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More Capital Heads to Value-Add Funds
Opportunistic properties might seem lacking in one way or another. However, once that property is bought and some money is put into it, it can appreciate nicely in value. In a recent JLL article, Tim Graham, Global Lead for the company’s International and Strategic Capital, said that more investor interest—and investor funds—are being directed toward opportunistic buys.
Here are some examples of how this plays out on the institutional investment side:
- Crow Holdings in the United States raised $3.7 billion for its U.S. value-add real estate strategy.
- Pennybacker Capital’s sixth U.S. value-add real estate fund closed at $1.6 billion and includes allocations from the Texas Permanent School Fund and New York State Teachers’ Retirement System.
- Revelop’s Swedish value-add fund raised over SEK2.4 billion ($231 million).
- The annual ANREV/ INREV/PREA Investment Intentions Survey reported that 56% of respondents indicated a preference for value-add strategies.
“Investors have been focused on allocating capital to strategies that promise to deliver strong risk-adjusted returns, as return requirements have risen due to higher debt costs,” Graham explained.
The next question is where exactly this largesse will be deployed. Graham said capital deployment will depend on macroeconomics and market dynamics, with interest rates influencing most markets.
However, the article noted that the office sector, facing ever-changing tenant expectations and attempting to adapt to hybrid work, could be ideal for a value-add strategy.
“Average asset quality is much better than a decade ago, and the dislocation between repriced prime office assets in the likes of London or Paris, and the expenditure required to renovate has perhaps been exaggerated, which could create opportunities in the short term,” JLL’s Senior Director, Capital Markets, EMEA & UK Research & Strategy Cameron Ramsey said in the article.
Ramsey said that value-add office transactions would probably be restricted to the €50 million to €100 million ($108 million) price range. Anything above that could trigger a higher exit risk inherent with larger properties.
The article noted that value-add capital will likely be deployed when core buyers return to the market. As such, “all eyes are on how core capital is behaving,” the article said.
- ◦Sale/Acquisition
- ◦Financing
