European manager Patrizia is raising capital to finance ESG-related improvements to its real estate portfolio in the UK.
The Augsburg, Germany-based firm is targeting £75 million ($99 million; €90 million) for a separate pocket of capital that will invest capital expenditures on sustainability measures for assets in the portfolio of Patrizia Hanover Property Unit Trust, according a Patrizia statement.
“We are letting investors know that it will be put to work on projects that enhance the portfolio,” Mischa Davis, director of the Hanover fund, told New Private Markets in an emailed statement. The firm plans to invest the ESG-linked capital with the goal of “improving the income streams and quality of the real estate, protecting the future value of the [Hanover] fund”, Davis added.
Patrizia outlined three potential investments, including the addition of energy efficiency measures to a 55,000-square-foot business park refurbishment in Leatherhead, as well as the installation of 70 electric vehicle charging stations at a new garden centre and adventure park in Yorkshire. The firm also plans to add 7.65MW of solar capacity at a business park in Buckinghamshire that houses space satellite engineering companies.
Patrizia manages more than €50 billion in real estate and infrastructure assets. The Hanover fund, which launched in 1967, is among the UK’s oldest open-end real estate trusts and manages more than £500 million in assets.
The firm’s ESG strategy has helped the Hanover Fund reach a net-zero carbon portfolio for Scope 1 and 2 emissions, according to Patrizia’s statement. In February, Patrizia launched a €500 million social impact strategy targeting investments in affordable sustainable housing.
Patrizia’s move to raise a separate pool of capital to fund sustainability initiatives is reminiscent of Bregal Investments’ €50 million Sustainable Development Fund. In 2018, family office-backed private equity firm Bregal raised the capital to fund ESG improvement projects at its various portfolio companies. A separate fund is useful, because the payback period for ESG-related improvement projects may be too long for portfolio company boards to approve use of scarce equity or operating cash to these projects during a PE ownership lifetime.
As managers turn their attention to transitioning portfolio companies and assets to a low-carbon economy, we expect to see more of these ESG-focused side pockets.