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Debt
May 2020 • perenews.com
The 50
biggest debt
fund managers
Leaders in Commercial Real Estate Finance
INVESTORS North America Public and Private
Pension Plans
Europe
Insurance Companies
$16.9 Billion
Middle East
Ultra-High-Net-Worth
in AUM 1
Asia Family Offices
Asset Managers
www.ACORECapital.com
©2020 ACORE Capital. Registered trade/service marks are the property of ACORE Capital. All rights reserved. 1Assets under management” are
comprised of a number of components, including certain subordinate debt investments and capital commitments related thereto, a whole loan
facility commitment, and certain other whole loan investments and senior debt investments. Certain assets under management are managed on
a non-discretionary basis for an institutional investor, while others are managed on a discretionary basis for other institutional investors. Figures
include both funded and committed unfunded amounts, as of 12.31.19.
Contents
How to contact us
Senior Editor, Real Estate
Jonathan Brasse
jonathan.b@peimedia.com,
+44 20 7566 4278
Editor
Evelyn Lee
evelyn.l@peimedia.com, +44 20 3640 7511
Debt
Senior Special Projects Editor
Graeme Kerr ISSN 1558–7177 • MAY 2020
graeme.k@peimedia.com, +44 20 3862 7491
Special Projects Editor
James Linacre
james.l@peimedia.com, +44 20 7566 5465
Senior Reporters
Arshiya Khullar
akhullar@peimedia.com, +1 212 796 8324
Insight The RED 50
Kyle Campbell
kyle.c@peimedia.com, +1 646 545 4428
Reporter
Christie Ou
2
Real estate debt news timeline
16
Capital raising steps up a gear
christie.o@peimedia.com, +852 2153 3247
Contributors A year in the industry This year’s debt fund ranking reflects
Mark Cooper, Daniel Cunningham, a market with more capital than
Daniel Humphrey Rodriguez, Jesse Koppi,
Stuart Watson EDITOR’S LETTER before and reveals a new top player
Managing Editor, Production: Mike Simlett The more things change... 4 in the sector.
Head of Production: Greg Russell
Production Editors: Daniel Blackburn,
Adam Koppeser
Copy Editors: Eric Fish, Nicholas Manderson
Analysis
Art Director: Mike Scorer
Head of Design: Miriam Vysna
Senior Designer: Lee Southey
5
Debt’s first true test
Designers: Denise Berjak, Pio Blanco
Head of Marketing Solutions, Real Assets Group: Covid-19 presents challenges but
Nick Hayes
nick.h@peimedia.com, +44 20 7566 5448
disciplined lending provides support
Marketing Solutions Manager:
Annie Liu ARA Venn on market momentum
annie.l@peimedia.com, + 852 2153 3843
Subscriptions and reprints
Paul House and ARA AM’s
subscriptions@peimedia.com Mark Ebbinghaus discuss debt
Customer Service opportunities 6
customerservices@peimedia.com
Editorial Director: Philip Borel
Director, Digital Product Development: Debt’s new frontiers
Amanda Janis Seeking fresh pockets of value 9
Director of Research and Analytics: Dan Gunner
Managing Director, Americas: Colm Gilmore
Yardi Systems on data-driven
Managing Director, Asia: Chris Petersen
Chief Commercial Officer: Paul McLean decisions Data
Chris Barbier considers risk
30
Chief Executive: Tim McLoughlin
management in tough times 12
Virus won’t stop debt market Fundraising dips
Edmond de Rothschild fund to But data show large funds continue
For subscription information visit launch despite covid-19 15 to be raised
perenews.com
Investors have RE debt appetite Funds aim high
Survey results show institutional Funds in market are seeking to raise
demand for more risk 29 almost $55 billion 32
May 2020 • Debt 1
Insight
A year in real estate debt
Managers tested new
strategies, ventured into
new regions – and more
than one targeted
a billion-euro fundraise
Amundi raises €1bn
French asset manager Amundi raised more than
€1 billion for its first real estate debt strategy,
which had launched in May. At the time, the fund
had deployed €180 million across six loans in
France, the Netherlands, Spain and Italy, with an
average LTV of 58 percent and a blended spread
of around 230bps. The loans were issued against
a variety of asset classes including offices, retail
and hospitality.
APR 2019 MAY JUN JUL AUG SEP
Generali launches Bain forms debt JV
debut fund Bain Capital formed a half-billion-
Generali Real Estate dollar venture to acquire distressed
launched its first real estate debt with a New York
vehicle to invest lender. The Boston-based group is
in commercial real allocating capital to the partnership
estate debt across from its credit platform’s distressed and
Europe. Generali special situations strategy. Bain was far
raised about €1 from the only firm interested in non-
billion from the performing loans, with real estate funds
group’s insurance that included distressed debt as part of
companies, with their mandate closing on $18.75 billion
another €500 million through H1.
expected to be
raised from third- APG ventures into real estate debt in APAC
party investors over Pension fund manager APG Asset Management
the next couple entered into a partnership with Australian
of years. Generali commercial real estate debt manager MaxCap
Real Estate Debt Group to invest up to A$600 million ($418 million;
Investment Fund €370 million) in the sector, marking the investor’s
will invest in senior entry into the asset class in Asia-Pacific. APG made
property loans across a A$300 million initial commitment to the JV and
Europe. can re-up to a total commitment of A$600 million.
2 PERE • May 2020
Insight
Chenavari seeks LaSalle targets €1bn
£350m for beds- LaSalle Investment
focused fund Management set its sights
Chenavari Investment on raising €1 billion for a
Managers was raising fourth mezzanine lending
capital for a new debt fund vehicle in its European
predominantly focused on property debt fund
the private rented sector program, LaSalle Real
and student housing Estate Debt Strategies
across the UK and Spain. IV, which would be the
Chenavari set a target largest fund yet in the Multifamily breakthrough targeted
of £350 million ($458 series. It would also be Qualitas launched Australia’s first dedicated
million; €394 million) the first in the series to built-to-rent debt fund, Qualitas Build-to-Rent
for the vehicle by final be euro-denominated, Impact Fund, in a bid to tap into the country’s
close in September 2020. reflecting growing emerging multifamily sector. The Melbourne-
Chenavari Real Estate demand from continental based manager plans to raise A$1 billion ($659
Fund III will originate European investors and million; €607 million) from institutional investors.
predominantly stretched LaSalle’s increasing focus The vehicle is expected to provide financing to
senior debt and profit- on continental European build-to-rent projects in major cities in Australia
participating whole loans. lending deals. via senior loans to developers.
