Tristan set to enter even bigger league with €2.5b fund

Tristan Capital Partners, the London-based pan European real estate private equity firm, is to launch the largest ever fund in its flagship value added/opportunity series.

Sources said that the company was on the cusp of launching European Property Investors Special Opportunities 6 (EPISO 6) with a target equity raise of €2.5 bn.

At that level – and assuming the company achieves the target – EPISO 6 would be 40% bigger than EPISO 5 which held a final close on just under €1.7 bn in February 2019. That fund was oversubscribed.

Those with knowledge of the strategy say it is not expected to deviate much, if at all, from EPISO 5. The tenth fund in the series set a triple net annual return target at 12-14% by investing in Western and Central European real estate markets across the office, logistics, retail, and residential sectors. EPISO 5 attracted clients over 55% of which were from Europe, Asia and the Middle East, while 45% were from the US. It attracted a total of 39 investors, with repeat investors accounting for around 60%.

Tristan would not comment on its fundraising activities leaving market participants to speculate why the firm will be launching a new fund which is so significantly larger than the last one.

Notably, upon closing EPISO 5 in 2019, Sasha Silver, MD and head of client development, said Tristan made a conscious pre-offering decision to try to maintain the fund at the same size as EPISO 4 despite a pipeline of demand that ‘considerably exceeded’ the amount it raised. It now seems the company is ready to satisfy the investor demand it previously saw.

Timing
Fund launches are typically timed to coincide with a certain percentage of invested equity of a current fund. Usually, when a manager reaches the 75% mark, it will launch the follow-on.

However, the timing can also be viewed as significant given market conditions.

In-house investor relations professionals and external capital advisory firms – sometimes called placement agents – are sensing positive momentum in this quarter of the year that could herald a strong 2022 for earning equity commitments.

One person told PropertyEU: ‘We are sensing that things are really picking up in Q4. Next year potentially could be a very strong one for fundraising, 2021 has been a year of people investing in re-ups because they have invested with the manager before. Managers have got more re-ups than they would have expected this year.’

‘Then there have been people sitting on their hands until they could travel. A lot of capital that would have ordinarily been deployed is sitting in cash on the sidelines waiting to go.’

While travel is not quite back to normal (some say flights are only at 50% capacity in some key European fundraising destinations), investors are being allowed to travel around Europe aiding their due diligence responsibilities. A significant number of investors are yet to resume intercontinental travel. The US is lifting its travel ban on 8 November for vaccinated travellers.

Typically, investors spend the final quarter of the year conducting early due diligence on managers ahead of making commitments the following year.

Another capital raiser PropertyEU spoke with said: ‘What I can say from our experience is that we have spoken with a good number of the active institutions. They have significant capital to deploy and no shortage of managers seeking to win their endorsement. Nonetheless, all are looking for ways to deploy (their equity) in a way that aligns with their strategic approach and hold horizon, such that it can become a viable conduit for follow-on investments.’

The caveat to that is it takes a little longer to consummate.

To some, there are signs of a somewhat binary market in that the logistics and residential property sectors are clearly very hot. In these two categories, many direct deals are occurring as well as indirect investments via funds being marketed. Other established mangers have also been able to gain traction in fundraising, if for example, their existing investor base (often from the US), feels the manager is best placed to take advantage of the opportunities wherever they emerge. Managers in this hard-earned position have been able to enjoy re-ups.

David Lowry, SVP and head of research insights at data firm Preqin, said fundraising for Europe-focused real estate funds was ‘resilient’ during 2020, with 94 funds closed. This was relatively flat compared to 2019, when 97 funds closed, according to Preqin Pro data as of 18 October 2021. So far in 2021, the picture is looking weaker. As of 18 October, 56 funds have closed.

He said: ‘Investors appear to be waiting for a further reduction in dry powder before committing additional capital to European real estate. But dry powder has been falling during 2021. Europe-focused funds held $111 bn (€96 bn) in dry powder as of December 2020, but this has fallen to $84.4 bn in October 2021. This gives us confidence that fundraising activity should increase during Q4 2021 and into 2022, when a recovery should take place.’

According to PropertyEU's data, that has been checked against that of Preqin’s, the largest Europe focused fund to hold a final close in 2021 was EQT Exeter Europe Logistics Value Fund IV, which closed in July this year on €2.1 bn - the first fund since Sweden-based EQT combined its European real estate team with industrial specialist, Exeter Property Group.

BentallGreenOak is just behind with its third European value add fund which closed on €1.9 bn in April, and KKR’s Real Estate Partners Europe II also on $2.2 bn in July. GLP Europe’s Income Partners II logistics fund is next on €1.6 bn, followed by Ares Management’s value added strategy, European Property Enhancement Fund, on €1.5 bn.

PGIM’s European Value Partners II closed on $1.1 bn, Signal Capital’s special situations debt fund on €900 mln, BentallGreenOak’s Europe Secured Fund II Lending fund on €869 mln, Patron Capital’s value add/opportunistic fund VI on €844 mln (83% from existing investors), and Azora’s European Hotel & Lodging fund with €815 mln (exceeding the target by 36%). Other large final closes include Greystar Europe Investment Management’s value add residential fund on €725 mln.