DRC Capital has clinched a €500m mandate to invest in European real estate senior debt, Real Estate Capital can reveal.
The fund manager will deploy the capital in the UK, France, Germany, the Netherlands, Belgium and Scandinavia in the next 12 to 18 months and has already committed to its first deal.
The mandate, from a European investor, shows the increasing acceptance of senior property debt as a desirable asset class, despite increasingly tightening margins, because it still offers higher returns than yields on offer in the bond and gilt markets.
DRC will lend at average loan-to-value ratios of 65% on office, retail, hotel and logistics assets. It will generally lend on deal sizes of €50m or less and will be able to buy syndicated tranches of loans, or club with other lenders, as well as originating bilateral facilities.
DRC aims to hold 100% of the loans it originates, but the mandate allows for syndicating pari passu tranches. Unlike its higher-yielding, £487m European Real Estate Debt Fund (ERED) II, which reached a final closing last May, it will not originate whole loans and syndicate tranches for this mandate.
The company has also appointed Bruce Matthews as a senior advisor who will work in a part time, non-executive capacity. Matthews was general manager at Deutsche Postbank and co-manager of the London branch until January last year. Postbank sold its £1.3bn UK real estate book in late 2013 to GE Capital as it decided to exit the sector in the country. Matthews is also a consultant for the funding and debt advisory practice of Montagu Evans.
DRC is led by managing partner Dale Lattanzio and partners Rob Clayton and Cyrus Korat. In the past two months the company has completed £300m of loans in six deals for its second fund.
These include five UK deals: a £64.6m purchase of a mixed-use portfolio for Harwood Real Estate; a £65m whole loan to refinance Draco Property’s Brettenham House in London’s West End; a £24m mezzanine facility for Oaktree Capital Management and Patrizia’s purchase of the mixed-use Citrus portfolio; and two deals involving a regional city hotel and an office building within the M25.
Strong private equity investment in UK real estate accounts for the bulk of DRC’s recent deals being done in the country, although it has also recently completed a deal involving an office building in Brussels.
The London-based DRC team now totals 14 people and in the past year it has recruited principals John Bigley from Westimmo, Kitty Patmore from Barclays, Jorge Page from Berwin Leighton Paisner, and Elke Birk and Philip Byun from Hatfield Philips. Mark Gibbard also joined as an investment analyst from HSBC.