OCT NOV DEC JAN 2020 FEB MAR
CBRE GI expands into European debt ICG focusing on ICG raises £500m
Property investment manager CBRE Global Investors made alternatives first close
a significant push into the European real estate debt market ICG-Longbow is The London-based
with the acquisition of London-based credit specialist deploying its fifth asset manager
Laxfield Capital by parent CBRE Group. Laxfield has £818 UK property debt announced its latest
million of assets under management in the UK. For CBRE vehicle, which closed round of successful
GI it represents an expansion of existing real estate credit in November after fundraising for its
strategies. It has been investing in debt in the Americas raising £928 million. real estate lending
since 2009. The focus will be on program with a first
asset classes that are close of its fourth
expected to benefit senior debt vehicle
from demographic or raising £500 million
structural tailwinds that of investor capital.
are weakly correlated ICG-Longbow
to the economic Senior Debt
cycle. UK Real Estate Programme Vintage
Debt Investments IV is expected to
V will originate reach a final close
predominantly whole in the final quarter
loans secured against of 2020, with a
UK commercial hard-cap set at £1
property. billion.
May 2020 • Debt 3
Insight
Editor’s letter
The more things New York
130 West 42nd Street
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change…
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S
PERE
uddenly, coronavirus has changed everything. Or has it? Covid-19 isn’t Published 10 times a year by
PEI Media. To find out more about
stopping firms such as Edmond de Rothschild from launching a real estate PEI Media visit thisisPEI.com
debt fund according to its original timetable. And while the pandemic may
© PEI Media 2020
well represent the first true test of Europe’s private real estate debt fund industry
since it emerged in the wake of the 2008 financial crisis, conservative lending No statement in this magazine is to
be construed as a recommendation
practices during that time ought to mean real estate debt fund managers prove to buy or sell securities. Neither
stable throughout the current crisis. this publication nor any part of it
may be reproduced or transmitted
As in all times of change, where some see
challenges, others will see opportunities.
“ As in all times in any form or by any means,
electronic or mechanical, including
Debt funds are likely to receive a boost from of change, photocopying, recording, or
by any information storage or
shrinking bank appetite. Commercial real
estate debt is also able to offer the lower risk
where some retrieval system, without the prior
permission of the publisher.
strategies which investors may desire after see challenges, Whilst every effort has been
made to ensure its accuracy, the
publisher and contributors accept
this period of volatility.
Real estate debt was undergoing
others will see no responsibility for the accuracy
of the content in this magazine.
some notable changes even without the opportunities ” Readers should also be aware
that external contributors may
coronavirus complication. Our second represent firms that may have
an interest in companies and/or
annual global private real estate debt fund capital raising ranking – the RED 50 their securities mentioned in their
– shows the largest managers have been able to raise even more capital. contributions herein.
And while many of those managers are the usual suspects, there are also new Cancellation policy You can
entrants to shake things up. For one, Blackstone is no longer top of the pile. cancel your subscription at any
time during the first three months
New York does remain the leading debt fundraising center, however, and of subscribing and you will
North American firms continue to dominate the RED 50. With $156.9 billion receive a refund of 70 percent
raised, and some 62.4 percent of that by North America-based firms, the extent of the total annual subscription
fee. Thereafter, no refund is
of the change does, perhaps, remain limited. available. Any cancellation request
If other managers follow Edmond de Rothschild’s lead and proceed with their needs to be sent in writing to
the subscriptions departments
fund launches as planned, then it could be another busy year for the market. It (subscriptionenquiries@peimedia.
all depends on the extent to which things really will change. Because sometimes, com) in either our London or
New York offices.
the more things change, the more they stay the same.
Printed by Stephens & George Ltd
stephensandgeorge.co.uk
James Linacre
4 PERE • May 2020
Analysis
Private real estate debt
is facing its ‘first true test’
Disciplined lending throughout the cycle should stand
the non-bank lending space in good stead, writes Daniel Cunningham
T
he covid-19 crisis rep- Wallace notes that debt specialists the situation. Wallace explains: “Activ-
resents the first major should treat data from the listed prop- ity levels will be lower than in previous
test of Europe’s private erty sector with caution: “It can hint quarters and the market will be shallow
real estate debt industry at the differential between sectors and for some time. Many on the borrower
since it emerged in ear- risk types. But there is always enhanced and lender sides will take a wait-and-
nest during the current volatility on the listed side, so we need see approach. Some deals will continue
property cycle, the global co-head of to be careful about translating falls on to go ahead, although it is too early to
alternatives research and strategy at the listed side to the debt side of the say on what terms. The pipeline of new
asset management company DWS tells market.” deals is likely to be lower.
sister publication Real Estate Capital. “There is an expectation that mar-
Simon Wallace says the alternative Better prepared gins will increase, although we will see
property lending market has experi- Europe’s real estate debt market is slow differentials between sectors. Lower
enced strong growth in the last decade, as lenders and borrowers take stock of loan-to-values will be a common re-
but that conservative lending practices sponse among lenders.”
ought to mean real estate debt fund However, Wallace also says that the
managers prove stable throughout the real estate industry entered the current
current crisis. He adds that it could crisis in much better shape than it did
prove to be a catalyst for further growth during previous market shocks: “The
as investors seek a haven for capital. industry has been disciplined on the
Speaking about the outlook for Eu- leverage side, and there is low vacancy
rope’s real estate debt markets in light “Some deals will in most sectors, aside from retail, and
of the coronavirus pandemic, Wallace less development in the pipeline.”
admits it is too early for lenders to have continue to go An increase in loan defaults is to be
a clear view: “It is exceptionally diffi- expected, though the extent is “very
cult to have an understanding of where
ahead, although difficult” to ascertain. “Hopefully, the
pricing and values are right now.”
it is too early to say industry has learned lessons about how
Although Q1 real estate market to deal with such situations,” he says.
data in April will hint at how property on what terms. The On the longer-term view, Wallace
values are shifting, Wallace warns that notes that the consensus among eco-
valuers will not yet have clarity due to a pipeline of new deals nomic forecasts is for a strong upswing
lack of transaction evidence. in the aftermath of the crisis.
