DRC’s European Real Estate Debt Fund ll seeks £400m from institutional investors, as managers plan a raft of follow-on mezzanine debt vehicles
European mezzanine lender DRC Capital has begun investing its successor fund after raising more than £100m of capital.
The firm, founded by Dale Lattanzio, Cyrus Korat and Rob Clayton, is targeting £400m this year for European Real Estate Debt Fund II, which will make mezzanine investments in the UK, Germany and other northern European countries.
DRC raised more than £100m in a first closing, with a second closing imminent that includes £26m from the Public Employees Retirement Association of New Mexico.
EREDF II’s £400m target is £1oom higher than its predecessor, which had around a dozen US and European institutional investors and included a £75m quoted feeder fund.
Investors have warmed to mezzanine debt with Pramerica, ICG Longbow and LaSalle Investment raising follow-on capital for funds launched in 2011.
A source said DRC had made three investments for EREDF II, totalling £60m, including acquiring a private loan on a continental retail asset, and origination of a €10m loan for Victory Advisors to buy the Atrium office building in Amsterdam. Deutsche Bank provided senior debt and the building was sold for Lloyds bank, which had lent to Quinlan Private.
EREDF I’s final deal, in May, was a £39.5m mezzanine loan backed by a City office. The fund made 15 investments, totalling £264.7m, with a blended cash-pay coupon of 9.8% and a 2.1% payment-in-kind coupon.
One investment, of £9.7m in a UK CMBS, has only partially repaid on sale of the assets, representing 61% of acquisition cost.
The investments covered offices, hotels, retail and healthcare, with 47% invested in the UK, 24% in Germany and the rest in France, Denmark, the Netherlands and Belgium. The blended loan- to-value ratio is 70%. The biggest investment was a £40m mezzanine loan to Blackstone for its acquisition of the Mint Hotels portfolio.
ICG-Longbow raised a £700m whole loan and mezzanine fund in May, called UK Real Estate Debt Investments III, from UK, German, Scandinavian and Australian investors. It is targeting a net return to investors of 10-12%.
Also in May, APG made a follow-on commitment of up to £520m, in two tranches, to Pramerica Real Estate Capital III, an investment partnership that writes European mezzanine loans.
APG has also invested in property debt with LaSalle, in the Residential Finance I fund, which makes whole loans to student housing development and London residential projects. LaSalle also invests in mezzanine backed by UK and German commercial property (see p12).