Blackstone and Pramerica step up mezzanine push

Blackstone’s Special Situations Fund ll nears €1bn mark and plans sub-fund to target Europe, while Pramerica approaches $500m final close

Blackstone and Pramerica are raising more capital to invest in mezzanine opportunities, with both managers due to hold fund closes imminently. Blackstone’s Special Situations Fund II is approaching a volume of more than €1bn while Pramerica is about to hold a second and final close for its mezzanine fund at around $500m (£300m), with an additional commitment expected from Dutch pension fund manager APG.

Pramerica’s debt fund, run by Andrew Radkiewicz, has targeted other “like-minded” institutions. “We’re very well progressed with a number of investors; they like what we’re doing,” he said. Pramerica originally raised £150m through APG and six Prudential-managed accounts, with half the money thought to have come from APG. It hopes to close the fund by the end of March.

To lead Blackstone’s strategy, Joe Pedlow has been hired from boutique debt provider StormHarbour Securities. He previously worked at Merrill Lynch as head of the financial sponsors’ real estate finance and securitisation team. Before that he helped build Citigroup’s European CMBS conduit.

Pedlow will be based in London, reporting to Mike Nash, who runs the overall global real estate debt strategy business from the US. He will pursue opportunities through a sub-fund of Blackstone’s closed-ended Special Situations Fund II, focused on Europe. The private equity group extended the sub-fund’s marketing period at the end of last year.

It will target 12-15% returns and is open to providing mezzanine capital, senior debt or preferred equity, as well as buying loans, tranches of CMBS or any form of subordinated debt. Its strategy is to make loans at the larger end of the spectrum. Mezzanine debt has become an attractive prospect for large fund managers only in the past few months, with MSREF also rumoured to be contemplating a European mezzanine fund.

Duet Private Equity is to launch the first UK listed company to invest in mezzanine debt for European real estate. The London Stock Exchange- listed Duet Real Estate Finance will act as a feeder fund for Duet’s European Real Estate Debt Fund, which was one of the first mezzanine funds to get off the ground when it launched a year ago.

Oriel Securities is the book runner and adviser to Duet for the new Guernsey vehicle and aims  to raise £100m by the closing date of 8 March. Duet’s existing fund has already invested over 60% of its initial €100m of equity capital, in five deals. It is believed to have a pipeline of around a dozen opportunities across Europe, which would represent an investment amount of €200m.

Duet chief investment officer Dale Lattanzio said: “After going through an age of liquidity like the one we have been through, the market was at first slow to realise that there is a role for capital priced at 10-16%. But now that the refinancing calender is a reality rather than an expectation, the market better understands the role it plays.”

However, a partner in one firm seeking to provide mezzanine debt said that the increasing competition to provide these loans has already pushed down the cost to borrowers and the returns on some deals to investors.