“We will need to look beyond the is likely to be lower” “Yes, we’re experiencing severe dis-
Q1 data, and it will be important to ruption now, but this is a long-term
communicate as much as possible with SIMON WALLACE asset class,” he says. “We need to look
valuers, brokers and industry analysts,” DWS beyond the next six months to the next
he says. five or 10 years.” ■
May 2020 • Debt 5
Analysis
K E Y N O T E I N T E R V I E W
Debt opportunities, risk premia and
market momentum
Growing investor interest and increasing market momentum in real
estate debt have prompted a new partnership, say ARA Venn’s
Paul House and ARA Asset Management’s Mark Ebbinghaus
Global expansion is on the menu for demand on the credit side. Some of
SPONSOR
ARA Asset Management, which is ac- our investors actually prefer to invest
ARA VENN
tive in 100 cities in 28 countries and has in debt, but we had never really been
been investing in European real estate able to cover that. So, we have broad-
equity for some time. However, the at ARA Venn, discuss the opportunities ened out our expertise within the wider
Singapore-based group has been look- on offer in European real estate debt. platform, bringing people on that have
ing for product line expansion, which a deep experience in credit, and this
led it to join forces with Venn Partners,
a London-based European real estate
credit specialist to create ARA Venn.
Q What were the drivers
behind this partnership?
Mark Ebbinghaus: Our move into
new partnership is a significant step
forward.
ARA has taken a majority stake in Europe was very much investor-led Paul House: Our business commenced
Venn and will work closely with ARA and we have seen significant quantities in 2009 and our investment manage-
Venn to grow the scale and scope of of capital progressively deployed, not ment efforts began in 2012. Since then,
its operations. Mark Ebbinghaus, ARA only to the UK but continental Europe we have built a business with about £5
Asset Management’s European chief over the last five years. We have seen a billion ($6.4 billion; €5.8 billion) of as-
executive, and Paul House, managing lot of interest in Europe and the UK sets under management and committed
partner and head of the CRE business from our Asian investors and a lot of capital, purely focused on real estate
6 PERE • May 2020
Analysis
credit in both commercial and consum-
er residential areas.
What we noted in our own capital
raising is that firms like us have been in
an increasingly competitive market for
capital as investors look to rationalize
the number of managers they deal with
while still wanting to access a choice of
different products, so we were looking
to align ourselves with a partner who
would help us expand and with whom
we would have a good cultural fit. As
ARA looks to grow in Europe, we think
we are in a good position to help foster
that growth.
ME: I’ve known the Venn team for
over five years and we have developed a
Q How will investors respond to the increasingly volatile
environment driven by the reaction to covid-19?
ME: We think at least in the near term there is going to be relative
close relationship and understand each polarization between those investors that are proactive and those that
other well. We tend to think about are reactive, it is likely that there are going to be few leaders and more
things quite deeply and for us the cul- followers in these uncertain times, decision making is also likely to be
ture, alignment and really wanting to pushed out for many.
work together is critical. It’s not just a It is in our view likely that the market will continually evaluate and
numbers game. eventually ‘come to a landing’ on the competing impacts of, on the one
hand, as to whether we are in a near term (temporary), medium term or
Q What characterizes the
transactions you are
targeting?
more permanent change in risk premia environment, requiring a higher
rate of return for a given level of risk, leading to asset pricing contraction
pressures, and on the other hand, the impact of what is likely to be an
PH: On the CRE debt side, we are unprecedented level of monetary and fiscal expansion leading to asset
raising capital for our latest fund for pricing stimulus and lower required rates of return pressures.
deployment in the UK and Europe, We feel that participating in the markets via debt is likely to receive
supported by ARA. We are looking for strong levels of support, particularly as bank appetite contracts and those
mid to upper single digit total returns, with firepower are likely to be well positioned to optimize performance.
predominantly from whole loans but Investors are likely to support trusted managers with strong sponsorship
with the ability to take some junior po- and deep market insight that have scale and scope to capture market
sitions as well. opportunities.
We are targeting mid-sized private
equity or institutional-sized family of- PH: On a more lasting note, the extreme volatility that investors are
fices who are investing in value-add experiencing in the global capital markets – in both the equity and the debt
real estate opportunities. We are able capital markets, is happening post a long stretch of relatively low volatility
to go higher in loan to value than bank and consistent moves higher in asset prices. The sharp volatility experience
lenders, as we typically try not to com- from the global pandemic can lead to investors seeking lower risk strategies
pete with banks given their pricing ad- that are available in the private debt markets of which CRE debt is part of.
vantage at lower LTV loans. The types In addition, the public policy reaction that is currently underway –
of deals we would look to do are often being a decline in central bank interest rates plus higher fiscal spend – is a
with some form of value-add aspects. trend that spells of continued low interest rates in sovereign debt is likely
We are looking at a building in to spill over to corporate debt. With the backdrop of high volatility, the
Spain right now, located in the CBD opportunities that emerge from the dislocation plays to the benefit of
of Madrid. It has an existing tenant private funds that we manage as we retain the ability to pivot to capture the
but the building could use some im- best investments as they emerge. Investors with the memory of the 2008
provements. Some capital expenditure crisis will recall that post that event, significant opportunities were captured
will improve its sustainability rating in the years that followed.
as well as its aesthetic quality and add
May 2020 • Debt 7
Analysis
“The covid-19 crisis
value for the client, either through in- that it is difficult to predict timing as
creased rent or a new tenant. The loan is such a major and this is more in the hands of the medi-
size also fits neatly into the fund target cal profession and in the public policy
of between €10 million to €50 million, unique event that it arena. What is happening economical-
where we see less competition from ly is that the functioning of the market
low cost capital providers.
is difficult to predict is being severely disrupted and we are
We also have a residential lending timing” witnessing a sharp decline in economic
business in the UK private rented sec- activity levels.
