Xavier Jongen and Michael Fink of Catella Residential Investment Management (CRIM) explain the rationale behind the unit's decision to structure its new fund out of Luxembourg.
When Berlin-based Catella Residential Investment Management (CRIM) revealed the launch of its third European Residential Fund for international clients in March, there was a twist. In a first for the residential unit, the fund has been structured as a Luxembourg SICAV-RAIF in order to market it much more internationally.
Up until now, the team behind CRIM has structured its residential investment funds as German regulated vehicles that normally attract German investors only as well as Austrian and Swiss parties. But the company’s aspiration is to broaden the investor base.
In theory, CRIM could have opted for an alternative jurisdiction such as Dublin or the Cayman Islands. However, in selecting Luxembourg, CRIM has followed numerous French, Dutch, UK and Nordic investors who have found Luxembourg a user-friendly jurisdiction when it comes to setting up funds and gaining a marketing passport to sell a vehicle across multiple jurisdictions, not only in Europe, but in Asia and North America as well.
Xavier Jongen, managing director at CRIM, said: ‘This is a really interesting one for us because it’s the first fund that Catella has structured out of Luxembourg.’ Structured as an open-ended vehicle, Catella’s new fund aims to attract €1 bn of equity. The plan is to build up a diversified pan-European portfolio of around €2 bn of residential assets and provide a yield of 5 to 6% net.
Michael Fink, also a managing director at CRIM, explained the firm’s process of selecting Luxembourg and noted how fee levels among the competitive Luxembourg-based service providers can be 50% lower than in Germany. CRIM started the process of getting all its documentation together and selecting service providers in mid-November 2018.
It took around eight weeks to complete due diligence on fund documentation and a service provider to deliver an Alternative Investment Fund (AIF) platform. Then there was a further four-to-six weeks to fine-tune documentation and create suitable documents for a seed investor. Vista was selected to provide the AIF platform; Northern Trust was picked as the custodian bank; and Baker McKenzie Luxembourg provided legal and tax advice. Once everything was in place, it took only two to three weeks to gain a licence to market the funds, which it received in April.
With the marketing passport, CRIM can now begin selling the fund to German investors, while a London-based placement agent will market it internationally. ‘For us it's very important that we can continue a successful 12-year track record,’ explained Jongen. ‘No other company in Europe can claim 12 years’ experience in European residential, and we intend to build on that to diversify our customer base.’
The core residential team at Catella was together mostly at Bouwfonds Investment Management, the Dutch investment manager that eventually got wound down by its parent, Rabobank Group. The team transferred to Catella, and the clients followed. The team managed to raise €1 bn in equity for the first residential fund and €700 mln for the second, as well as winning separate accounts.
CRIM’s fund will focus on modern and affordable apartments with a stable cash flow, as well as on new developments and/or properties in growing market segments such as student housing, young professionals and senior housing apartments. In times of increased land and construction costs, the firm believes it is important to make affordable and flexible housing available to young professionals with modern and compact apartments. It will target selected growth regions in Germany, Benelux, France and the Nordics, as well as up to 50% in Spain, Poland and other European countries with strong economic areas.
To help inform strategy, Catella has implemented the insights of Lebanese-American scholar Nassim Taleb’s Antifragility Research on residential assets. Based on this research, the firm believes it can better manage risk. The investment strategy targets long-term stable returns and high diversification potential of the locally non-correlated residential real estate markets. Jongen further explained: ‘Affordable housing is absolutely the key theme of the coming five to 10 years and perhaps more, because we see that capital values are appreciating and that citizens - not only in France but also in The Netherlands and elsewhere - have a problem with general living costs after paying their rent.’
CRIM is a subsidiary of the listed Swedish Catella AB, a company listed on Nasdaq Stockholm in the Mid Cap segment. Catella AB has a total €18 bn of real estate under management, of which €3 bn is within its residential investment management arm.
PICTURED: Campo Novo Business scheme in Freiburg, Germany, which CRIM acquired for €34 mln in February. The 7,000 m2 development will provide space for 305 apartments and short-stay rooms offering temporary accommodation to students and young professionals.