unemployment to fall to 11.8 percent at the end of 2021.
For Kronos, the latest fund will be invested in residential development opportunities created as a result of this recovery and the demand-supply imbalance within the residential sector. Alongside Spain, the fund will also target Portugal, with 20 percent of the vehicle’s equity earmarked for investments in the country.
Around 30 percent of the Kronos Real Estate Fund III has been invested so far, including one investment each in Lisbon and Madrid. The firm is understood to be targeting fully diluted net IRRs of around 20 percent.
Meanwhile economic uncertainty elsewhere in Europe, particularly the Brexit logjam, has also led Kronos to adopt a cautionary stance towards the so-called second, or summer home, market.
According to some estimates, around 25 percent of foreign demand for Spanish second homes comes from British people, and the Brexit uncertainty has led to a 3 percent drop in this demand.
Consequently, Kronos is planning to reduce its investment exposure to the second home market, the person told PERE. Whereas Fund I and Fund II had around 35 percent and 30 percent, respectively, invested in second homes, the firm plans to allocate less than 20 percent of Fund III’s capital to the sector and limit its focus to bigger cities such as Lisbon, Barcelona, Madrid and Valencia.
Kronos Investment Group was founded in 2014 by the former Fortress Investment Group director Saïd Hejal and Bertrand Perrodo, chairman of the family office BNF Capital. The firm has 62 employees across Madrid and other operating offices.