Heron International and Axa Sun Life are launching a ÃÂ£250m fund to invest in a broad portfolio of hotels, offices, warehouses and retail property. The fund, two-thirds of which will be debt, will eventually be marketed to outside investors, with the aim of increasing its capacity to ÃÂ£1bn within three years. It will invest in UK properties worth more than ÃÂ£10m.
The Heron-Axa Fund, or HerAx, will have a 7-year maturity, with the flexibility to extend, and it will be looking for an internal rate of return in the low to mid-teens. It will be geared up to 75%. Initial investment will be split equally between the two companies, as will the decision making.
Although development opportunities have not been ruled out, Stephen Smith, Managing Director of Axa Real Estate Managers, said that it would never account for more than 10%-15% of the group. Ã¢â¬ÅThis is not an opportunity fundÃ¢â¬Â, he said. Ã¢â¬ÅIt is going to invest in good quality income from corporates with some risk around the edge. It will be an institutional-quality investment.Ã¢â¬Â Smith compared the kind of deal the new fund would be involved with to the sale-and-leaseback Axa negotiated with the Big Food Group last year.
Heron Chief Executive, Gerald Ronson, said: Ã¢â¬ÅThe current property environment offers a lot of opportunities, and with this fund we think we can capitalise on them.Ã¢â¬Â
Ã¢â¬ÅWe have been looking at the idea of creating a property fund for some timeÃ¢â¬Â, he continued. Ã¢â¬ÅAxa, being a blue chip institution, together with HeronÃ¢â¬â¢s entrepreneurial, energetic, know-how approach to the market, should give us the firepower and muscle to do a good job for our shareholders.Ã¢â¬Â
As the fund grows, Ronson said: Ã¢â¬ÅWe will invite in institutional investors, rather than what I call short-term investors. Or we may increase the investment ourselves. Heron is 75% owned by our US investors. We are not short of cash.Ã¢â¬Â