Alantra plans ‘top-up’ debt fundraising and second real estate credit fund

The financial services firm closed its maiden property debt fund in 2021, surpassing its fundraising target.

Financial services firm Alantra, which was launched in Spain as N+1 in 2001, is aiming to raise ‘top-up’ capital for its existing real estate debt strategy, while making plans to launch its second property credit fund next year.

The firm raised €160 million for its first vehicle, Alteralia Real Estate Debt fund, in 2021. It has so far deployed €140 million.

Speaking to Real Estate Capital Europe, Jaime Cano, partner in Alantra’s private debt business, said the firm will look to raise between €200 million and €250 million for the second real estate debt vehicle, although Cano said it could be larger depending on investor demand.

In the meantime, Cano said the firm is looking to raise a “top-up” fund, to allow it to continue lending for its existing strategy, for which it raised the Alteralia Real Estate Debt fund. It will target between €50 million and €100 million this year.

The firm has begun fundraising for this vehicle. Its top-up vehicle will have a one-year investment horizon and once this vehicle is invested, Alantra will launch the second fund in the series.

The fundraising plans follow increased activity since summer last year. The business has deployed €100 million in the last six months.

Last month, Alantra procured two loans in Portugal and Italy. It provided finance to a French real estate investment management firm to acquire two hotels in Lisbon and Porto. In Italy, the firm provided green finance, by subscribing to a green bond, to Italian family office Sunshine Group to redevelop a Milan office building.

Cano explained that the current market climate poses an opportunity for Alantra to lend as a result of bank hesitancy and the rising cost of debt.

“Before, the cost of bank financing was something between 2-3 percent and now it is more in the 5-6 percent [range],” he said, adding that the firm has seen banks take a more “conservative” approach to lending, making it difficult for borrowers looking to obtain smaller loans.

The firm’s second iteration of its debt fund will be focused on providing loans for acquiring real estate assets, refinancing existing debt, or funding renovation or repositioning works. The vehicle will target ticket sizes ranging between €10 million and €30 million, with loan-to-values up to 80 percent.

Cano said the investor base is likely to be in the order of 80 percent European institutional investors and 20 percent family offices.

However, Cano, who has previous banking experience at French lender Societe Generale Corporate and Investment Banking, added that the fund could also bring in capital from bank investors.

“They invest part of the treasury that they are managing to obtain financial income through the dividends that we are distributing. Likewise, they also purchase bonds or other fixed income products,” Cano added.

He said the firm will offer floating-rate loans to borrowers, but will not necessarily oblige borrowers to hedge their loans with an interest rate swap.

He explained that buying a swap to cover between 70 percent and 80 percent of the loan amount will typically cost to the borrower +300 basis points additionally to the spread. “So, if we [have] a margin of 6 percent, and we impose our hedging through a swap that will cost 9 percent, which is what, more or less, other debt funds are providing.”

Instead, Cano said Alantra will offer floating-rate loans that have an interest rate cap, with an upfront premium, to potentially reduce overall loan costs through the life of the loan while allowing Alantra to limit the maximum level of the base rate at which the sponsor would not be able to service their debt.

Cano added that many non-bank lenders are providing a fixed-rate on loans, albeit at a similar or higher overall cost to borrowers than hedged floating-rate debt. He added that competitor alternative lenders are offering fixed-rate debt at costs of 9-11 percent, which has risen substantially in recent months.

The firm’s second real estate debt fund will have a Western European outlook and a focus on commercial real estate with the aim to diversify the firm’s exposure – which is currently split 60 percent in Spain and 40 percent outside of Spain – to include markets like Italy, France, Netherlands, Germany, Portugal, Cano said. The firm did not disclose the return targets for the proposed fund.

The firm is also interested in purpose-built student accommodation as one of its target sectors.