Dutch pension fund manager commits to €520m junior debt vehicle
APG and Pramerica Real Estate Investors have committed up to €520m to Pramerica’s third European junior debt vehicle.
Pramerica Real Estate Capital III has an initial discretionary commitment of €260m with Dutch pension fund manager APG the “dominant” investor and Pramerica co-investing, says Pramerica managing director Andrew Radkiewicz.
The capital can be increased by another €260m once the initial tranche is invested.
APG was an investor in Pramerica’s two earlier vehicles and is increasing its allocation to junior real estate loans because its view is that the market is “deep and sizeable”, said Roland Mangelmans, senior portfolio manager of APG Asset Management.
“Junior real estate lending provides compelling risk-adjusted returns, with a high level of paid coupon, in comparison with core real estate equity,” he added.
Pramerica Real Estate Capital I closed with £492m of equity in April 2011 and is fully invested. There are other investors in that vehicle, including fellow Dutch pension fund manager Bouwinvest and a Middle Eastern investor.
The second vehicle was another joint venture between APG and Pramerica which made a €40m junior loan to refinance one of Value Retail’s outlet villages in Spain, La Roca.
Vehicles 1 and III are focused in the UK and German markets. The strategy is to invest at loan-to-value levels ranging from 45%-50% up to 75%, in office, retail, residential and logistics assets.
The experience of investing the first vehicle was “that senior debt wasn’t always available (to borrowers) at 60%-65% LTVs but at 45%-50%. So the area for us was broader than we expected and that gives us more opportunities”, said Radkiewicz.
Investments made by the first vehicle range from a stabilised West End office at 45%-65% LTV to a Cologne retail asset that needs repositioning where the investment is a preferred capital structure with a profit share.
Radkiewicz, who heads the platform jointly with Andrew Macland, said Fund III would invest in stabilised assets without much property risk, targeting returns of 8%-10%. “It is income-style returns which give borrowers the opportunity to top up senior debt,” he said.
However, it is thought likely that Pramerica will seek to raise more capital for a higher, double-digit return strategy for another vehicle. “Given our track record and success, we’re going to continue to expand the platform,” Radkiewicz said.
Fund III has already closed two deals, bringing the number of debt investments made in the last two years to about 20.