04 Oct A look back on the FRI fund
At the end of last year, Mitiska REIM’s first fund, First Retail International (FRI), had completed its fund lifespan and successfully divested all its assets.
In this latest Q&A, our managing partners Axel Despriet and Sylvie Geuten-Carpentier look back on the success of FRI and outline the opportunities moving forward in convenience real estate.
When was FRI first launched and what was the investment opportunity you saw at the time?
Axel: Following a successful fundraising period, the FRI fund was closed in May 2013 having raised total equity commitments of €75 million. Taking leverage into account, this gave FRI around €200 million to invest in the opportunity we saw in the European retail park sector.
We saw at the time, and indeed continue to see today, an opportunity as retail parks evolved from just ‘Big Boxes’ on urban infill locations towards convenience real estate, coupled with the rising demand from shoppers for necessity retail that offered convenience, essential shopping and value for money.
In Western Europe, retail brands were also becoming increasingly attracted to the retail park format, which offered accessible locations, affordable buildings and flexible design, plus sustainable real estate solutions. The same benefits were clear in Central European markets, but here also there was strong demand from shoppers for necessity retail which was modern, sustainable and conveniently located, creating the opportunity for our retail parks to become the dominant retail schemes in their catchment areas.
How has FRI performed?
Sylvie: Over its lifespan, FRI has performed extremely well and at the high end of the business plan. The €75 million of equity raised was invested in 19 properties representing a mix of value-add opportunities in standing assets and risk-mitigated development projects, diversified across both Western and Central European markets.
By the end of 2023, FRI was completely divested, yielding a cumulative value creation of €70 million, resulting in a net MOIC of 1.9 times and a net IRR of 14%.
Looking back on the fund, there were a number of highlights, such as Dansaert Park which was our first mixed-use project, combining a retail park with SME units and a purpose-built urban logistics building, which at sale achieved the lowest ever yield in the Belgian retail park sector. Malinas retail park also stands out, designed to be CO2 neutral in operations and became the most sustainable retail park in Belgium. As does the fund’s first international expansion with the acquisition of the InterCora portfolio of 8 retail parks in Romania, which were subsequently part of the portfolio of 25 retail parks sold to LCP at the end of last year.
We are very pleased to deliver such strong returns to investors, over a range of different economic conditions, which we believe is testament to the strength of our platform and team, the robustness of our investment strategy and the resilience we felt characterized the retail park sector.
Malinas Retail Park in Mechelen, Belgium
What changes have you seen in markets over the life of the fund?
Axel: We’ve seen a number of significant changes over the past decade. When we were first fundraising for the fund it was in the wake of the great financial crisis where confidence in Europe’s economic outlook had tumbled, commercial real estate capital values were falling, bank financing was very tight, and investors’ focus was mostly on core assets.
However, we felt at the time and still believe today that there are significant opportunities for specialist investors such as Mitiska REIM who have the specific market know-how to create significant value from value-add strategies.
The durability and robustness of investment strategies was also tested across the board in real estate markets when Covid hit. For retail parks, these proved very resilient to economic headwinds, emerging from the pandemic lockdowns in a stronger position than before, with footfall exceeding pre-Covid levels and retaining some of the most robust yields in any sector in real estate.
Sylvie: This resilience has also continued. Recent research from Hines now points to a transformed retail sector on the back of robust job and wage growth, strong consumer sentiment and stabilizing global inflation – retail fundamentals appear strong and improving globally, with the combination of constrained supply, positive NOI growth and a reset in pricing leading to a potentially compelling argument to invest in the right locations and sub-types. Hines points to evidence that the global retail sector has now entered a new era in which it has found its footing after recent disruption, and highlights food-anchored retail parks as a key beneficiary of these trends.
At Mitiska REIM, we continue to see investor and occupier demand for high-quality retail park assets in Europe and significant interest from potential buyers.
Mihai Bravu Retail Park in Bucharest, Romania, part of the InterCora portfolio acquisition
What’s your view on markets moving forward?
Axel: As we continue fundraising and deploying capital for our latest fund, MEREP 3, we are bullish on the opportunities looking ahead.
The first half of 2024 has continued to see increasing tailwinds in support of not only retail parks but our wider convenience real estate focus which includes multi-let light industrial, self storage and urban logistics.
A report by KKR in May said that material repricing, motivated sellers, strong fundamentals and dislocated financing markets make the investment opportunity in European real estate amongst the best the firm has seen in the last 25 years. Also in May, we saw PERE highlight the opportunity for value-add investors, saying that discounted pricing combined with rental growth prospects for high-quality assets was creating the ideal market conditions for value-add strategies to flourish.
Sylvie: We are seeing these positive effects on the ground across our European portfolios. We’ve continued to see more attractive pricing as owners come under pressure to sell assets, and we think market volatility will continue to create exceptional opportunities, particularly for investments that require capex and hands-on asset management, which our value-add investment approach can capitalize on.
As we look back on the performance of FRI it’s a reminder that vintage is key. If you look at the data on global real estate returns, the highest performing vintages are those that follow periods of disruption and recalibration in markets such as we are experiencing currently.
We therefore continue to believe that this year and next could become an exceptional vintage year and that Mitiska REIM, on behalf of its latest fund MEREP 3, is well placed to capitalize on the unique opportunity we are currently seeing in convenience real estate.
Links to market reports referenced in this blog:
- Hines – Retail’s Next Act
- KKR – A Bright Outlook for European Real Estate
- PERE – Europe’s Value-add Momentum
Past performance is no guarantee of future results. Investment in MEREP 3 is open to professional investors only. MEREP 3 is a private AIF under the Belgian 2014 AICB Law. Mitiska REIM is a licensed alternative investment fund manager under the Belgian 2014 AICB Law. Mitiska REIM acts in its capacity as fund manager (AIFM) of MEREP Light Industrial, MEREP 3 and FRP, and fund advisor of FRI and FRI 2.