A new €700 million (AU$1.03 billion) European real estate fund has been launched that will only invest in “future-proof cities”, and includes a climate resilience screen in order to provide diversified and defensive income return optimised over the long term.
The fund, managed by TH Real Estate, processed 200 European cities through a filtering system to create a list of cities that were structurally positioned to grow in value over the long term, and included factors such as quality of life and technology scores as well as urbanisation and youth population figures, and discretionary spending and growth rates.
Importantly, TH Real Estate said climate change and environmental risk assessments were undertaken as part of the cities filtering process.
“This was a ‘secondary’ sense-check to ensure that the cities identified via the ‘core’ megatrend filtering were also resilient to climate risk,” a TH Real Estate spokesperson told The Fifth Estate.
“As part of this process, we worked with Verisk Maplecroft to identify key datasets that enabled us to quantify current and future exposure and sensitivity of cities to climate change as well as their capacity to adapt.”
The fund will not invest in cities that are deemed not to be structurally positioned to grow over the long-term.
On top of this, climate resilience will be considered via ESG underwriting at the transaction stage.
TH Real Estate said climate change risk was a “material issue” for a long-term open-ended fund with a wide geographic footprint, and that it needed to protect value and ensure long-term resilience.
Climate change, the spokesperson said, acted as a “risk multiplier”.
The fund recently recently completed a first close of €500m (AU$734.7m) for the fund, and continues to receive strong interest from global institutional investors.
European Cities Fund manager Andrew Rich said the strong first capital raise was testament to investors looking beyond the short term and seeing value in long-term defensive strategies.
“TH Real Estate has faith in the underlying fundamentals of the UK and European real estate markets that will remain attractive to investors over the long-term,” he said.
“The founding principles of our European Cities strategy are to look through market cycles and focus on those European cities where people will want to live and work in the future. These cities will have their own market cycles, but over the longer term, should account for an increasing share of the region’s output, benefit from structural trends and be smart destinations for long term real estate investment capital.
“We believe that a city-based real estate strategy, underpinned by long-term, structural trends, that strikes the right balance of risk and diversification, while taking advantage of short-term pricing opportunities, may enjoy above-average portfolio level returns, lower-than-average volatility, and modest downside risk, for long-term investors, enhanced further by a market recovery.”