Gilles Castiel, head of real estate at Paris-based asset manager SCOR Investment Partners, is clear where the company is targeting the €629 million raised by this month’s final close of its fourth real estate debt fund, SCOR Real Estate Loans IV.
First, Castiel tells Real Estate Capital Europe, SCOR will seek out assets subject to “value-add” business plans, meaning projects that will significantly increase the value of the property.
Second, it will lend against what the company calls the “buildings of tomorrow” – those expected to meet changing sustainability standards, designed to cater for future tenant demand, including modern office space and assets for emerging uses and lifestyles.
“The strategy of all our funds is focused on value-add transactions,” Castiel says. “For us, value-add is the financing of development, of restructuring of buildings, repositioning. But not only repositioning in terms of rental values and signing new leases with tenants. It’s really giving value to a building by deploying the right capital for the right investment in the building, and with an angle of green, low-carbon labels.”
This approach, he adds, provides the company’s investors with attractive returns, ensures their capital is preserved, and means SCOR can participate in financing the improved sustainability of the built environment.
“First, our investors are more and more committed to investing in portfolios that have a positive impact on the environment and contribute to the energy transition,” he says. “The second reason is directly linked to the risk of the assets. We are doing value-add because we are convinced value-add, generally speaking, is a protection for the lender.
“At the time you finance a building, you finance the development cost and not its value, but if you finance the right building in the right place with the right labels, your borrower will probably create value on the building.”
He adds: “These buildings, being what we call the ‘buildings of tomorrow’, will be the ones that will be liquid in terms of refinancing and exit for the investor. So, that gives comfort in terms of downside risk. I explain to our investors that doing value-add is a protection – not a risk – if done with expertise, a rigorous approach and the right security package.”
‘Sustainable investment charter’
With the final close of SCOR Real Estate Loans IV, the French company has raised almost €2 billion of capital for its real estate debt strategy since its launch in 2013. By September, half of the latest fund’s capital – which was raised from French institutional investors – had been deployed in 10 lending deals. It is understood SCOR is aiming to provide investors with remuneration of 300 basis points to 400bps over EURIBOR.
To ensure collateral will meet sustainability criteria, SCOR has devised a ‘sustainable investment charter’ against which to measure assets. It is also encouraging sponsors’ sustainability efforts through financial incentives. “The borrower can have a 15bps to 20bps incentive for completing a business plan on time or achieving a green label, for instance,” Castiel says.
“We want to finance buildings that are ahead of today’s regulation. We don’t want to be in a situation where, four years from now, we have financed an asset that is already obsolete.
“There is a lot of new regulation, but there are not a lot of buildings coming to the market with the right regulation. If you finance a low-carbon building, there are not a lot of projects in the market and we want to, as much as possible, be the bankers of these projects.”
Looking forward, Castiel expects SCOR to continue raising capital for its lending strategy. “In one year from now, we will start to raise again. The next [fund] is targeted to reach €750 million, and the next generation will have more emphasis on the low-carbon industry. As of today, everybody is green – everybody understands what they have to do to meet energy consumption expectations. But the real battle now is around low carbon and the reuse of materials.”