JLL Jones Lang LaSalle Inc

By Art Patnaude 

BlackRock Inc., the world's largest asset manager, is cultivating a group of U.K. garden centers, a fresh signal that investors are digging deeper into the property sector in their hunt for yield.

BlackRock Real Estate, the firm's property arm, on Monday bought a portfolio of eight garden centers around the U.K. for GBP112.5 million ($171.1 million) from U.S. property investor LaSalle Investment Management.

The portfolio adds to a growing pool of alternative investments for BlackRock, which owns doctors' offices and student housing in the U.K., as well as parking garages, cinemas and gas stations elsewhere.

"This is our first foray into garden centers," said Geoffrey Shaw, portfolio manager at BlackRock. "Our real estate platform has been going through a significant transformation," he said, noting growth in areas such as real estate debt, publicly-listed property firms and infrastructure.

Alternative real-estate assets like garden centers, which in the U.K. typically offer food and giftware in addition to horticulture, are increasingly on the radar of global investors. The Canada Pension Plan Investment Board in March spent GBP1.1 billion on a student housing portfolio. Brookfield Property Partners LP in June bought Center Parcs, which operates five family-oriented vacation resorts in the U.K., from Blackstone Group LP.

Low interest rates around the world have made traditional commercial property--such as offices, shops, or warehouses--increasingly attractive to investors compared with other assets such as bonds.

As rising demand pushes up prices, investors are turning to alternative properties. In the U.K., deal volume for alternative property sectors hit GBP8.7 billion in the first half of 2015, up from GBP4.7 billion in the same period the year before, according to agent JLL.

Garden centers, along with marinas, are a further step from the norm, said Alan Plumb, head of leisure and trade-related property at agent Savills. Before the financial crisis and advent of extremely low interest rates, "investors might have thought some of these sectors were too small," Mr. Plumb said. "Now they're starting to look at them."

BlackRock, which manages over $21 billion of real estate equity and debt, bought the group of garden centers primarily for their rental income, Mr. Shaw said. Six of the assets are let to Wyevale Garden Centers, the largest garden-center operator in the U.K., owned by private-equity firm Terra Firma Capital Partners Ltd.

"We're looking to find income at a time when fixed-income isn't yielding that much," Mr. Shaw said.

Many of Blackrock's clients, like pension funds, require steady streams of consistent income. The garden centers in the portfolio have an average unexpired lease term of 29 years. The net initial yield on the portfolio is 5.25%, an attractive return compared with the 2.5% that 30-year U.K. government bonds currently offer.

LaSalle assembled the portfolio about a decade ago for the LaSalle Garden Center Fund, which produced a total return of 8.5%. LaSalle was obliged to sell the portfolio at the end of the fund's tenure.

"The returns have been so good," said Alan Tripp, head of U.K. at LaSalle, which manages $56 billion of property assets. "We held on right until the end."

LaSalle is a large investor in health care and student housing, Mr. Tripp said. "The main attraction of the [alternative real estate] sector is the income. There's a move toward this, but when you're stepping into alternatives you have to know what you're getting into," he said.

In Britain, a nation obsessed with homes and gardens, garden centers are ripe for investment for three main reasons, Mr. Shaw at BlackRock said. They attract an older age group, a growing section of the U.K. population; shoppers tend to be homeowners, a category of the population that tends to be more affluent; and the cafes and restaurants act as leisure destinations, making garden centers more than just a straight retail offering.

Write to Art Patnaude at art.patnaude@wsj.com

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(END) Dow Jones Newswires

September 07, 2015 06:03 ET (10:03 GMT)

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