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UK corporate scheme awards Pramerica £135m ground lease mandate

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UK - An unnamed corporate pension fund has invested £135m (€157m) into UK ground lease properties, with assets allocated to Pramerica Real Estate Investors (PREI) forming part of its overall fixed income allocation.

It marks the scheme's first investment in the asset class, according to Pramerica, with its mandate allowing investment in both commercial and residential properties with leases of more than 75 years.

The mandate comes in addition to PREI's UK ground lease fund, which recently increased subscriptions by more than 40%, increasing its total commitments to £225m.

The manager said that, unlike the fund, its agreement with the corporate scheme would allow it to invest in units with 15-year rent reviews, compared with the seven-year limit imposed on the fund.

Charles Crowe, Pramerica's director of UK real estate strategy and investment, said it was a "huge endorsement" to work directly with the UK fund, while allowing his team to structure the product to its needs.

Paul Dennis-Jones, Pramerica's director of UK real estate fund management, added that it signified a further shift away from "traditional" assets such as gilts, with the pension fund choosing to consider the £135m mandate part of its fixed income allocation.

Dennis-Jones further told IPE that, in approaching investors, Pramerica focused on fixed income rather than the real estate managers.

"We are seeing a few people now looking at it as a low-risk property investment, although that is a rarity," he said.

Dennis-Jones estimated that around 70% of the UK ground lease fund was already directly exposed to retail prices index (RPI) linked leases, offering inflation protection through these - while being hopeful for a 3% return for investors net of fees.

He added: "This investment provides further evidence of the growing trend among investors to look away from traditional products, such as index-linked gilts and corporate bonds, and look at alternative low-risk investments with the potential for better returns and diversification, such as ground leases."

PREI's ground lease fund was acquired from UBS in August last year, with the group acquiring a number of properties in central London, as well as nearly 200 residential units in the Cotswolds.

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