London-based alternative lender Cheyne Capital has launched two real estate credit funds, aiming to raise £7.5 billion (€8.6 billion) over the next three years.
The firm’s property credit division, Cheyne Real Estate Credit Holdings, has launched an open-end fund called Senior Loan, which will have an initial fundraising target of £5 billion, and a closed-end fund named Capital Solutions, for which it will seek to raise £2.5 billion.
The Capital Solutions vehicle has already received £650 million of commitments from investors.
“Investors appreciate now that interest rates are set to be higher for much longer, and hence see a prolonged period of volatility and transition in real estate equity,” Ravi Stickney, managing partner and chief investment officer at Cheyne, told Real Estate Capital Europe.
“The strong feedback we receive is that, for the foreseeable future, investors prefer the defensive risk profile and substantial returns available from real estate debt,” he added.
The Senior Loan strategy will focus solely on senior real estate loans across core, core-plus, value-add and development assets located in the UK and Western Europe.
The Capital Solutions strategy will also provide senior loans and in addition will provide financing across the capital stack, including subordinated debt, hybrid credit and commercial mortgage-backed securities.
Through the two vehicles, respectively the eighth and ninth funds for the firm, Cheyne will aim to originate loans of between £50 million to €500 million, with an average loan size expected to be around £150 million.
Stickney added the firm sees a substantial opportunity to deploy capital in the European real estate loans market. “A major financing gap has been opened up between lower real estate valuations, caused by higher interest rates, and the supply of real estate finance, with the participation of banks curtailed by regulatory constraints,” he said.
He explained the firm has observed growing investor demand but argued that very few managers have the proven track record to attract institutions.
“Barriers to entry are high for nascent debt funds and those without local expertise and networks across Europe, which creates a generational opportunity for established real estate lenders with the full suite of necessary expertise, existing track records, established origination channels and a pan-European presence,” he added.
Cheyne has been among the most prolific non-bank property lenders in the European market in the past two years. “We lent £2.8 billion in 2022 and over £3 billion in 2023, and have an enormous pipeline to be funded in 2024 and beyond,” Stickney said.
He added that continued investor appetite for the sector is demonstrated by Cheyne having already received a £650 million commitment to one of its new vehicles.
Real Estate Capital Europe has reported on the firm’s recent deals in Europe, including an €80 million loan to US real estate company Hines and Peterson Group, a real estate family business owned by Hong Kong’s Yeung family, to refinance the WeWork-anchored Central Plaza mixed-use scheme in Dublin on 1 November.
The firm also provided a €250 million senior loan to a partnership between US investment management firm Bain Capital and Italian contractor Borio Mangiarotti to finance two residential projects in Milan at the end of October.