tor, which would be called multifami- Whilst we were late cycle before this
PAUL HOUSE
ly residential in other markets, where event, this unprecedented interruption
we originate and manage a £3.5 billion in economic activity will indeed have
PRS lending scheme for the UK gov- an impact, and in our view, it will be
ernment. To date, we have lent a little correlated to how long the market is
over a billion in this mandate and we are disrupted. The longer the stagnation
looking to deploy another £2.5 billion period, the deeper the economic im-
over the next few years. For this type of pact is likely to be.
assets, we would lend on an LTV of say If we are able to commence trading
60-65 percent. We get a government again in the summer this sharp correc-
guarantee on the bonds that we issue tion will reset economic points (for ex-
and then we go into the institutional ample, rental rates in the occupational
marketplace and fund those positions. market, or capitalization rates for the
So, there is a policy angle, which is to Over the next couple of years, we transactional market) however with the
support a nascent industry. can broaden out the offer in the plat- short closing we would not foresee a
We see potential to develop form, augmented by our capital part- massive move on pre-closing levels as
non-government investment mandates ners and our public market experience. the market re-opens. The drag of three
in this asset class given its growth pros- For example, ARA Dunedin, which was or four months of inactivity will have
pects and the deep technical expertise set up in July 2019 to invest in and man- time impact, but occupational markets
and market knowledge that we have age real estate assets in the UK, will be should resume where they left off and
gained through our work with the able to co-operate with ARA Venn to the markets that were already under
Government program. the benefit of both organizations. pressure, retail for instance, will be
Given the size of ARA, scale is crit- more impacted than those that were
ME: We see three or four strong prod- ical and, as we all have limited band- trading well before the crisis.
uct lines at ARA Venn and we are re- width, we have to focus our energies on However, if the market close period
viewing broader opportunities. In ad- scalable opportunities, whether they extends or the return is muted by way
dition to the products Paul mentioned, are platforms or products. We believe of continued policy moves to suppress
ARA Venn is very strong in the RMBS ARA Venn and the debt arena is abso- the virus transmission (which has a
market through their Dutch residential lutely something which is scalable. I drag effect on the economy), then the
program, so we will naturally look at think we have the right ingredients to financial cost of this crisis will deepen,
the commercial mortgage-backed secu- really leverage a platform which has and there will be a reset in asset values
rities market too and look at other gov- had a great start in life, towards bigger and the risk premium required by capi-
ernment programs outside UK PRS. and broader initiatives. tal. In this case, we could see some dis-
Following this transaction and our tress in the system.
current contracted dealflow, we will
have some S$90 billion ($63 billion; €58
billion) of real estate AUM worldwide,
Q What do you think will
be the impact of the
current global pandemic on the
It is in these times of heighted vola-
tility, firms such as ARA Venn are well
positioned to use our skill set to re-en-
with some half that figure in the public European debt market? ter the market in a timely way and have
markets. We are reviewing a whole host PH: Right now, the news flow and mar- the double benefit of prudent but high
of opportunities and we will take them ket hope is for a return to a functioning return investments for our investor cli-
one at a time, but we think public credit market by summer 2020 – the covid-19 ents and be part of a market that will be
funds are quite an exciting space. crisis is such a major and unique event re-establishing itself. n
8 PERE • May 2020Analysis
Debt exploring
new frontiers
A
s real estate markets Capital providers and debt that offer a measure of downside
around the world enter protection.” He estimates that around
the late stages of a pro- their managers are 80 percent of that capital was allocated
longed cycle and brace seeking fresh pockets to the value-add and opportunistic end
themselves for the im- of the real estate debt spectrum, target-
pact of the coronavirus of value, writes ing double-digit returns.
epidemic, investment in real estate debt, Stuart Watson “The sheer weight of capital allo-
generally regarded as a lower-risk strat- cated to enhanced return strategies has
egy than equity investing, might be ex- created a really dramatic spread com-
pected to come to the fore. fundraising activity. “We have seen a pression, and so managers are now find-
However, while managers report proliferation of new funds in the US – ing it very difficult to replicate that kind
that demand for such investments re- 150 over the last three years and $100 of return without pushing up the risk
mains high, PERE figures show global billion-plus of capital allocated to cred- curve. Many of the LPs that allocated to
fundraising for the strategy plunged it,” says Todd Sammann, head of credit those strategies are concerned that the
in 2019 to $13.7 billion in 29 vehicles, strategies at CBRE Global Investors. risks being underwritten are not being
less than half 2018’s $28.6 billion in 54 “That was motivated by a broad view fairly compensated.”
funds. In 2017, $42.9 billion was raised that the upside on real estate equity in- Those LPs will therefore be less
across 72 strategies. vestment was likely to be muted for the likely to commit capital to high-yield-
Debt has always been a much smaller foreseeable future, so it made sense to ing strategies, and that tendency may
slice of the real estate investing market focus on current yielding strategies in account for at least part of the slow-
than equity. Nevertheless, the level of down in fundraising. Andrew Radkie-
global annual commercial real estate wicz, global head of debt strategies at
debt origination held steady at just un- PGIM Real Estate, believes that core-
der $1 trillion over the past three years, plus lending offers a better risk-adjusted
reaching $970 billion in 2017, $993 bil- return than value-add debt investing in
lion in 2018 and $971 billion last year. the US at present: “In core-plus we are
It appears that for the last two years writing loans at 75 percent loan-to-val-
a shrinking group of investors has fa- ue, conservatively leveraging the vehicle
vored debt fund vehicles as a means to to enhance returns without increasing
access that market. Why has fundrais- risk too much, and at the moment that
ing apparently slowed? And in a market is producing a 6-7 percent return in a
where commingled funds appear to play market that is deep and liquid.”
a diminishing role, which debt strategies CBRE Global Investors’ Sammann
are still attracting capital? concurs: “The core-plus part of the
market is not subject to the same com-
Pushed up the risk curve petitive pressures. There are proba-
The US has historically made up Higher returns from development: the London bly half a dozen meaningful funds in
Olympia redevelopment (pictured here and
the lion’s share of the market, and it on the following pages) is being financed by a
the lightly transitional space – assets
has remained the principal focus of loan from Goldman Sachs that don’t qualify for bank or CMBS
May 2020 • Debt 9Analysis
financing, but where the risk profile is
so light as not to necessitate the kind of
spreads that are being charged for those
much more highly operationally risky
value-add strategies. That is where real
value lies in US credit.”
