Paloma to make urban logistics assault with £450m of firepower

Froud and Pitman hunting for value in the warehousing market

• What Paloma Capital has raised £180m of equity for its second fund
• Why Its focus on building up a portfolio of predominantly warehouse assets for its first fund has seen its partners invest again
• What next Paloma is looking to build a portfolio of as much as £450m of assets by utilising leverage

Paloma Capital has raised £180m of equity for its second fund as it looks to further build its presence in the UK urban logistics market, React News can reveal.

Having held a first close of £80m in July 2018, a further £100m saw it over-subscribed, past its £150m target and hit its £180m hard cap. With target gearing of 50% to 60%, the fund manager founded by Joe Froud and Jack Pitman could amass a portfolio of up to £450m. Unleveraged returns of around 10% to 12% are being targeted, with IRRs ultimately anticipated to be around 20%.

Of the investors in Paloma’s first fund, 94% by equity have re-invested, alongside a further 10 new investors. The investors are based in the UK, Continental Europe, the Middle East and North America.

Some £50m of equity has been deployed from the fund already, which has been used to acquire around £100m of assets across 12 transactions. Although the fund can buy in any asset class, 82% of its portfolio thus far is urban logistics based in Northampton, Andover, Wakefield, Peterborough, Barnsley, Farnborough, Glasgow and Exeter and it remains Paloma’s main sectoral focus. The remainder is made up of an office refurbishment project in Clerkenwell, nearby Farringdon Station.

It is predominantly targeting assets of between £5m and £15m where it can invest a large proportion of capital expenditure and undertake refurbishments or elements of development. By targeting assets in this range it hopes to avoid competition from larger institutions and private equity investors, whilst being better capitalised than most pure asset management or operating partner groups.

Paloma’s first fund held its final close in 2017, having raised £140m from 19 investors. It was deployed into £252m of assets, 75% of which were urban warehousing, 15% retail warehousing and 10% offices. Most notably the fund undertook the £90m corporate acquisition of Birmingham-based RVB Investments.

Almost a third of the assets in Paloma’s first fund have been realised generating a return “well ahead of the fund’s target”. Last month it sold the Quail Portfolio, made up of seven single-let warehouses, to Urban Logistics REIT for £32m.

Froud and Pitman founded Paloma in 2015. Froud previously founded and was the managing director of Columbus Capital, a private equity fund management joint venture with Schroders, whilst Pitman was previously a director and board member at Helical.

Froud said, “The combination of Brexit and a general election have made raising a UK fund extremely challenging over the last 18 months but we have been supported by a very loyal band of investors, some of whom have been with us in our previous firms for almost 15 years now.”

Pitman added, “We still have about £130m of discretionary capital to invest and are starting to see some really interesting opportunities. We have just exchanged contracts on our first post COVID-19 acquisition and have a further three in legals, all urban warehousing, plus we have bid on several more over the last few weeks including a central London office”.

Paloma Capital was advised by placement agent Lazard, legal advisers Greenberg Traurig and Ogier and administrator Langham Hall.