Augsburg-based investment management firm Patrizia is set to increase its real estate debt exposure following the full deployment of a €50 million mandate it received in 2021.
Marko Multas, fund manager of Patrizia’s Global Real Estate Debt Fund, told Real Estate Capital Europe that the $50 million mandate it received from a Hong Kong insurer in 2021, the first dedicated to investing in real estate credit, is fully deployed. The firm is now seeking to accrue larger mandates to continue its investment programme.
Multas said Patrizia did not see many debt opportunities in 2022 as a result of market uncertainty but expects this to change by the tail end of this year and in 2024, at which point the company intends to begin deploying capital.
Patrizia operates an open-end mandate structure in Luxembourg called the PATRIZIA Global Real Estate Debt fund, whereby the manager produces a client-bespoke annual business plan for debt investment in the concurrent year.
It will look to have between €200 million to €300 million through new mandates; however, this will not come from new but existing investors. The firm will provide loans targeting the mid-market, ranging between €10-20 million and secured against real estate in Europe and Asia.
“I think we are going to be quite active later this year and then next year, but for that, we need to also raise more capital for that mandate but also from other mandates,” Multas said.
Patrizia is looking to take advantage of European bank retrenchment and believes its unique selling point, versus banks, is its ability to asset manage properties it has lent against through its long track record with equity asset management – allowing the firm to take on high-yielding debt and provide facilities in the region of stretch-senior.
The firm sees two routes of entry in the debt market, both dependent on its existing investors. On one hand, the firm will target lower risk deals within 60-75 percent loan-to-value/loan-to-cost for investors that prefer lower risk – a return profile between 8-10 percent.
On the other hand, it will look to provide its high return investors special situations loans between 70-80 percent LTV, with equity kickers or other quasi-equity characters, targeting 15 percent-plus returns.
Difficulties deploying capital
Multas’ debt team provided two loans earlier this year for the combined total of €60 million, together with ARA Europe, the European subsidiary of Singaporean investment management firm ARA Asset Management.
The two loans were a junior debt facility provided to UK construction firm Kier Group for an office refurbishment in Birmingham, with German bank Deutsche Hypo as senior lender; and a €12.7 million whole loan financing to London developer AMRO Partners to fund the development of a 160-bed purpose-built student accommodation scheme in Salamanca, Spain.
However, transaction volumes for the debt team were hindered in 2022, particularly during the second half of the year, by rising interest rates.
“If you look at last year, it was not responsible to invest in the market where you see the base rates moving 300 to 400 basis points, and then at the same time valuations holding up. We were hoping to place more capital last year but we rolled the allocation for this year,” he said, adding that the firm saw no deals in the second half of last year.