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Athens-based Bluehouse Property Advisors is planning a second fund with a diversified strategy focused on unmet demand in the real estate markets of the soon-to-be-accessioned countries of Southeastern Europe. By Aaron Lovell.

Building on the success of their first fund, Athens-based Bluehouse Capital Advisors has launched another vehicle that will look for real estate investments in Romania and Bulgaria, as well as Serbia, Moldova and the Ukraine.

“We have a strong pipeline in Romania and Bulgaria,” says Yannis Delikanakis, one of three partners who started Bluehouse over two years ago. “We have already located investment opportunities in Moldova and Serbia.”

Delikanakis says the fund, which has a €100 million target ($129 million), will continue the strategy established with Bluehouse Capital Partners, a €50 million fund that is now fully invested and has invested in a number of development and income-producing projects in Romania and Bulgaria.

The new vehicle, EU Accession Property, will pursue deals in the €5-million- to €15-million-range. This time around, Serbia, Moldova and the Ukraine will expand the vehicle’s geographic focus; the initial vehicle included Greece in its mandate, something that has been eliminated in the second fund.

Delikanakis says the firm will not be chasing larger deals which remain rare in the fund’s target countries and, when they do surface, attract some of the largest players from across the continent.  Delikanakis contends that, while smaller deals often require more work, they offer higher yields and allow for diversification among property-type and tenants.

The firm is attracted to the property markets in Southeastern Europe for myriad reasons. In Romania, for example, Delikanakis says the firm is intrigued by the fact that the country’s population of 22 million is spread out over a number of urban areas—making it more of a regional play. Romania also has a highly educated society, relatively low wages and serves as the regional headquarters for a number of large companies, he says.

While Romania and Bulgaria will most likely join the EU in 2007 or 2008, the picture is less clear for Serbia and Moldova. Delikanakis says Serbia’s economy could get a boost when that happens, but notes that its land registry and title systems are not as advanced as neighbouring countries.

In addition to acquiring income-producing properties, the fund will also look for development opportunities. For example, many countries in the region have unmet demand for more class-A office space, but little available stock. “In these markets, property is not a commodity,” he says. “We have to create our own stock.”

The firm is working on a joint venture with a residential developer for 100,000 square meters of apartments in Bucharest. Still, Delikanakis points out that the firm partners with local operators and only purchases land with all zoning and planning issues resolved, both of which serve to mitigate risk.

The fund will be focused on residential, office and industrial, much like the debut vehicle, with a possible expansion into retail development. “In these markets, you don’t have the luxury to focus on one sector,” Delikanakis says. “You must be opportunistic.”

While the first fund attracted high net worth individuals, the second vehicle has received capital from individuals, as well as institutions. According to public records, the European Bank for Reconstruction and Development is considering a commitment to the fund. Bluehouse was founded by Delikanakis, along with Victor Pisante and Babis Pandis.