French alternative asset manager Tikehau Capital believes there is an opportunity to make strong risk-adjusted returns in the real estate debt market, despite the tough fundraising climate for such strategies.
Tikehau has partnered with French real estate manager Altarea to launch a real estate debt platform for which the firms will target €1 billion of capital. So far, each company has committed €100 million from its balance sheet to seed the fund.
Speaking to Real Estate Capital Europe, Maxime Laurent-Bellue, head of tactical strategies at Tikehau, said he is aware of the difficulties in fundraising in the current climate due to the denominator effect on investors’ portfolios. However, after speaking to investors, he sees strong interest in real estate debt.
“Investors and asset allocators are credit buyers at the moment and this will reflect on the real estate side – it’s just a question of timing,” he said.
Laurent-Bellue said the real estate environment has been impacted by wider macroeconomic uncertainties but he remains optimistic as the two firms have initial capital already raised which places them in a position to allocate when the right opportunities materialise.
“The preliminary feedback we are getting from investors is supportive, particularly on the real estate side. There is obviously uncertainty and questions to be answered but that is why it is not too early to raise capital. It is usually better to be ready and raise capital in advance. That is what we are trying to do,” he added.
He explained the firms looked to mitigate fundraising challenges by seeding the fund from their own balance sheets. He said the €200 million of commitment for the fund shows investors a “substantial” level of intent and alignment of interest in a difficult fundraising climate.
The firms will aim to provide whole loan and mezzanine finance between 50-75 percent loan-to-value. They will target lending opportunities across Europe of between €20 million and €100 million, with most deals expected to be between €40 million and €50 million. The managers will aim for returns of between 10-15 percent plus.
Tikehau will act as the fund manager on the strategy while Altarea will take on an advisory remit.
“We will aim to tackle part of the funding gap, with the platform making us able to address refinancing situations. Rates and funding costs are increasing, valuations are decreasing, so this will create some opportunities with traditional lenders already starting to retrench from the market.
“We will also be able to look at new financing developments, redevelopments and capex financing – or for existing assets in the context of acquisition or refinancings,” he added.
Several managers are aiming to capitalise on what they argue is a strong opportunity within the real estate debt space, particularly with the volume of upcoming property loan maturities in the next few years. However, this has not always translated into raising capital for real estate debt funds, with some managers hindered by trepidation from investors.
In April, Real Estate Capital Europe reported German manager KanAm Grund Group, which had shelved plans to launch its first real estate debt fund due to investor reluctance, will reassess its plans in 2024.
Luxembourg-based Sienna Investment Managers, which launched its sixth real estate debt fund in 2021, also acknowledged tough fundraising conditions. By May, the firm had raised €120 million for the vehicle and adjusted its €400 million target to a range of €250 million to €300 million.