Meanwhile, at the low-risk end of the
market, pension vehicles and insurance
companies are responding to rock-bot-
tom interest rates by reallocating capital
from fixed-income to real estate debt,
says Jack Gay, global head of commer-
cial real estate debt at Nuveen Real Es-
tate: “In the continued lower-for-longer
interest rate environment it is harder
for them to meet their target returns.
If instead of buying treasury securities
or investment-grade corporate bonds
they move some of that allocation into
a senior whole loan mortgage strategy it
gives them some yield pickup – perhaps
not all that dramatic, but a premium
over public securities.”
Such investors are less likely to place
capital in commingled funds. “We are
looking at strategies that would club
investors up in that senior whole loans
space, or in some cases the mandates
would be large enough to do them as a
separate account,” adds Gay.
The view from Europe
On the other side of the Atlantic, Al-
lianz Real Estate, the real estate asset
management arm of Munich-headquar-
tered insurer Allianz Group, is seeking
to harness the same trend. It is inviting
like-minded third-party investors, prin-
cipally pensions and other insurance
companies seeking yield to match their
liabilities, to participate in its lending
platform. It places mainly senior debt
on prime real estate with an element
of yield-enhancing lending to build-
to-core and manage-to-core sponsors.
“Relative returns still look quite attrac-
tive, especially in what is once again an
extremely low interest rate environment
where bond levels are below zero,” says
head of European debt Roland Fuchs.
However, he adds that lower interest
rates have impacted absolute returns.
“Investors in senior core and core-plus
10 PERE • May 2020Analysis
been getting a fairly significant currency
pickup, and many see Europe as at an
earlier stage in the cycle.”
A number of European investors are
showing strong interest in Australia.
“For a long time that market was limited
to the Australian banks,” says Kavanau.
“But stronger regulation introduced in
the last couple of years has opened it up
for smart capital to go in and make real-
ly excellent risk-adjusted returns.”
The largely untapped Chinese mar-
ket could offer great potential for real
estate debt investors, suggests Gretch-
en Yuan, executive director at CBRE
Capital Advisors Asia: “Between 2020
and 2022, Chinese developers will need
to refinance 10 trillion yuan [$1.4 tril-
lion; €1.3 trillion] worth of debt. This
will provide opportunities for investors
to offer development loans or junior
and mezzanine debt, and distressed and
NPL managers will be in a favorable
position to deploy capital. However,
investors have been having difficulties
lending strategies have had to adapt to financing, where it can generate higher in identifying and accessing institutions
the reality that in these times you can- returns by staking large sums to back which can serve as a local platform with
not expect a return at the same level as complex high-quality projects, such as fiduciary responsibility and can provide
equity by flipping it into debt, as the the £875 million ($1 billion; €946 mil- consistent performance.”
first movers into the space did.” lion) loan that it agreed to provide for The behavior of cross-border capital
At present the high yielding debt the redevelopment of London’s Olym- in the coming months will likely be af-
space in Europe is more compelling pia exhibition center in March. fected by the covid-19 crisis.
than that in the US, where the weight “I think we will see the trend contin- “I felt there was going to be renewed
of capital has driven down returns, ar- ue where debt fund managers are real- interest in overseas debt markets from
gues Richard Spencer, managing di- ly being paid for their origination and US investors, but I am not sure that is
rector at Goldman Sachs Merchant underwriting capability,” says Spencer. going to be the case today,” says Dale
Banking. Goldman raised $6.4 billion “Sectors where you are just showing Lattanzio, managing partner at real es-
for Broad Street Real Estate Credit up with the money will continue to get tate debt advisory platform DRC Cap-
Partners III in 2018, creating one of the returns eroded, so LPs need to think ital. “Currencies could re-align, and
segment’s largest vehicles. about what they are paying management investors’ attitudes toward different
“Whether we are investing more fees for.” regions could change according to how
in Europe or the US at any given time economies react as the virus spreads. It
is a function of where we see the most Cross-border capital could be the case they are even more in-
interesting opportunities,” he says. Michael Kavanau, head of debt and terested.”
“RECP III at the moment is rough- structured finance for EMEA at JLL, He is optimistic about the longer-
ly 50-50. However, its predecessor, says debt markets are seeing cross-bor- term prospects for the sector, however:
RECP II, was more like 80-20 in favor der capital movement as participants “Once the volatility settles, global inter-
of the US.” seek diversification and a niche where est rates will still be lower and investors
The market for mezzanine lending, they can generate higher returns: “US will still be in need of yield. Meanwhile
particularly in the US, has become very capital is looking to invest in Europe, there will have been a tremendous
crowded, he observes, with credit funds where investors see better risk-adjusted amount of disruption in public markets,
competing largely on pricing. That led returns because of higher pricing. Plus, so real estate and private debt will con-
Goldman to pivot towards development if they are dollar investors they have tinue to look pretty attractive.” n
May 2020 • Debt 11Analysis
K E Y N O T E I N T E R V I E W
Why data drives
debt decision-making
Yardi Systems’ Chris Barbier considers how access to information can help investors
manage risk in turbulent economic times
Rapidly-evolving market dynamics, markets are very high, so taking a debt
SPONSOR
coupled with a heightened perception as opposed to an equity position is a
YARDI SYSTEMS
of risk, are driving two emerging trends lower-risk alternative. We have seen a
within the real estate data management tremendous surge in the number of debt
sphere, argues Chris Barbier, industry
principal, investment management, at
property management software provid-
Q What is driving the need for
supporting technologies in
the real estate debt segment?
funds managed by our real estate clients
as debt is increasingly treated as an as-
set within their portfolios. Now we are
er Yardi Systems: a growing need for Because of where we are in the market seeing them putting in place the systems
integrated technology platforms that cycle there is an aversion to risk. Every- and reporting around that.
enable the same kind of reporting and body thinks there is a correction com- Some managers are using existing
analysis for real estate debt as managers ing, and maybe coronavirus will be the legacy systems for managing debt that
are already accustomed to utilize for eq- mechanism through which that happens. is old and dated, or they have built their
uity investments; and increased demand Investors are concerned about risk expo- own custom systems for managing debt,
from institutional investors for managers sure, so they want to be able to analyze while others – some larger than you
to provide them with detailed and up- their portfolios in greater depth. would think – are still using Excel. Now
to-the-minute data analysis that allows Meanwhile many of our clients are that debt is becoming a larger part of
them to gauge their exposure to risk in increasing their allocations to debt portfolios, needs for analysis, account-
the light of current events. strategies, because asset prices in most ing and reporting have become more
12 PERE • May 2020Analysis
complex, so it is becoming clear that
older technology is no longer adequate.
