Value-Add

PGIM

We believe there is an exceptional market opportunity for value-add in Europe, driven by a significant repricing, lack of liquidity, and a general lack of supply which will fuel a robust value recovery for targeted assets. Real estate debt is available at terms that are accretive to total returns.
Even with slow economic growth, managers can find areas of opportunity for quicker value recovery. We believe we need to focus on supply constrained locations in the top five European markets and select the asset classes which will record the highest income growth going forward. This can be summarized by the 3Ds (megatrends supporting the market): logistics and data centers continue to benefit from Digitalisation trends. Demographics creates a strong structural demand tailwind for living, self-storage, healthcare and hospitality. Generally, the need for Decarbonisation is also a need for additional capital throughout the property lifecycle. 

Invesco

Value-add investors in European real estate have a vintage opportunity to take advantage of a pricing correction that has been driven by weakness in capital markets rather than in underlying real estate fundamentals. When rates responded to the global inflation shock, we saw considerable uncertainty across financial markets.  For real estate yields, the trend followed interest rates and asset valuations fell by approximately 20% between 2022 and 2024. Despite this repricing, Europe is not suffering from excess supply or weak occupational demand across most sectors and countries.  Residential accommodation continues to be in short supply, logistics occupiers continue to take space, and even vacancy rates for Grade A, sustainable offices are low in many European capital cities (which is a very different story than in North America). 

By Q2 2024, the pricing correction had largely played out and valuations have remained relatively stable through today. Transaction volumes are improving but taking time to recover as many market participants continue to dig their way out of legacy problems derived from the historical interest rate movements. For now, investors with capital, conviction and local intelligence/sourcing/execution find themselves at a competitive advantage and with an opportunity to selectively target the sectors with the strongest occupational tailwinds at historically attractive pricing.

Realterm

The current capital environment – marked by higher interest rates and reduced liquidity – has created a repricing of risk and a scarcity of capital for transitional assets. Since mid-2022, prime yields have risen significantly, driven by higher borrowing costs and broader macroeconomic uncertainty. Slowing global trade, weaker consumer confidence, and ongoing geopolitical instability have contributed to softer occupational demand. 

Realterm is well-positioned as a leader in transportation logistics real estate to take advantage of these dynamics. Our properties – particularly those with IOS (industrial outdoor storage) functionality – are in high demand as occupiers seek to improve inventory turnover and reduce network costs. Sale-and-leaseback (S&LB) opportunities continue to emerge through our global user relationships and strong local presence. Realterm has sourced majority of its transactions for its managed investment vehicles on a non-marketed or direct basis.

Structural drivers such as e-commerce growth, industrial repatriation, and a persistent supply-demand imbalance are fueling rental growth. Vacancy remains low, and development activity is constrained by elevated financing costs and expanding exit cap rates. Rental growth has accelerated alongside inflation, helping to offset yield expansion, especially for assets with shorter WALTs. Since early 2024, prime yields have largely stabilized, with some markets showing early signs of compression by year-end 2024.

We expect these market dynamics to persist, creating continued opportunities as sellers – including institutions, private owners, and owner-occupiers – respond to market pressures. Realterm remains focused on identifying value through disciplined underwriting and leveraging its operational expertise across diverse geographies.

PGIM

We believe we have demonstrated our capability to execute complex structures and manage investments, as evidenced by the EVP I and EVP II track records. Our first core principle is to focus on supply constrained locations in the most liquid markets (i.e. we do not take location risk to generate return). We will take measured risks after a thorough underwriting process. For example, we will assume leasing risk for high conviction asset classes in the right location, administrative risk (excluding zoning risk) when the legal framework is well understood, CapEx risk when works have been adequately priced with technical advisors, and financing risk after discussions with lenders to assess feasibility, etc. Risks are managed by active asset management. We aim to de-risk early through disciplined sales when possible (average hold period is c. 3 years). We are also experienced in managing the ultimate winding up and liquidation of our closed-end funds under varying market conditions. 

Invesco

The risk and return balance for value-add strategies looks better today than we’ve seen in a long time. The market is capital-starved, presenting opportunities to acquire off-market assets from motivated vendors at pricing that supports IRR expectations above 20% for our recent investments. At the same time, developers and operating partners are more open to discussions about risk-sharing in a way that strikes an appropriate balance for investors.
With regard to financing risk, we’re finding the lending market to be favourable and have been borrowing at our original target leverage levels across sectors including logistics, living, office and retail from both banks and alternative lenders. We nearly always require a credit committee-approved term sheet from a lender before exchanging contracts for an acquisition and if financing is not in place at completion we need to be comfortable that unleveraged returns will still be attractive.
Leasing risk is partially mitigated by asset selection – we’re focused on sectors with low vacancy levels including PBSA, urban logistics and Grade A sustainable offices (the latter in central London). As a general rule, our value-add strategies don’t invest in secondary markets – that’s important in mitigating liquidity risk at exit but it also helps to manage leasing risk. One of the attractions of current market pricing is that acquisitions are more often than not taking place at pricing below replacement cost.  This puts the acquirer in a strong competitive leasing position against any new supply.

