NREP, the Nordic region’s largest private real estate manager, is entering the European property debt market with the acquisition of a Germany-focused real estate credit platform and is mapping out plans to add a substantial slate of new debt products in the coming years, Real Estate Capital Europe can reveal.
The Copenhagen-based manager has agreed to acquire the credit business of M3 Capital Partners, a global real estate principal investment and advisory firm, in a phased acquisition. In the first phase, NREP is buying a 49 percent stake in the company, with the remainder to be acquired by early 2024.
The business includes a Munich-based team operating under the name Flins Capital Partners. The platform was co-founded by M3 in 2013 and manages three real estate credit funds, which have portfolios of mezzanine and whole loans secured by prime properties located in Germany’s largest cities. According to its website, Flins helps real estate investors and developers to “close financing gaps on real estate acquisitions, developments, and refinancing”.
The acquisition will boost NREP’s assets under management by €1 billion to €14 billion and marks its second geographic expansion beyond its home region, following its expansion into the Polish real estate equity market in June. As a result of the acquisition, NREP will add 16 credit specialists. The team in Germany will continue to operate under the Flins brand in the near-term.
Claus Mathisen, chief executive of NREP, told Real Estate Capital Europe the acquisition represents an expansion of NREP’s core capabilities, rather than a specific desire to gain access to the German real estate credit market.
“We have set ourselves up to solve problems in the built environment and believe if we combine people, capital and ideas, we can create value. We have evolved since our launch in 2005 from being a value-add investor in what was a staid real estate sector in the Nordics, into a company which believes the urban ecosystem needs more active management across what we call the ‘urban stack’, to make it more customer-centric, sustainable and livable,” he said.
The firm’s expansion goes beyond pure real estate investments. “In February, we launched our tech venture capital firm, 2150, because we believe technology is part of what the solution will look like. Debt capital is clearly also part of it,” Mathisen added.
He explained the platform’s funds manage loans to around 25 developers and real estate investors that NREP views as having a similar investment mindset to itself. “We think providing the right type of capital to finance their projects creates a ripple effect for what we are trying to do in the market,” he said. “It is not because we are afraid of too much equity exposure. It’s because we’re looking for different ways to impact the built environment.
“It does give some LPs [limited partners] more outlets for their capital. But that’s not the main argument. I don’t think any investors would have asked us specifically to create a Germany-focused credit platform. But because it’s a fit with the NREP way of doing things, we can present them with the logic of it.”
In 2022, the credit platform will launch two new strategies: a whole loan fund and a mezzanine lending vehicle, which is designed to provide green and sustainability-linked loans. According to market sources, the combined fundraising target is around €800 million.
The loan portfolio of the existing funds has loans ranging in size from €10 million to €130 million. Mathisen said will continue to target loans in this size range.
NREP’s ambition is to grow the platform to around €2 billion in the next two years, although Mathisen stressed any geographic expansion will be carefully considered. NREP’s immediate focus will be on establishing its Polish equity investment business and Germany-focused credit business, although Mathisen said the credit platform could eventually lend elsewhere in Europe, with the Nordic markets the most logical first expansion.
“The product specialist knowledge the platform has can be applied in the Nordics, because the banks are also pulling back there, as they are in Germany. This platform could then be expanded further in Europe. But we would need to put local people on the ground in a meaningful way before entering any real estate credit market,” he said.
The prospect of expanding into sustainable financing was a significant draw of the acquisition for NREP, Mathisen explained. NREP wants to become the first international real estate investor with a carbon-neutral portfolio by 2028 and investing through sustainable debt can be part of the strategy, he said. That will involve linking financing terms to sustainability performance, with a focus on borrowers attaining recognised market accreditations. Sponsors could also be in line to benefit from more attractive margins if they meet sustainability targets.
Mathisen believes more can be done to incorporate sustainability in the real estate credit industry. “Banks and financiers have an underappreciated role in driving sustainability and they’re grappling with it by adding sustainability experts and capabilities. That transition will take the next five to 10 years to figure out. But I don’t see it being nearly aggressive enough,” he said.