Moreover, managers are not in the
software business, so they do not want
to spend time and money maintaining
legacy systems, and many would like to
achieve efficiencies by consolidating into
as few technology platforms as possible.
However, most managers are not pri-
marily investors in debt, and capital pro-
viders see real estate debt investments
as an asset class that sits alongside real
estate equity, so they want a technolo-
gy solution where the two are aligned
so that they can compare and analyze
them side by side with a similar level of
detail. Our lender clients are telling us
that being able to track the underlying
real estate collateral, the covenants that
are in place, and how those assets are
performing relative to whatever kind of
position they took on the debt, is be-
coming a more critical analysis than it
was previously. Q Yardi has been developing a real estate debt
management platform. What have you learned from
that process?
Q How do the changes taking
place in the debt sphere sit
within the wider context of the
We have built a real estate debt investment management system that can be
added on as an optional component to our investment management suite.
evolution of data usage in real That went live with our first set of clients in December last year.
estate? The feedback we got from the beta testing was that there is a need for an
We have seen an increasing number accounting solution for clients that want to service their own loans, that sits
of institutional investors and private alongside a solution for managing real estate debt and equity investments
equity fund managers seeking to make on a single platform. The debt is the asset instead of the property and the
greater use of operational data on both debt management solution provides the tracking for all the information
the debt and equity side. They fre- around the debt instrument.
quently look to feed that operational Some clients want to be in the business of servicing the loans
data together with financial data into themselves, billing borrowers and taking the servicing fees. Others prefer
a single consolidated technology plat- to outsource the servicing, but still want that data available to them on
form so that it can support data-led the system so that they can analyze it, identify critical dates, and do the
business initiatives. necessary reporting.
The dynamics of markets are shifting On the debt side we are seeing that there is an accounting piece, which
quickly, so investors are becoming more is needed by the accountants, and then there is a transparency piece, which
inquisitive about what is driving returns is needed by the asset and fund managers who are responsible for managing
and value. A financial or fund report that the debt portfolio and understanding the risks and critical dates.
is 30 or 40 days old is no longer useful in We are in controlled release of that product with our first half dozen
a lot of cases. They are looking for re- clients and we are expanding the product’s functionality as new use cases
al-time information about specific things emerge. We are also starting to see interest from some borrowers too,
they are hearing in the news. because within the technology platform they can place the data on the
For example, they read about a re- property that they own and operate alongside the data on whatever loans
tailer going bankrupt or closing stores are secured against it. That could allow them better visibility of loan
and want to know immediately what that covenants and what triggers them so that they are better attuned to critical
means for their portfolio if they are in- dates and can manage those covenants more effectively.
vested in a fund with a retail component
May 2020 • Debt 13Analysis
to it. What impact will that have on re- in the last 18 months toward institu-
turns? How much risk is there? And if tions wanting their various operating
they are a debt investor, they will want Now that debt is partners to process data on a common
to know whether the underlying col- platform. That allows them access to
lateral for their loan is impacted by the becoming a larger part the data, and also ensures data govern-
reduction in value and cashflow that ance and integrity. They can look at two
might come with the loss of a large an-
of portfolios, needs for office buildings on different continents
chor tenant. managed by different operators and
analysis, accounting know that they will be able to look at
If the fund manager has that infor-
mation at their fingertips, then they can and reporting have the same set of data for both.
prepare in advance to respond to that Some of our investor clients also
type of question. They can also go a become more complex” care about providing a consistent brand
step further and set out what they are experience throughout their properties
doing about it. Who might be able to even though they are the institutional
step in and take that vacant space? For owner and not the operator, and hav-
fund and asset managers, being able to ing a consistent set of performance data
access data is critical to getting ahead of helps them to achieve that. Meanwhile
the questions that investors might raise. there are efficiencies to be gained by
In the past, investors and fund man- having all that data in one place and not
agers were removed from that broader having to aggregate it by pulling it from
set of data and higher level of detail. disparate sources.
They were getting a monthly report
from their operating partner in PDF
containing data that may already have
been stale.
Q What will be the next step
change for the use of data
in the sector?
Formerly the operating model Once investors have a consistent and
adopted by most institutions was to comprehensive single source of data,
leave property management to their they can begin to design and make use
operating partners, who would provide of new analytical tools. The next wave
them with periodic reports, while the of things to come is the concept of
investor or fund manager concentrat- prescriptive predictive analytics. Real
ed on the financial results. Now, while estate investors are beginning to think
they are still not necessarily involved in about how they can leverage artificial
day-to-day operations, they can access intelligence and machine learning to
the operational information they need analyze their past investments in both
to make key decisions around what debt and equity, together with the out-
drives revenue and risk. comes of those decisions, to help them
Being able to access asset-level op- make better choices in the future.
erational information can help support A couple of our clients are already
managers in developing their business starting to experiment with that tech-
models. For example, some of our cli- nology, and that is part of the reason
ents have invested in commercial real “Real estate investors why they want control over all aspects
estate funds for many years but are only of their data. Until now real estate has
now beginning to enter the multifamily are beginning to think tended to be a very backward-looking
space at scale. Holding and managing industry compared with equity markets,
property for the long term in that sector
about how they can and we are just starting to think more
produces a different set of operational
leverage artificial prospectively than retrospectively, and
metrics, and if their various operating to consider how we leverage data to
partners are providing data on the man- intelligence and help us do that. That is driving further
ager’s platform, they can conduct their consolidation in data management plat-
own analysis of that data set to inform machine learning” forms because the more systems you
their decisions in that space. have, the harder it is to standardize data
We have seen an increasing trend for use in predictive technologies. n
14 PERE • May 2020Analysis
Covid-19 won’t stop
fund launch
Edmond de Rothschild plans to introduce a real estate debt offering on schedule,
reports Christie Ou
C €10.4bn
ovid-19 may have created fundraising. While the former have
multiple fundraising hurdles, been affected by slower decision-mak-
including a ban on in-person ing processes and greater difficulty in
meetings, but Edmond de Rothschild AUM: Edmond de Rothschild Real
arranging financing, the latter has been
Real Estate Investment Management Estate Investment Management challenged by travel restrictions and so-
chief executive Pierre Jacquot says the cial distancing measures that preclude
firm is still proceeding with the struc- Types of vehicles in-person meetings with investors.
