German firms Lenwood and HAGIM begin fundraising for residential debt vehicle

The fund will be Lenwood’s first dedicated residential credit vehicle, as it cites investor appetite for the asset class.

Munich-based real estate debt fund manager Lenwood Capital and H&A Global Investment Management, a holding company of German private bank Hauck Aufhäuser Lampe Privatbank, have begun fundraising for a pan-European residential credit fund of up to €350 million in response to strong investor appetite for the asset class.

The two parties have started fundraising for the Luxembourg-domiciled HAGIM Lenwood Real Estate Debt I fund. Through the fund, which is designated as an Article 8 fund under EU Sustainable Finance Disclosure Regulation, the joint venture partners will look to provide fixed rate or floating rate whole loan and mezzanine financing against standing assets, with loans ranging between €10 million and €30 million, with target loan-to-values within the 70s percent.

The focus will be Germany and major European cities.

Speaking to Real Estate Capital Europe, Ulrich Kastner, co-founder and managing partner at Lenwood, said it is aiming to raise around €350 million from institutional investors. It expects to close the vehicle before the end of the year, with a first close by the end of June.

Kastner, who spent five years, between 2003 to 2008, at US bank Lehman Brothers as an executive director, co-founded Lenwood with Burkhard Schlickenrieder, former director of commercial real estate origination at German bank pbb Deutsche Pfandbriefbank, in 2017.

The firm has since rolled out four vehicles and has built a loan book of around €1 billion. Lenwood has traditionally provided mezzanine finance across asset classes but investor appetite for residential steered it towards also providing a living sectors focused fund.

“Investors have voiced their preference for residential assets, and they are looking for social sustainable Article 8 funds, so that’s why we created the fund. We’ve done ‘S’ [the social aspect of ESG] in the past as part of our broader strategy but a themed fund makes a lot of sense in today’s world,” he added.

It is understood that the firm will target net returns of 7.5 percent.

The current economic environment has created uncertainty around property valuations due to rising interest rates, exposing borrowers to higher debt costs. However, Kastner said there are features a lender can put in place to mitigate risk.

“You go for more quality on the asset side, you have corporate guarantees, you have reserve accounts, you’re building these features, and you are also looking at stronger sponsors with stronger balance sheet,” he added.

He explained banks’ reluctance to commit to financing deals has created an opening for alternative lenders.

“A new part of the market has opened up with the banks pulling back. So, they’re pulling out of a lot of financing, and they’re pulling back in terms of LTV, that’s creating space for alternative lenders. I think that’s true all over Europe,” he said.