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Real estate march into renewables infra begins

Alex Price, chief executive of real estate manager Palmer Capital, says his firm’s new UK solar park fund – which is aiming to raise £52m – could herald a trend of real estate funds targeting the renewable energy infrastructure space.

Palmer Capital, the London-based real estate fund manager, has teamed up with UK renewable energy developer Low Carbon to launch what it is billing “the first fund formed specifically to invest in UK solar parks”. The UK Solar Income Partnership is aiming to raise £52 million (€60 million; $81 million).

According to Palmer Capital chief executive Alex Price, the close similarities between the characteristics of real estate investing and renewable energy investing mean that more real estate managers are likely to follow his own in entering the space. In a statement announcing the launch of the fund, he heralded “a new alternative institutional asset class emerging from the cross-over between real estate and renewable energy schemes”.

In conversation with Infrastructure Investor, Price explained how the two types of investment were similar. He said: “Under the [renewable energy] feed-in tariff (FIT) regime, the owner of the property is guaranteed a price for 25 years for electricity they generate, with this price set on day one and then moving in line annually with inflation.”

“Under a normal real estate lease, we have a rent agreed on day one paid from the tenant occupying the property, which is often linked to fixed or inflation adjustments annually. So the only difference here is only that the amount of energy produced can vary, but with solar the variance is relatively small.”

He does not think, however, that real estate managers will compete more broadly with infrastructure funds – not yet, at least. “Real estate managers will move into renewable energy, although I’m not sure whether they will go much beyond that initally,” he said. “This fund should be viewed as a start of a trend where real estate goes into renewable energy infrastructure due to the similarities. Real estate investors will not focus on the huge projects in the near future, but more likely on mid-sized solar or wind projects, where the cross-over is stronger.”

The fund will be used to acquire three completed and operational 5-megawatt (MW) solar parks located in Cornwall, which were developed by Low Carbon. The fund has an option to acquire a fourth solar park, also based in Cornwall.

The 10-year, closed-end fund – in which investors will have the option to extend the fund life to 25 years – will target an 8 percent net return to investors per annum, with an 8 percent annual distribution.  The management team is investing £2 million of equity into the fund.

Palmer Capital manages seven UK property funds, having raised over £350 million of equity for investment into UK property, either through development or actively managed transactions, since 2004.