turing and pre-marketing of a €300 mil-
€2bn
lion pan-European real estate debt fund Opportunity in uncertainty
according to its “original timeline.” Despite – or rather because of – the
The launch of the vehicle was in the uncertainty, however, EDR is proceed-
works as early as October when the firm In open-end vehicles ing with its planned fundraise. Jacquot
brought on board Ralf Kind, ex-CEO says: “We think the crisis will generate
€8bn
of listed German commercial property opportunities of real estate debt deals.
company DEMIRE Deutsche Mittel- It is often the case after volatile times.”
stand Real Estate. Including Kind, the The vehicle will be the first real es-
firm has hired two dedicated profes- tate debt fund for the firm, which al-
sionals for the new debt fund, in addi- In closed-end vehicles ready manages a €2.6 billion infrastruc-
tion to half a dozen existing real estate ture debt platform. The new product
team members who will work on the Geographical split of AUM offering follows EDR’s consolidation
business. With a high-yield strategy, the of its three real estate businesses in
50%
fund will look at private credit opportu- March under a new global brand – Ed-
nities across the capital stack, including mond de Rothschild Real Estate In-
senior loans, junior loans, mezzanine vestment Management. On the real es-
and preferred equity in Europe. In France tate equity side, EDR manages around
EDR is not planning an official €2 billion in open-end vehicles and
20%
launch of the fund until mid-2020, €8 billion in closed-end vehicles.
however. “There is a lot of prepara- The new brand combines pan-Eu-
tion, structuring and research work to ropean fund manager Cording Real
be done,” says Jacquot, explaining to Estate Group, French firm Cleaveland
In Switzerland
PERE why the timeline hasn’t changed. and Swiss-based Orox into a €10.4
“They want to take advantage of this billion pan-European platform. EDR
30%
period to also talk to market operators entered the real estate sector in 2012
to help evaluate the situation.” when it acquired Orox. Post-consolida-
Having said that, Jacquot admits tion, the firm hopes to double the size
covid-19 has made it “uncertain” and In Benelux, Germany and the UK, at
of its real estate portfolio in the next
“difficult” to execute transactions and 10 percent each three to five years. n
May 2020 • Debt 1516 PERE • May 2020
Analysis
Debt
May 2020 • perenews.com
The 50
biggest debt
fund managers
Cover story
Ready for change?
Debt fund capital raising steps up a gear
O
ur inaugural top to combine the capital raised by Cer-
50 ranking of berus and the two firms above them in
global private real the ranking – second- and third-placed
estate debt fund Blackstone and PGIM Real Estate –
managers pub- to surpass the $19.5 billion raised by
lished last year ap- AXA, and even then only by $500 mil-
peared to confirm what many already lion or so.
believed: debt fundraising had been The Paris-based manager’s debt
strong, North American firms were fund capital raising accounts for more
dominating, and Blackstone was the than 12 percent of the entire RED 50
top dog. The list this year has built on and 34 percent of the capital raised by
that but also provided a twist. firms headquartered in Europe. The
Despite slowing, debt fundraising bottom 14 managers globally – all firms
remains strong, with more than $40 that raised comfortably more than
billion of extra capital raised by this $1 billion each – raised just $200 mil-
year’s top 50 compared with the class of lion more between them than AXA.
2019. North American firms continue Two firms from Asia-Pacific – Mel-
to dominate, having accounted for 32 bourne-based pair Qualitas and MaxCap
out of 50 firms last time and exactly the Investment Management – make the top
same this time. However, Blackstone is 50, with the latter a new entrant. There
no longer top, with AXA Investment are, however, another six firms from the
Managers – Real Assets rocketing to region that would rank within the top 75
the number one spot in 2020. if the RED 50 were to be extended, sug-
Furthermore, 10 of the names on gesting that this particular statistic will
the list were not in the original RED change in future rankings.
50. That degree of change is often in Real estate debt has room to grow
the nature of a young ranking. Two of in Asia-Pacific – particularly in mar-
these new names make the top 10 this kets such as China and Australia – as
time around, which is more unusual. it does in Europe. North America may
Joining AXA Investment Managers continue to be the dominant region
– Real Estate near the top of the list is but, as the latest iteration of the RED
distressed investment specialist Cer- 50 shows, the picture is starting to
berus Capital Management. You have change. ■
May 2020 • Debt 17Analysis
Change
2020 since
rank 2019 Manager
The Real Estate Debt
1 AXA Investment Managers – Real Assets
2 q Blackstone
3 p PGIM Real Estate
4 Cerberus Capital Management
5 q Intermediate Capital Group
6 q AllianceBernstein
7 q M&G Investments
8 q Goldman Sachs Merchant Banking Division
9 p Bridge Investment Group
10 ACORE Capital
11 q PCCP
12 Mack Real Estate Credit Strategies
13 q Oaktree Capital Management
14 q LaSalle Investment Management
15 p BentallGreenOak
16 p Torchlight Investors
17 p Kayne Anderson Capital Advisors
18 q Brookfield Asset Management
19 p KKR
20 q DRC Capital
21 Aberdeen Standard Investments
22 q CAERUS Debt Investments
23 p DWS
24 vw Rialto Capital Management
25 q Prime Finance Advisor
26 q Nuveen Real Estate
27 q BlackRock
PERE’s latest ranking of the largest real estate 28 p Mesa West Capital
debt fund managers 29
30
p
q
Walton Street Capital
Cheyne Capital Management
31 p Qualitas
32 vw Square Mile Capital
Definitions 33 q Madison Realty Capital
34 MaxCap Investment Management
Private real estate debt 35 q Värde Partners
For the purposes of the RED 50, this is equity capital raised for a 36 p CBRE Global Investors
dedicated program of issuing debt for property deals. The capital 37 Invesco Real Estate
is raised primarily in blind-pool limited partnerships. These 38 p JCR Capital Investment Corporation
investment programs are further distinguished in that they do not 39 q Tyrus Capital
pursue ownership of the assets, but rather the financing of them. 40 q SCOR Investment Partners
41 q Ares Management Corporation
Capital raised 42 q Colony Capital
This means capital definitively committed to a private real estate 43 Barings
direct investment program. In the case of a fundraising, it means 44 q AgFe
the fund has had a final or official interim close after January 1, 45 q Atalaya Capital Management
2015. We may count the full amount of a fund if it has a close after 46 LCN Capital Partners
this date. And we may count the full amount of an interim close (a 47 q Brunswick Real Estate Capital
real one, not a ‘soft-circle’) that has occurred recently, even if no 48 Octopus Real Estate
official announcement has been made. We also count capital raised 49 Amundi Group
through co-investment vehicles. 50 q Pacific Investment Management Co.
