Aviva Investors in exclusivity on several deals, eyes more Living in Europe

Aviva Investors is starting to see conditions reach a point whereby transactions are possible for the franchise again following a summer lull.

George Fraser-Harding, head of pan-European funds, said the firm was in exclusivity on two deals in Spain which could take its build-to-rent (BTR) portfolio above €300 mln.

He also said Aviva Investors had entered into exclusivity on further European logistics transactions.

In addition, the company is eyeing expansion of its Living sector portfolio with more student accommodation investments in the UK and Europe. In the UK, Aviva Investors has so far been mainly focused on single family units where it has a portfolio of around €500 mln, while in Spain it has been concentrating on the BTR sector.

In July 2023, the business completed its third investment as part of its Spanish BTR platform with Layetana Living, with the forward purchase of a 234-unit residential development in Madrid the latest investment.

Aviva Investors is investing two main equity funds that seek alpha returns. One of them is Aviva Investors Perpetual Capital Fund which is a long-term strategy to invest and manage a diversified portfolio of pan-European direct Real Estate assets while promoting environmental and social characteristics as part of its investment policy.

The other is Aviva Investors Real Estate Active (REALTAF) launched earlier this year under a new category of fund designed to provide access to long term private market assets with an initial portfolio of £1.5 bn backed by the parent Aviva insurance group, but open to third party investors.

Fraser-Harding, who is based in Paris, said: ‘Investors have been slower to accept a re-adjustment of pricing, but that’s starting to change.’

‘The way we see it, there’s been a big correction taking place that could even be as big as the GFC in terms of where we think peak to trough is going to be from an absolute return perspective. That’s happened at a much quicker rate than the GFC.’

‘We’ve had a lot more progress since the summer. There has been a huge re-pricing I think driven by liquidity and refinancing pressures not only on institutions but smaller companies, particularly developers.’

Aviva Investors is still ‘picky’ when it comes to investments, but it is benefitting from a far narrower field of rival buyers.

It feels a lot of big-name European institutions are temporarily out of the market having driven yields down over the past five years. Instead, it sees more family offices who have not transacted for a long time bidding for assets.

This time around, Aviva Investors doesn’t expect real estate to go through a structural correction given real estate fundamentals are largely very strong, and unlike other downturns there is no oversupply issue.

Meanwhile, the firm has observed how all-in costs to finance real estate has been more expensive in the UK than in Europe, perhaps by 200 bps.

This can mean the difference between not managing to achieve cash-on-cash returns in the UK, whilst still being possible on the Continent.

The company has been buying assets all in equity of late, explained Fraser-Harding.

But in Germany, Aviva Investors recently approached around 20 lenders about a new acquisition. Only four offers came back. But two of those were competitive.

Fraser-Harding is under no illusion that this will not be a stellar year in terms of investment volume relative to its recent record. Last year, the company managed €700 mln of investments in Continental Europe whilst also expanding its European Real Estate team with the addition of four investment staff. This year will be less.

But the company is happy with its strike rate of executing deals where it has made offers.

Global capital is seeing re-priced Europe as an opportunity to enter European real estate.

For Aviva Investors’ part, it remains focussed on inflation numbers which has been driving interest rates as well as general geopolitical stabilisation that will eventually give institutions more conviction to deploy again. The company said it had grown its Real Assets Research team to boost ability to assess markets and geographies across Europe.

He hopes the deals under exclusivity can be completed. Meanwhile, the market will watch for more moves into student accommodation.

‘We are now moving into UK student accommodation and exploring different parts of Europe for future Living strategies. We do this from a top-down perspective and when we enter a market, we do it at scale.’

Commenting on the European real estate investment market, he said; ‘We think it will pick up pretty quickly at some stage as liquidity returns to the market, potentially during the next year.’

The company has approximately €18 bn of real estate AUM in the UK and Europe.

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