Europe’s office and hospitality sectors are key target areas for a newly closed €900 million fund focused on complex and distressed situations, its manager has told Real Estate Capital.
On 17 March, London-based private asset management firm Signal Capital Partners announced it had held a final close on the fund, which is designed to target credit and real estate special situations investments across Europe.
Elad Shraga, Signal’s chief investment officer, said the fundraise equips Signal with significant dry powder at a time of uncertainty across global real estate debt markets. Through the fund, the firm will target credit investments in complex and commercial real estate investments including private lending, acquisition of non-performing loan portfolios and special situations equity.
Signal was founded in 2015 by Shraga, Amit Jain and Gad Caspy, who previously held a range of credit and real estate special situations investing roles at Deutsche Bank. It has assets under management of €1.7 billion.
For the Signal Alpha II Fund, Signal raised more than its €850 million target through a fundraising process that was carried out between August 2019 and February 2021. A “substantial proportion” of the funds were raised, according to the firm, during the covid-19 crisis.
Through the vehicle, the manager will run in parallel two investment strategies: one credit-focused and the other targeting real estate debt opportunities. However, Shraga said he expected most opportunities to arise from real estate debt, as a huge amount of distress is expected to emerge in this market once the full economic impact of the pandemic crisis has filtered through.
“We are looking at asset-backed situations, which will primarily be in the real estate sector,” he told Real Estate Capital. “We will focus on real estate debt, mostly through special situations lending and non-granular NPL portfolios.
“We are not competing with senior lenders or traditional debt funds. We are looking at more complicated situations where there is a need to tap capital to unlock the value.”
Although admitting the fundraising process was challenging due to lockdown periods, Shraga said the firm still managed to raise one of the largest dedicated European special situations funds at a time when capital raising conditions were extremely tough. Additionally, he said, the fund managed to secure commitments from a diverse pool of investors, including pension funds, insurance companies, financial institutions and single-family offices from Europe and North America.
“We are pleased with the calibre and diversity of the fund’s investors,” Shraga said. “These investors have committed to a four-year investment period, which is why it is so important for us that these are long-dated capital investors.”
Through the vehicle, Signal will target transactions worth between €25 million and €75 million across Europe. It has made seven investments to date, totalling €330 million, primarily secured by office assets. Shraga said: “Investments include a whole loan granted to an office development, the acquisition of a mixed-used office and residential building and capital for an office refurbishment.”
In addition to the office sector, where Signal expects to find opportunities created by changing occupier needs and subsequent demand, the firm predicts it will find appealing investment opportunities in the hospitality sector.
“For the type of investment we are targeting, we expect to find opportunities primarily in these two sectors,” Shraga said. “Retail however, despite being a sector where huge distress is expected, is not a target for this specific fund, given its long-term investment horizon requirement does not match the alpha fund target duration.”
The company expects to see significant opportunities due to the covid-19 pandemic, as more distress emerges and banks reappraise their loan books and withdraw support from areas of the market, said Shraga. “We expect some level of dislocation when people reopen, which in turn might result in an increasing amount of investment opportunities for this fund due to the timing of its launch, which was not the case with our first fund.”
In addition, the fund’s focus on the mid-market will further expand the opportunities for the strategy going forward, Shraga added, since finance available for this market range is “particularly scarce”. “Before the pandemic outbreak, the fund’s strategy was already relevant for the fractured capital markets across Europe but now it is becoming increasingly relevant, as the mid-market seeks aligned capital solutions,” he said.
The fund’s predecessor launched in September 2015 and closed in July 2017 with €725 million raised from a diverse pool of institutional investors, including endowments, foundations, pension funds, insurance companies and large family offices across Europe, North America, the Middle East and Asia.