Frankfurt manager Prime Capital launches first pan-European debt fund

The manager is seeking €500m equity from European institutional investors.

Frankfurt-based investment management firm Prime Capital has launched its first commingled real estate debt fund.

Speaking to Real Estate Capital Europe, Guido Gerstner, head of real estate debt at Prime Capital, said the firm had previously invested €800 million within the European property debt market through separate mandates, but now the firm is launching its first commingled real estate debt fund targeting a €500 million equity raise through its Prime Capital Whole Loan Fund, which is classified as an article 8 fund under SFDR.

The firm seeks to procure whole loans and senior loans ranging from €15 million to €20 million across Europe – primarily Eurozone markets, ie, Germany, France, Benelux and the Nordics (excluding Denmark) – with a loan to value of 70-75 percent. It is targeting returns of around 8 percent.

Gerstner added that the firm will not invest in the UK because it believes that there are “other players” with an established presence that can “better” invest in the market.

Through its previous mandates, Prime Capital focused on mezzanine lending but it has switched its stance with this first fund, citing increasing demand for senior and whole loan products. Gerstner explained: “We [have] evolved out of the mezzanine strategy, where we closed the financing gap between senior and equity, [because] we just saw a huge demand from sponsors towards the strategy or a solution for the financing problem.

“Through a whole loan you only need to talk only [with] one player. Our strategy is to lend very fast but diligently to bring reliability into the process and we’re seeing a huge demand from sponsors,  which are willing to pay a higher interest rate to get this kind of product – this is why we launched it because we see a huge demand for that,” Gerstner added.

He explained that alternative lenders have strengthened their positions in real estate debt financing over the last years, in particular in whole loans and mezzanine financings. He believes that recent bank failures, such as US regional banks and the merger of UBS and Credit Suisse lead to more market opportunities in the alternative lending markets.

“These events bring some uncertainty into the market. Also for banks, themselves, they have even more internal problems and this is why I think alternative lending will [gain] even more boots on the ground, and it will be even more popular in this kind of phase, where liquidity from banks is even more constrained.

“But I don’t think this will be a situation which we saw in the Global Financial Crisis in 2008 and 2009, where there was indeed a domino effect. I think this time, the leverage is much lower than back in the days and the regulation after the GFC prevented banks from doing extraordinary lending,” he added.

Gerstner explained that it formed the fund due to one German investor, with which the firm had an existing mandate, wanting a pool of investors to join in its efforts to invest in commercial real estate debt. As a result, that investor has contributed a “significant” amount of seed capital to the fund, he said.

The firm has already procured two loans in Germany, one was a €14 million acquisition financing for a residential asset in Berlin; the other was a €16 million development financing in Augsburg, the Metropolitan Region of Munich, for the development of an ESG compliant office building.

The Frankfurt manager, which has €5 billion assets under management, is looking for equity from European institutional investors, although it expects the majority of the capital to be raised from German investors.