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How DRC Savills IM surmounted fundraising challenges to raise €600m

Although the pandemic made capital raising more complicated, the manager brought new investors into its latest debt vehicle and is now preparing a successor fund launch.

This month, DRC Savills Investment Management, the real estate lending business of Savills Investment Management, held a final close of its European Real Estate Debt IV fund, having secured €600 million of commitments from investors despite fundraising challenges brought on by the pandemic.

ERED IV, the fourth in DRC SIM’s high-yield credit fund series, was launched in 2019. By final close, it had attracted 16 institutional investors from Asia-Pacific, the US, Middle East and Europe – six of which were new to the fund series.

“The capital raising environment was challenged over the last couple years, the most difficult challenge being the ability to extend our net slightly wider and get to know new investors given the restrictions on travel and seeing people in person,” Dale Lattanzio, managing partner at DRC Savills IM, told Real Estate Capital Europe.

“We were fortunate to work with our parent company, Savills Investment Management, as they were able to introduce investors to the fund that we hadn’t known previously, which was a huge advantage.”

Savills IM bought a 25 percent stake in the lending business, then known as DRC Capital, in 2018. In May 2021, it exercised its option to buy the whole business, which Savills IM global chief executive Alex Jeffrey said at the time has “tremendous growth potential”.

According to Lattanzio, European real estate lending markets present strong opportunities to deploy investor capital. More than 50 percent of ERED IV’s available capital was invested by is final close. DRC SIM will seek to continue its strategy of deploying the capital across major European jurisdictions including the UK, Netherlands, Germany, France, Spain and Italy, across a range of sectors.

The fund is focused on providing strong income-based returns, with a gross IRR range of 10 and 12 percent. Lattanzio explained the fund was also designed to appeal to investors by offering the ability, for the first time in the series, to commit capital in either sterling or euros.

Investments made to date include mezzanine, senior and whole loans. “We see good demand for [mezzanine and whole loans] and have seen that consistently,” Lattanzio added.

Investor demand

In the decade since DRC Capital launched, Lattanzio says real estate debt has become an accepted asset class within the private debt market.

“When we first started in the market 10 years ago, most of the initial offerings in the European space were high-yield funds and were mainly targeting real estate investors for their real estate allocation. But that grew and shifted to then include alternative investment allocation and then there became more offerings in whole loans, senior loans, so it’s definitely changed through time and it’s also very strategy dependent.

“We have also seen a lot of cross-over investing from fixed income investors who are interested in the private debt asset class and real estate is now an extension of the private debt asset class.”

Looking forward, Lattanzio expects real estate debt to remain attractive to investors. “There’s still quite an attraction to private markets in general, and real estate debt has some really interesting characteristics with respect to risk-adjusted returns for investors in the private debt space.”

“Investors are trying to match the right debt product that suits their risk, attitude, and appetite,” Lattanzio added. “One of the benefits of being in debt is that you can pick your spot with respect to risk and can view it as a sliding scale of risk and return.”

Lattanzio is already thinking about the next vehicle in the series: “I’d expect to see a follow-on [fund] in the not-too-distant future.”

A future vehicle will follow a similar strategy to the fourth fund, and DRC SIM will aim to attract more European and Asian investors, he added.