New entry p Riser q Faller vw No change
18 PERE • May 2020Analysis
Capital raised
Headquarters ($m) What counts?
Paris 19,467.05 Structures
New York 8,506.00 – Limited partnerships
Madison 5,768.27 – Co-investment/sidecar vehicles
New York 5,748.85 – Seed capital or manager commitment
London 5,162.30 Strategies
New York 5,050.00 – Debt issuing funds
London 4,794.86
New York 4,706.36 What does not count?
Salt Lake City 4,181.00 – Expected capital commitments
San Francisco 4,056.45 – Open-end funds subject to conditions on tab 6
Los Angeles 4,043.30 – Public funds
New York 3,863.00 – Funds of funds
Los Angeles 3,685.00 – Non-discretionary vehicles
Chicago 3,624.74 – Secondaries vehicles
New York 3,410.33 – Real estate equity funds (core, core plus, value-add,
New York 3,042.50 opportunistic)
Los Angeles 2,970.00 – Private equity
Toronto 2,949.00 – Infrastructure
New York 2,887.00 – Hedge funds
London 2,875.27 – Capital raised from affiliated entities
Aberdeen 2,851.45 – Capital raised on a deal-by-deal basis
Dusseldorf 2,693.40 – Private real estate funds for which purchasing debt is part of the
Frankfurt 2,569.14 strategy
Miami 2,542.00
New York 2,498.38
London 2,435.35 New York remains the leading debt
fundraising center (proportion of RED
$156.9bn
New York 2,428.67
50 total capital raised)
Los Angeles 2,263.00
Chicago 2,173.15 Los Other
London 2,123.00 Angeles
29% Total capital raised
Melbourne
New York
2,099.78
2,022.00
10%
$3.1bn
New York 1,931.00
Melbourne 1,829.83
Minneapolis 1,786.02
London 1,763.95 Average capital raised
New York 1,713.00
Denver 1,678.20
62.4%
London 1,513.63
Paris 1,493.97
Los Angeles 1,482.50
Los Angeles 1,446.89 Capital raised by North
New York America-based firms
Charlotte 1,430.46
London 1,427.79 32%
14
New York 1,425.00
New York 1,371.11
Stockholm 1,334.43 Paris London
Number of places climbed by Mesa
London
Paris
1,318.34
1,260.87
14% 15% West Capital, up from 42 to 28. No
firm to appear in both editions of
Newport Beach 1,249.00 the RED 50 climbed more places
Source: PERE
May 2020 • Debt 19Analysis
Headquartered in: Asia-Pacific Europe North America
1
AXA Investment Managers – Real Assets
Capital raised: $19.5bn
Head office: Paris
If you’re going to make an entrance, go big. Absent from the
first iteration of PERE’s RED 50, AXA Investment Managers – Real
Assets has done just that, debuting right at the top of the list with
a whopping $19.5 billion of capital raised for real estate debt
issuance – barely less than the next three firms combined. It was the
first non-banking institution to enter the European real estate debt
market in 2005, having raised more than €14 billion across private
and listed debt since then. It focuses on conservative loan-to-value,
quality assets and growth potential. AXA’s debt funds aim to capture
risk-adjusted returns from senior loan real estate investments.
Among AXA’s debt funds are its mammoth Commercial Real
Estate Senior funds. Commercial Real Estate Senior 9 (CRE 9) closed
in 2015 at €2.9 billion, over €1 billion above target, and 2017’s
Commercial Real Estate Senior 10 (CRE 10) closed at its cap of €1.5
billion. Both are currently investing, with a new fund launched this
year already sized at €904 million. The closing of CRE 10 took AXA
IM – Real Assets’ total debt commitments to more than €14 billion
and was AXA’s first debt fund to have an initial mandate in the US.
The head of commercial real estate private debt is Antonio
de Laurentiis. In late 2018 AXA bought a US real estate debt
business from Quadrant Real Estate Advisors, acquiring the US
debt investment team and a $9.4 billion portfolio of US commercial
mortgage loans.
2
Blackstone
Capital raised: $8.5bn
Head office: New York
Making way at the top for AXA is Blackstone, the leader of the 2019
RED 50 list, which moves into second place despite having raised
$1.31 billion more than it had for the inaugural list. Its most recent
real estate debt fund is Blackstone Real Estate Debt Strategies IV,
sized at $285 million but seeking $5 billion. The vehicle will focus
on public and private debt globally with an emphasis on the US.
The previous fund in the BREDS series – Blackstone Real Estate Debt
Strategies III – closed on $4.5 billion in 2016, ahead of its
$4 billion target, with a focus on mezzanine and structured lending
on well-located, institutional quality real estate.
Blackstone Real Estate Debt Strategies II closed a year before that
on $3.6 billion. BREDS II and III are both still investing.
Blackstone’s real estate debt business provides financing
solutions across the capital structure and risk spectrum. It also
manages Blackstone Mortgage Trust, a real estate finance company
that originates senior loans collateralized by commercial real estate.
The firm started investing in real estate in 1991. The real estate
debt team is led by Michael Nash, senior managing director and
co-founder of the group and chairman; Jonathan Pollack, senior
managing director and global head of the group; and Tim Johnson,
senior managing editor and global head of originations for BREDS.
Blackstone’s real estate debt funds typically target investments
with current cashflow, capital protection and high-quality borrowers.
20 PERE • May 2020You can also read
