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First Property targets pension schemes with second PPP fund

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EUROPE - First Property is to follow up the UK core commercial property fund it created in 2010 with a similar fund targeting new pension fund investors, the group announced yesterday.

Chief executive Ben Habib said the fund would target a slightly higher return than the 6.5% dividend generated by the first fund, citing better market conditions including banks' increasing willingness to lend over the past 18 months.

FProp, which invests in the UK and Poland, created its first, ungeared UK core commercial property fund for three UK pension schemes, all clients of Stamford Associates.

The fund, which now holds 20 properties, has deployed 90% of the £106m (€132m) raised, according to interim results posted yesterday.

The original three investors are unlikely to invest in the second fund because they have already met their real estate allocation targets, said Habib.

However, he cited expressions of interest received from other UK pension schemes for a higher yielding vehicle.

UK assets now account for 27% of FProp's overall portfolio.

Long bearish on central London prime, Habib had not softened his position when he spoke to IP Real Estate yesterday.

"I can say without a shadow of a doubt that London property is overpriced," he said.

"Other investors would argue that it doesn't particularly matter - that London's status as a safe haven will run and run. I don't care. I don't want to be holding the baby when they change their minds."

He added: "Properties acquired at low yields lack an income cushion to mitigate against adverse movements in capital values. Nor do they provide much of a running rate of return. But investors in London property are apparently not looking for a running return.

"They're more interested in preserving capital. The situation is not dissimilar to the UK gilt and German bund markets."

Meanwhile, although a weak euro decreased Polish assets in First Property's portfolio by 6% to 70%, Habib said the likelihood the German government would allow the European Central Bank to print money had strengthened his optimism for Polish real estate despite weak capital markets. 

"It's effectively a carry trade," he said. "Over the past year, we've been quite concerned about the euro-zone, but that concern is mitigated by the knowledge the ECB will print money. When it does, part of that will flow into Poland."

He described Poland's real economy as "very attractive in principle", with the potential for profitable tenants to generate rental growth.

The market had already priced in rising yields and "drifting" property values, said Habib.

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  • QN-2570

    Asset class: Direct Real Estate.
    Asset region: Europe excluding Switzerland.
    Size: 150m.
    Closing date: 2019-10-30.

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