Valad's new Diversified Fund to favour German investment

Multi-let real estate investment manager Valad Europe has shifted the weighting of its new diversified fund to favour Germany over the UK, although it had originally planned a 60:40 allocation for the UK. It has now raised €180m in equity fort he Valad European Diversified Fund, giving it buying power of 375m pounds or nearly €450m.

The fund will invest in core-plus and value-add assets in the UK and Germany, using between 50% and 65% leverage. Target assets are well-located properties across the office, retail and industrial distribution warehouse and smaller logistics sectors, while Valad will look for financially-strong tenants with non-institutional remaining lease terms, and the fund will target individual lot sizes of between £5m and £20m. At its discretion, the fund will also invest in small to medium-sized portfolios. The fund had already bought one asset, it said – a fully-let retail warehouse in Liverpool, while closings on a German logistics portfolio and a Frankfurt retail property are said to be imminent.

According to Valad Germany's CEO Andreas Hardt at the recent Expo REAL trade fair in Munich, "Originally we'd planned a 60-40 weighting in favour of the UK, but with improved yields in Germany we've now turned the tables around to beef up Germany", he said.

Valad said it expects spreads between yields for prime and secondary investments to narrow during the fund’s lifetime, Europe chief investment officer David Kirkby said. "In the UK, offices in regional city centres, especially in the south east, and retail warehouses currently provide good value investments, while in Germany, offices in the top and second tier cities and nationwide distribution warehouses are priced attractively,” he said.

The targeted yield with borrowings is 8% annually, although this could rise over the fund's seven-year life if the strategy of buying assets with expiring leases works as expected, said Kirkby.

In addition to buying assets for its fund, Valad also said it is looking to acquire an investment or asset manager with an existing team and portfolio of office and retail properties - or even a manager of Spezialfonds - to help boost Valad's own flagging German assets under management. These have shrunk over the past twelve months from €880m to barely €700m, largely due to the selling-off of assets from old legacy funds.

Previously known as Teesland IOG, Valad Europe was taken private two years ago in a management buyout, with the backing of US private equity group Blackstone Real Estate Partners VI L.P.  Since then it has grown with new funds and mandates worth about €1.6bn, and earlier this year took control of a €600m Polish retail fund from GE Capital’s real estate division. It employs aboout 235 staff in 21 offices across 12 European countries. The group now manages assets worth around €4bn in Europe.