Realterm

Geopolitical events have heightened volatility and uncertainty in trade patterns, which has underscored the need for flexibility and resiliency in supply chains. These requirements increase the value of well-located, well-configured properties that are mission-critical to logistics operators. Realterm’s transportation logistics facilities have historically demonstrated strong performance through downturns (e.g., 2008–09, 2020–21), maintaining high occupancy and rent levels with minimal bad debt or tenant incentives. While underwriting remains market-specific, we are making new investments with deliberate and considered approach, taking into account a potential temporary slowdown in leasing activity. Accordingly, we are conservatively adjusting assumptions by extending expected underwritten vacancy periods and moderating rent growth projections over the next 24 months.

Realterm maintains a cautious approach to leverage, limiting fund-level debt to 60% LTV and historically keeping value-add fund leverage well-below the maximum allowed. Leverage is considered on an asset-by-asset basis for each new investment using conservative assumptions to determine its accretive potential. Given the newly repriced environment where assets stabilize at high single-digit yields on an underwritten basis, leverage remains accretive. Debt remains accessible despite higher interest rates, as our sub-sector offers lenders diversification.

PGIM

With our platform, we believe we offer a unique ability to invest in European mid-market real estate through in-house local teams on the ground, JV operating partners and proprietary investment platforms.
Our belief is that real estate is a local jobs and require teams on the ground. Our platform includes 190 professionals in 8 offices across Europe (as of 1Q 2025). Since 2015, those teams have been able to source 75% of the value-add transactions on an off market basis. This bottom-up approach in property selection grants us the opportunity to better understand the risks and make money on the buy.
We also have long-standing partnerships with JV operators to access specific submarkets and create additional value. Last, our proprietary investment platforms are also a real competitive advantage because they enable us to turn granular / niche asset classes into institutional portfolios (see for example the open-air hospitality & urban logistics track record).

Invesco

Our greatest advantage has always been our locally based teams in eight offices across Europe. These offices are staffed with real estate professionals who not only speak the language and understand local customs but who also have built their entire careers there and enjoy the benefits of extensive personal networks.  Nearly every investment we make starts with a local conversation and builds from there.

We have supplemented the strength of that local presence with the addition of best-in-class partnerships with leading developers and operating partners. In many cases these partners are working exclusively with us and in some cases they are owned by Invesco affiliates. The combination of local teams and exclusive partnerships is a powerful one. We can offer diversified strategies but at the same time allow investors to dial-up exposure to specific verticals with sector specialists.

There are additional benefits that come with the Invesco platform. The breadth of our investment strategies (core, value-add, opportunistic and credit) and our diverse client base (funds, separately managed accounts and wealth capital) facilitate a cross-pollination of ideas and trends to inform our views. As an example, we were early movers in sustainability as that trend moved in real time across our diverse client base. Our scale and breadth also creates a unique position with developers and operators who view us as a reliable and consistent counterparty through changing market conditions - a counterparty with whom they can build a long-term business rather than simply a single transaction.

Realterm

Realterm’s experienced management team has sourced most of its investments on a non-marketed or direct basis, often acquiring assets at a discount to replacement cost and at a yield premium to traditional industrial properties. This advantage stems from the team’s deep industry relationships and expertise in transportation logistics and real estate. Due to the historical lack of institutionalization in the subsector and favorable supply/demand dynamics – particularly for assets with hard-to-secure transportation-use zoning – Realterm has consistently acquired and stabilized assets at a yield premium to comparable prime logistics yields. Transportation logistics assets that enable the rapid movement of freight are treated by users as profit accelerators, increasing their willingness to absorb significant rental increases in exchange of creating efficiencies in their networks.

As one of the leading owners and managers of transportation logistics assets, Realterm leverages its strong track record, market knowledge, and execution capabilities to maintain a competitive edge and drive consistent deal flow. Its proprietary global database of over 20,000 transportation logistics assets enhances in-house market and end-user research, further strengthening its informational advantage.

Realterm’s strategically located properties serve as core infrastructure for clients’ global supply chain operations. These long-standing tenant relationships have enabled Realterm to expand investment and leasing opportunities across its target markets, often with repeat users. As a trusted real estate partner, Realterm offers tenants access to multiple markets through a single platform, with standardized lease forms, contracts, and a consistent property management team – supporting strong absolute investment performance.