Frankfurt-based investment management firm DWS is aiming to launch its first whole loan-focused real estate lending strategy this year to capitalise on banks’ retrenchment from the market amid a refinancing gap.
The firm will look to raise up to €1 billion from institutional investors with the aim of providing a greater proportion of the capital stack in real estate deals than in the senior and mezzanine lending it has undertaken through its property debt platform so far.
Speaking to Real Estate Capital Europe, Alexander Oswatitsch, head of real estate debt at DWS, said the firm is aiming to attract between €500 million and €1 billion of equity for the whole loan strategy. While the vehicle type remains to be determined – as the firm operates a mix of commingled funds and separate account mandates – DWS is aiming to launch the strategy in the second half of the year to target refinancing opportunities.
“It is an interesting strategy, where you take the traditional senior and add a little bit more leverage than what the banks are currently doing – 50-55 percent – and take it up to 60-65 percent.
“With the whole loan strategy now, it gives you a good return while being in a senior position and in control of the capital stack, that is a very good position to be in. Currently, across the capital stack there is a funding gap and with the pull back from banks, it presents a good opportunity for alternative lenders,” he added.
The firm will look to provide loans ranging between €50 million and €75 million across commercial real estate in Europe.
Oswatitsch said it is too early to disclose the exact return profile but said: “On a whole strategy, your base is likely to be around 3 percent and you are generating margins of 3-4 percent. It gives you returns of around 6-7 percent.”
He explained that because the firm is looking to provide a majority proportion of the capital stack in a given deal, DWS will aim to raise a significant volume of equity. He believes targeting a larger volume is achievable because investors are looking at credit investments more generally and “they understand the story” in the debt space.
Oswatitsch said introducing a whole loan strategy is not a major departure from the firm’s previous real estate lending strategies, as it already provides senior and junior products. He said the whole loan strategy will represent a combining of the two aspects of the business in one strategy. DWS will continue to pursue its junior- and senior-focused strategies.
In May 2022, the firm held a first close on its targeted €500 million European Junior Real Estate Debt Fund, its sixth real estate debt fund, raising €150 million. Through the fund, the firm is focusing on building a subordinated loan portfolio secured by core/core-plus real estate, targeting a high single-digit rate of return at a maximum loan-to-value of the portfolio of 75 percent.
DWS’s real estate debt platform, which was launched in 2014, covers European transactions through offices in London, Frankfurt, and Paris. In total, six European senior and junior strategies are now managed in the form of client mandates and as open-end or closed-end funds, with a total volume of €2.5 billion.
Other managers are aiming to launch capital for whole loan strategies. In April, Frankfurt-based investment management firm Prime Capital, a real estate mezzanine specialist, launched its first commingled real estate debt fund, Prime Capital Whole Loan Fund. The firm is seeking €500 million of equity from investors. The firm believes having a whole loan option means borrowers have a less complicated financing structure to use, rather than raising separate senior and junior loans.