German manager Aukera targets 2024 launch for first pooled debt fund

German alternative lender Aukera Real Estate is working on plans to launch its first commingled real estate debt fund in early 2024, after having raised more than €1.5 billion of investor capital through lending mandates during its first three years in operation.

The Essen-based firm has so far raised capital from two German institutional investors – in two single-investor fund structures under a Luxembourg-domiciled umbrella structure called Aukera Real Estate Debt Fonds. It raised €1.47 billion from the first investor, including €150 million of capital announced in April, and around €70 million for the second fund.

Aukera is now aiming to expand its investor base by targeting €250 million of capital for the pooled fund – Aukera Real Estate Debt Fonds III – for which it will target a net internal rate of return of 6-7 percent.

Speaking to Real Estate Capital Europe, Patrick Züchner, chief investment officer at Aukera, said the firm is aiming to launch the fund in January next year, and fundraise for the following 12 months. He said the firm had previously been targeting a 4-5 percent net IRR for the second single-investor fund but believes a 6-7 percent target is better aligned with the current market climate following interest rate rises.

Aukera has discontinued its second mandate, for which it received and deployed €70 million across two loans.

“The existing portfolio – return wise – does not reflect the current environment,” said Züchner. “There is always a discussion with current and new investors into existing products saying, ‘does this reflect the current return targets’. To be honest, no, because [Fund II] was raised in a low interest rate environment, and the investments it contains are not in line with the existing return requirements,” he said.

Previously, the firm’s strategy was to provide senior debt in German-speaking markets and the Benelux, with loans up to €150 million. Through its proposed pooled fund, Aukera will look to provide whole loans typically ranging between €25 million and €80 million. The firm will also expand its geographical exposure to include the UK, Iberia, and the Nordics.

“If you compare this new super-senior strategy to the previous, and still existing strategy, it will attract fixed income investors. A new pooled fund would allow the institutions to invest from scratch in the current higher interest rate environment, it would also open them up to this new strategy with even less risk than before.

“And these are the two elements where we think a new pooled fund would be appreciated more by the investors we speak to, other than just to increase fund two,” he added.

Fundraising conundrum

Market sources report the fundraising climate has been hindered by the denominator effect on investor’s books. As a result, Aukera decided to target a fundraise next year, rather than its initial plan to launch the vehicle this year.

“If they [investors] had a quota, let’s assume for real estate, of 10 percent, and in January 2022, they started with 8 percent – they would have had some headroom and some investment capacity,” said Züchner.

“But since then, the bonds in their balance sheet’s market price came down. And passively, their real estate quota is now 12 percent, they now have no need to invest in real estate, which is ridiculous because it’s not caused by problems in the real estate market, it’s just an interest rate reflection on bond pricing,” he added.

This rhetoric has been echoed by several managers this year, including Germany’s KanAm Grund Group, which scrapped plans to launch a maiden debt fund, and Sienna Investment Managers – which adjusted its fundraising target for its latest debt vehicle.

However, Züchner is confident in the firm’s fundraising ability, because it has continued to attract capital, including the €150 million from its first German investor client for a super-senior real estate debt strategy, as a continuation of the first strategy.