Ellandi has become the first investment manager to raise new capital to target the beleaguered UK shopping centre market since the onset of the ongoing retail crisis.
The £1.2bn specialist investment and asset manager has secured more than £200m at a time when most investors are deliberately veering away from retail, where volumes have hit rock bottom and the values of some centres have been falling at an unprecedented pace.
Deutsche Finance International has committed an initial £100m of equity to the counter-cyclical strategy, which is likely to be geared close to 50% and is expected to be invested in the next year to eighteen months.
Returns of close to 20% will be targeted. If enough opportunities arise, the partnership has the intention of investing several multiples of the initial outlay.
DFI is a boutique private equity real estate firm headed by Frank Roccogrande and Gavin Neilan. The London-based investor deploys capital on behalf of Munich-headquartered Deutsche Finance Group, which manages both retail and institutional capital, predominantly from Germany.
Last year it made its most notable UK investment when it bought Olympia Exhibition Centre, W14, with Yoo Capital for £296m from Capco.
Selective investments
Ellandi and DFI expect to buy from private equity firms looking to exit centres that are the last remaining assets within large funds coming to an end of their lives; institutional investors that have decided to reduce their weighting to retail; and owners that have come under pressure from their lenders.
They are looking to buy assets that are stabilised, rather than “turnaround” assets that need dramatic redevelopment or repositioning.
Mark Robinson, property director and co-founder of Ellandi, said: “Because we are talking to the property directors of the retailers across our 32 centres all of the time, are able to see where they are trading well and gauge their views we can understand effectively which centres have sustainable rent levels.
“This allows us to properly price centres, be selective and pick off the right ones.”
Ellandi, which was founded 10 years ago and manages assets for the likes of Tristan Capital Partners, Cheyne Capital and Lone Star, has now established two internal divisions.
Its community shopping division manages established, performing assets in order to maintain and improve their income, within which the DFI mandate falls. Its future places division takes on projects that require more comprehensive, structural changes.
Earlier this year it hired Julie Pears, the former development director of intu, in order to bolster its expertise in this area.
Dependent upon the preference of partners, Ellandi co-invests in projects that come under both categories.
The year of the CVA
The retail market is undergoing dramatic structural change and 2018 is already being dubbed “the year of the CVA”, with major retailers such as House of Fraser, Poundworld and Toys R Us all having explored or undertaken a variety of insolvency processes.
Ellandi is aiming to reposition assets in part through the introduction of residential, where end values make this viable, but also by driving footfall through introducing community uses such as healthcare facilities and affordable offices.
Morgan Garfield, managing director and co-founder of Ellandi, added: “People massively underestimate the need for more jobs in town centres and the impact it brings.
“You need an agglomeration of people close together to create a community and you can quickly create a halo effect of businesses wanting to congregate together.”
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