How to think about GreenOak’s record European fundraising

GreenOak’s European business has raised almost three times the equity for its second European private equity real estate fund and associated sidecars than it did for its maiden effort. Should there be concern about such rapid growth?

The London-based platform raised €911 million in a haul comprising €656 million for the fund, GreenOak Europe Fund II, and a further €255 million in co-investment capital. That is quite an increase from the €321 million, comprising €250 million of fund capital and €71 million in sidecars, raised for the series’ maiden vehicle in 2015.

Undoubtedly, this second raising comes at a time of sizeable demand for European real estate strategies from institutional investors. According to the latest Investor Intentions Survey by the European Association of Investors in Non-Listed Real Estate Vehicles, global allocations to real estate are expected to increase to 10.2 percent in 2018 from 8.9 percent last year. And over 40 percent of a 92-strong sample of investors indicated Europe was their preferred region, more than any other, value-add their preferred strategy.

Deployment in the region is on the up too. Total investment in Europe reached €286 billion last year, global property services giant CBRE reported, a 9.3 percent increase on 2016. Rival JLL believes there will be a global drop in investment volumes of between 5 percent and 10 percent on the $650 billion it recorded last year, but much of that decrease will be due to peaking prices in the US, placing greater onus on investing in Europe. GreenOak, like peers Benson Elliot, which last week closed on 75 percent of the €800 million target fundraising for its latest fund, Benson Elliot Real Estate Partners V, in a single closing, or Rockspring, which captured the first €100 million for its own latest effort, TransEuropean Property VII, is capitalizing on the demand.

But this is not simply an instance of the firm fillings its boots. The rationale behind the size of the fundraising is understood to reflect the investment period in which the capital is expected to be deployed

But this is not simply an instance of the firm fillings its boots. The rationale behind the size of the fundraising is understood to reflect the investment period in which the capital is expected to be deployed. GreenOak is aiming for an annual run-rate of approximately €250 million of equity deployment per year, a ratio calculated from the first fund, which was deployed into 21 deals within 15 months, three months shy of its contractual investment period. The investment period of Fund II is twice the length at three years.

Assuming 5 percent to 10 percent of the fund is kept in reserve – as most disciplined investment managers should keep – then deploying the €820 million to €866 million of the vehicle and its sidecars divided equally over three years would mean an annual run rate of between €273 million and €288 million – more or less a continuation of the investment pace in the first fund.

Throw into the equation the considerably larger investment horizon of Fund II than its predecessor, and the method behind the considerably larger raise can be further comprehended. The first fund had a narrower mandate: a 80-100 percent allocation to Spain and a 0-20 percent allocation to Italy. Fund II’s mandate encompasses all of western Europe.

GreenOak has arrived at an almost three-times bigger equity haul for its European sequel on the back of extrapolating a raise-to-deployment timing ratio from its first effort and given itself a larger marketplace within which to achieve its aims. Unlevered gross IRRs of 26 percent – levered gross IRRs of 38 percent – and a 1.7x equity multiple generated from exiting about half the deals of the first fund has given GreenOak’s investors the confidence to bet it can do similar at bigger scale.

GreenOak has arrived at an almost three-times bigger equity haul for its European sequel on the back of extrapolating a raise-to-deployment timing ratio from its first effort and given itself a larger marketplace within which to achieve its aims.

Whether it can manage to produce results obtainable between May 2015 and July 2016 over a three-year period now will be known once the period is over. GreenOak has placed many of its bets for Fund II already: the firm has deployed €567 million of the equity in more than 20 transactions in Spain and Italy again as well as in France and the Netherlands this time. The performances of these will go some way to answering that question.