BNP Paribas Asset Management has begun fundraising for its BNP Paribas European Enhanced Real Estate Debt Fund to take advantage of bank hesitancy to lend to commercial property.
Speaking to Real Estate Capital Europe, Christophe Montcerisier, head of real estate debt at BNP Paribas AM, said the firm has started fundraising for the vehicle and aims to raise between €250 million to €300 million.
“It [the fund] fulfils a need from borrowers looking for leverage at a time when traditional market players are reducing amounts made available,” Montcerisier said.
Its senior-focused fund will issue loans ranging between €15 million and €25 million, with an average loan-to-value ranging between 60-70 percent. The Paris-headquartered firm will seek gross returns of around 8 percent.
“The fund will mainly allow for the gap to be bridged between LTV loans formerly at 65 percent and now revised down to 55 percent, at a time when traditional lenders are constrained.
“This supplementary financing tranche will be available for the benefit of borrowers in the main European countries and for a variety of property types, such as offices, logistics, light industrial and residential properties,” he added.
The firm has also created an affiliated French sub-fund (an fonds de financement specialisé) to allow the vehicle to invest in France.
Other than bank lenders’ reluctance to lend, Montcerisier, who has banking experience from SocGen, RBS and Merrill Lynch, said the current market climate provides an opportunity for investors to diversify their allocations with a credit fund.
“It offers diversification to institutional investors towards an investment strategy largely protected from potential decreases in values, compared to equities, and providing attractive returns,” he said. “Assuming a 10-point decrease in LTV offered combined with a 15 percent decrease in property prices, this would translate into a decrease of 28 percent of debt per square metre offered.”
Montcerisier heads a Paris-based real estate debt team, which manages €1.2 billion, including segregated mandates. The division has previously launched two real estate debt funds in its senior lending BNP Paribas European Real Estate Debt Fund series.
The firm’s maiden fund raised €335 million in 2021, while its second iteration in the series closed on €700 million, exceeding its €500 million target in July 2022.
Market participants have recognised the need for capital for refinancing maturing loans in the coming months and years. In January, manager AEW Europe reported a refinancing shortfall of an estimated €51 billion in the UK, France and Germany for 2023-25, due to faster than anticipated declines in collateral values resulting in lenders making even less capital available to borrowers at refinancing.