Luxembourg-headquartered asset management firm Sienna Investment Managers has acknowledged tougher real estate credit fundraising conditions as it targets a final close for the sixth iteration of its Real Estate Debt Impact Fund series, following a “difficult” two-year push.
The firm launched the senior lending fund in 2021, with a target volume of €400 million. It held a first close in July that year, raising €120 million.
Since then, the firm has struggled to secure commitments to the fund due to investor reluctance to allocate.
Christophe Murciani, director of commercial real estate debt funds at Sienna, told Real Estate Capital Europe it was difficult for French investors to separate the “noise on the equity side” from conditions in the debt market, despite what he described as the defensive nature of its strategy in the current market climate.
Murciani has observed other managers grow their debt fundraising teams to help with pan-European capital raising. The firm is now aiming to use Sienna’s pan-European reach to enable it to expand its investor base outside of France, where its current investors are located.
“Being part of Sienna’s pan-European investment platform should allow us to [use Sienna’s diversified fundraising team] and we hope that we can expand our investor base to non-French investors using the extensive network investing in Sienna’s other strategies and funds,” he added.
“The fund is still fundraising, with a final closing date set in December. The team now expects to have raised a total of €250 million-€300 million by then,” added Murciani.
Challenges across the sector
Across the real estate debt market, sources have noted the challenge in raising capital when many investors are balancing their allocations to different sectors, while being circumspect about making commitments due to uncertainty around interest rates.
In April, Real Estate Capital Europe reported German manager KanAm Grund Group scrapped its maiden property credit fund in 2022 due to investor reluctance to allocate, and will reassess its position next year.
On the equity side, last month, Swedish firm Catella’s new head of capital raising, Gianluca Romano, spoke of the difficult fundraising environment to affiliate publication PERE: “People keep saying, ‘in six months’ time it’ll be better,’ but they’ve been saying that for 12 months now.”
Sienna’s Murciani said: “Whether it’s a senior strategy or a high yielding strategy, they’re both constrained by institutional investors’ reluctance.
“Most of our investors already have a big real estate exposure. Sometimes, they sit on the board of listed property companies, and everybody here in France was negative about the office sector and legacy assets, so that noise makes it difficult for them to commit to funds,” he said.
The fund was launched prior to Sienna acquiring the French manager Acofi Gestion in March last year. Murciani, who has real estate debt experience from roles at manager Tishman Speyer, and banking groups Citi and Societe Generale, led Acofi’s real estate debt platform. Acofi was rebranded to Sienna Private Credit.
Through its latest fund, Sienna invests in loans against all collateral types, excluding hotels, in France, Spain, Italy, Germany and the Netherlands. It will look to extend loans between €15 million and €60 million on a bilateral basis, with a clear emphasis on ‘manage to green’ business plans.
The firm will offer an incentive for completing works improving the collateral footprint in waste, water management, greenhouse gas emissions and total energy consumption.
“Such incentives take the form of margin step-downs of up to 35 basis points per annum,” Murciani added.
Debt opportunity in France
Sienna sees a lending opportunity in France and the wider European market in the mid-sized loans space, which Murciani said is less targeted by banks.
He explained it is commonly accepted that around 80 percent of the stock in France is owned by private individuals and family offices. This segment of the market requires capital to retrofit existing stock to meet environmental standards, he added.
“We’d be focusing on… transitional properties that don’t have cashflow, with a need to be acquired and revamped, and we kind of dust ourselves with a mission statement which is helping middle market borrowers improve the footprint of their properties.”