The real estate impact market has matured and diversified this year as fund managers tested new strategies to address the myriad social and environmental issues around the sector.
Those seen by New Private Markets have predominantly been from established real estate managers in the UK and Europe, though a handful are based in the US. In the UK alone, 11 impact funds have been brought to market, according to a research paper released by investment adviser Bfinance.
Fund launches in the past two years have been “considerably more diverse”, Bfinance noted, due to the arrival of more financially motivated investors who “unlike some of the earlier impact investors [in affordable housing funds], cannot tolerate a trade-off in returns”.
The bedrock of real estate impact has continued to gather capital.
- Bridge Investment Group closed its second US-focused affordable housing fund on $1.74 billion in October
- Aviva Investors committed £72.5 million ($89 million; €85 million) of internal and client capital to a UK social housing trust
- Dutch investor NN Group handed CBRE a €500 million mandate in April to develop affordable housing in the Netherlands
Established real estate managers got in on the affordable housing action, with multiple debut funds coming to market or currently in the works.
- AXA Investment Management Alts launched an affordable housing fund in November
- Patrizia Global Partners is targeting €500 million for its first affordable housing fund, the firm announced in February
- Octopus Group is pre-marketing its debut affordable housing fund, PEI Group’s database shows
- Two other large, multi-strategy asset managers are also preparing to launch affordable housing strategies, sources close to these firms have told New Private Markets
Other social impact strategies have also piqued the interest of investors and managers. These strategies focus on developing and adapting properties to increase the supply of buildings in socially important sectors such as healthcare, social care, assisted living and community regeneration.
- Schroders Capital launched a £1 billion-target impact fund in November, addressing social deprivation through regenerative place-based investments in the UK
- Henley Investment Management is targeting $1 billion to develop housing for vulnerable people in the US
- UK-based impact firm Bridges Fund Management closed its fifth property fund on £350 million in June, investing in healthcare properties such as care homes, low-carbon logistics properties and affordable and low-cost housing
- Dai-ichi Life Insurance Company gave real estate manager Samurai Capital ¥50 billion ($364 billion; €345 billion) to invest in social impact assets such as childcare centres and student housing
Other fund managers have added decarbonisation aspects to their mainly social impact strategies:
- Schroders’ £1 billion-target impact fund will incorporate decarbonisation retrofits in regeneration projects
- Orchard Street’s £400 million-target fund has decarbonisation through retrofits as one of its three impact objectives
- Bridges’ fifth property fund will invest in low-carbon logistics assets
- NN Group and CBRE’s affordable housing developments have a “low-carbon” component
Fundraising for real estate will become more challenging into 2023 – as previously reported by affiliate publication PERE (registration required) – with fund managers grappling with rising interest rates and many investors overallocated to real estate. But there are reasons for impact fund pitches to stand out for investors.
Many affordable housing and other impact strategies derive income from public funding – which is typically more secure than private tenants. Decarbonisation retrofitting strategies, while requiring more short-term capex, should command rental “green premiums”.
Moreover, impact fundraisers may be able to gain access to dedicated “local impact” real estate buckets at pension funds such as Greater Manchester, South Yorkshire and Clwyd, as New Private Markets has previously explored.