PIMCO fund buys first European properties

LONDON Wed Dec 19, 2012 12:15pm EST

LONDON Dec 19 (Reuters) - A fund managed by PIMCO, the world's largest bond investor, has bought five UK shopping centres with a partner, in its first foray into a secondary European property market hit hard by the debt crisis.

Investors have been so spooked by Europe's sovereign debt crisis and the gloomy economic outlook that many have not yet dared to venture outside the best neighbourhoods of London, Paris and Berlin.

The joint venture made up of a subsidiary of the $2.3 billion PIMCO Bravo fund and British retail developer NewRiver Retail paid 85 million pounds ($138 million) for the malls at a 9.7 percent yield, NewRiver Retail said on Wednesday.

The shopping centres are in British towns and cities such as Leamington Spa and Hull and were sold by insurance company Zurich Assurance, it said in a statement.

PIMCO has invested 90 percent of the equity in the joint venture, which intends to make more purchases.

Falling sales have forced values of shopping centres outside the best UK locations down by as much as 40 percent since the financial crisis, property consultant Colliers International said.

Yields - the annual rent as a percentage of the property's overall value - on so-called secondary malls like those the venture bought average 8.75 percent versus 6.4 percent for centres in thriving areas.

"This potentially sets a blueprint for additional capital to come into the market. We know this type of equity is probably sitting on the sidelines waiting to come in and it needed a partner who knew the market," said Jefferies analyst Robbie Duncan.

The PIMCO Bravo Fund - which is short for Bank Recapitalization and Value Opportunities - was set up in 2010 to buy commercial and residential mortgage loans from distressed banks.

Its set up was part of a push by PIMCO co-founder Bill Gross into other investments beyond bonds, which PIMCO and Gross are best known for. Gross' PIMCO Total Return Fund with $250 billion in assets, is the world's largest bond fund.