Home Pimco-backed fund to pile into UK retail property sector
May 23, 2019
A private equity-style fund run by Pimco, the US investment powerhouse, has launched a joint venture to buy UK retail properties, in a sign that bargain-hunters are beginning to circle the troubled sector.
NewRiver, a London-listed real estate investment trust, said it had brokered a deal with Pimco that would “take advantage of the current dislocation in the retail real estate market”, aiming to grow rapidly to about £500m of assets.
Investment into UK retail property has faded over the past year with asset prices slow to adapt to turmoil that has pushed some retailers into insolvency.
But values have begun falling steeply in recent months, attracting the interest of private equity investors, several of whom are looking at assets with high yields or redevelopment potential, according to agents in the sector.
NewRiver said its 50:50 venture with Pimco’s BRAVO Strategies III LLC — an opportunistic private fund run by the $1.8tn-in-assets Newport Beach-based fund manager — would start by buying a portfolio of four retail parks at a net initial yield of 9.8 per cent.
The joint venture has agreed a deal to buy the parks in Aberdeen, Inverness, Dundee and on the Isle of Wight from the insurer Zurich for £60.5m. Allan Lockhart, chief executive of NewRiver, said the portfolio provided a “low entry price” and also chances “to extract further income through active asset management and risk-controlled development opportunities”.
He said NewRiver and Pimco had spotted an opportunity in distressed local shopping centres coming on to the market.
“We sense that there will be interesting deal flow over the next 12 months and we really wanted to be ready for it,” said Mr Lockhart.
Retail property values are declining across the sector — the listed landlord Intu, which owns big regional shopping centres, reported a 13.3 per cent drop in its portfolio value during 2018 — but the worst falls are concentrated in smaller venues.
Three retail centres owned by the private equity group Oaktree, for example, together shed 17.9 per cent of their value to £86m in the 18 months since November 2017, according to a recent stock exchange filing.
The drop in values resulted in a breach of the owner’s debt covenants. Goldman Sachs had issued a commercial mortgage-backed security against the three properties last summer.
Moody’s, the rating agency, said in a report on Thursday that the default “reflects the increasingly elevated risk profile of loans backed by retail properties”.
Shopping centre transactions in the UK hit their lowest level in at least 16 years in the first quarter, while retail park deals — while healthier — have also declined.
But the tumbling prices are forcing some property owners to put assets up for sale as they battle to keep loan-to-value ratios down. Shopping centres such as one in Maidenhead, Berkshire, are being sold after debt defaults.
An agent handling retail property transactions, who asked not to be named, said there were “not many transactions [in the sector] at the moment but sentiment has probably shown a slight uptick . . . there are more interested buyers than there were in February. People are sensing an opportunity.”
The Pimco-backed fund targets opportunities in real estate and specialist finance, including areas dislocated by regulatory reform, according to documents published by an investor.