Sun comes out for property investors

Long-term guaranteed income is what some institutional investors used to love about commercial property leases. And that’s precisely why Alex Price, chief executive of real estate fund manager Palmer Capital, thinks they will be attracted to his firm’s newly launched £52 million (€60 million; $81 million) UK-focused solar park fund.

He explains: “The average lease length in commercial real estate used to be around 20 years if you go back 15 or 20 years. Now it’s about six years. Investors want long-term guaranteed income streams but they have had to learn to live with active management.”

They may not have to any more – at least those willing to commit capital to the renewable energy sector, where projects benefit from government subsidies in the form of feed-in tariffs, which are typically between 15 and 25 years long and offer precisely the kind of long-term guaranteed income stream once characteristic of commercial real estate.

The capital being sought by Palmer Capital – for what Price bills as the “first fund formed specifically to invest in UK solar parks”- will be used to buy three completed and operational solar parks in Cornwall which were developed by its fund partner, Low Carbon. The fund has an option to buy a fourth park, also in Cornwall.

Up to now, infrastructure fund managers such as AXA Private Equity, DIF and Impax Asset Management have had little competition from real estate managers as they hoover up Europe’s renewable energy infrastructure assets. That may be about to change.

As Price says: “Our view is that renewable energy is slightly more akin to real estate than infrastructure. We’re getting incredibly positive investor feedback.”