New £500m funds will offer investors choice of risk-adjusted returns through stretch-senior and mezzanine/preferred equity strategies
Pramerica Real Estate Investors is working on two successor debt funds to its current European mezzanine fund, with a total target raise of £1bn.
Pramerica’s European debt strategies team, led by Andrew Radkiewicz and Andrew Macland, plans to offer investors a choice of risk-adjusted returns by raising two funds, of approximately £500m each. One fund will focus on the stretch senior segment of the capital stack, while the other will offer higher returns by originating higher loan-to-value loans or debt-like preferred equity opportunities, or otherwise lending where a higher return or IRR is appropriate.
APG, a significant investor in Pramerica REI’s first fund, is thought likely to invest a significant sum in both new funds. Despite some scepticism surrounding the use of mezzanine finance in property transactions, Pramerica Real Estate Capital 1 raised £492m of equity by final close last May and has invested more than half of that ungeared capital in under a year. Pramerica expects to have invested 70% by Q2 2012, mainly in deals in the UK and Germany.
One of the fund’s latest investments is its first in Spain, where it has provided £40m of junior finance alongside Deutsche Pfandbriefbank for Value Retail to refinance the property company’s La Roca outlet village in Barcelona. The total loan-to-value ratio is below 60%. Michael Goldenberg, head of Spain at Value Retail, said: “The junior was priced at a double-digit figure; this is smart money.”
Recently, several other property investment managers – including Henderson Global Investors, Cordea Savills and CBRE Global Investors – have announced plans to invest in debt, spurred on by the continuing constraints on banks, but most are targeting senior rather than mezzanine loans.
In addition, Goldman Sachs is working on a global debt fund that would cover Europe, to provide both senior and mezzanine debt to commercial property as well as buying loans. It is thought the US bank is seeking to have this fund in place by the end of the year.
Henderson has appointed John Feeney, a former banker at Bank of America Merrill Lynch, as head of real estate debt to work on a debt fund or mandates with Andrew Creighton in the property team and Colin Fleury, head of secured credit. And Cordea Savills has appointed Kevin Davidson and James Tarry from debt investment specialist Palatium Investment Management to advise on high-yielding debt investments for a new prime London residential fund and to develop other products.