EDR REIM to target international investors for second property debt vehicle

The Swiss asset manager is aiming to tap a broader investor base than for its first fund, which was mainly limited to German investors.

Geneva-based asset management firm Edmond de Rothschild Real Estate Investment Management is planning to target global investors for a proposed second real estate debt vehicle, having raised capital for its debut debt fund from mainly German institutions during the covid-19 pandemic.

Speaking to Real Estate Capital Europe, Ralf Kind, head of real estate debt at EDR REIM, explained that its first vehicle, Edmond de Rothschild Pan-European High Yield I, which had its final equity close on €350 million in December last year, is around “70 percent deployed” and expects the vehicle to be fully deployed before the end of the year.

“We are then considering to launch the next vintage during the course of this year,” he added.

The Swiss company launched its maiden real estate debt fund in 2020 with a target raise of €300 million. The firm’s debt strategy was eventually split into two vehicles, the fund and a separate account, because “one German insurance company wanted to allocate more than the target of the pooled fund,” Kind said.

Across the two strategies, EDR REIM raised €350 million: €170 million for the fund and €180 million for the separate account.

Kind said that the firm was limited with the investor base because of the travel restrictions imposed by the global pandemic, adding “I don’t know anyone that can raise money through Zoom or Webex”.

“We are [now] trying to broaden the capital raising for the next vintage,” he said, adding that the business is looking to attract global institutions in regions such as the Middle East and North America.

The proposed vehicle will follow the strategy of its predecessor and will be focused on providing whole loans and mezzanine debt – for four-to-five and two-to-three-year terms, respectively – across European property sectors.

Despite the high-yield focus of EDR REIM’s lending strategy, Kind said the firm can be flexible to current market conditions, “If I’m getting 10 percent returns on a senior loan today, why would I do mezzanine?”, he added.

Kind explained that the predecessor fund targeted an unlevered high-single-digit return, but he said it was too early to specify the target returns of the successor fund. The firm expects its follow-up vehicle’s target raise to be significantly higher than the €350 million raised collectively for its debut fund.

Kind said targeting a larger investor base comes with its own obstacles, mainly because North American and Middle Eastern investors “like to use leverage” within the structures they invest in.

“You can accommodate both in one vintage, structurally. You would use, what the lawyers call a ‘levered sleeve’, so you have a separate box in the strategy where you use leverage then you have another box where you do not use leverage. So, that is possible under the same strategy to accommodate the needs of different investors,” Kind says.

Having two types of structures, the pooled fund and the separate mandate, allowed the firm to invest across the capital stack, with the separate account being more “conservative” and the fund having more freedom across the risk curve.

Kind added that both elements of the first fund were invested in the firm’s first UK focused deal earlier this month, where EDR REIM provided a £35 million (€39 million) whole loan to refinance and redevelop a logistic asset in London.