AEW and Ostrum debt vehicle set for €549m final close – Exclusive

The pair’s Senior European Loan Fund II is 80% invested, with full deployment targeted for September.

AEW and Ostrum Asset Management, formerly known as Natixis Asset Management, will this month hold a final close on the second fund from their joint real estate debt platform.

The joint venture, which comprises staff from the two subsidiaries of Paris-headquartered Natixis Investment Managers, will close its second Senior European Loan Fund, SELF II, by the end of June on €549 million.

“The team has now invested over €1 billion across existing funds and mandates. Leveraging on the debt platform’s success, we have a number of strategies coming up,” Arnaud Heck, head of real estate finance at Ostrum and co-head of the platform, told Real Estate Capital.

SELF II, which AEW and Ostrum launched in March 2016, initially had a fundraising target of up to €700 million, with a minimum of €500 million. It gathered €162 million by first close in May 2016 and a total of €519 million was raised by October 2017, of which around half had been deployed at that stage across eight loans.

AEW’s Cyril Hoyaux, who co-heads the lending business with Heck, explained the partnership committed to deploy the capital within an investment period due to end in September 2018. Extending this period in a bid to raise more capital would, therefore, “be unfair” to investors, he noted.

Investors in the fund are all from Europe, predominantly from the insurance sector.

The vehicle is 80 percent invested across 13 loans, generating a return of up to 250 basis points. SELF I was fully invested by July 2015, generating more than 300bps.

“We aimed for a return in the range of 200bps-250bps and we are within target, which proves we are able to deploy on a selective basis,” Heck said, noting many lending opportunities in the market.

Through the vehicle, the partnership has provided finance secured by core assets across Europe, in deals reflecting leverage typically with a loan-to-value ratio below a 60 percent. “We have almost no exposure to transitional assets; [SELF II] is a low-risk portfolio of investment-grade quality,” said Hoyaux, adding that value-add transactions are selected for other vehicles and mandates with higher risk/return profiles.

In a bid to hit return targets, AEW and Ostrum have aimed to supplement lending in core target markets with lending in higher-yielding markets. Although the majority of commitments to date are in SELF II’s core countries of France, Germany and the Benelux, the fund has also deployed capital in Poland, Southern Europe and the Nordics. By contrast, half of the €323 million of capital raised for the predecessor fund, which reached final close in 2012, was deployed in France.

The UK – a core market for the first SELF vehicle – has not been targeted by SELF II. Whereas 37 percent of SELF I was deployed in the UK, Heck cited Brexit as the reason for a lack of UK deals in the second fund.

The aim to diversify SELF II’s geographic exposure has proved efficient, Hoyaux added: “The lowest-yielding loan we have done so far is priced at 150bps for a core asset at 65 percent LTV in Germany. By contrast, the highest pricing was secured against a 60 percent LTV portfolio of shopping centres across Italy.”

SELF II has deployed more capital through direct lending and club deals than buying into syndications, Heck added, which has also contributed to it capturing additional margins.

“In terms of property classes, office and retail represent more than 60 percent of the underlying assets of the portfolio. We have diversified, however, into logistics and light industrials, while we also favour hotels and shopping centres,” Hoyaux said.

“Each asset has a different story and there’s liquidity pockets in all segments. We want to source the best opportunities with a limited risk profile,” Heck added.

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