AEW eyes €5bn AUM target for European debt business

The French manager will add high-yield lending to its repertoire as it aims to double the holdings of the newly combined platform.

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Natixis Investment Managers’ global property business, AEW, announced last week it had fully integrated its European real estate debt platform, in a move aimed at accelerating its growth plans for the region.

Launched in 2012 in a 50/50 partnership with Ostrum Asset Management, the platform will operate as a single entity within AEW. Ostrum is also an affiliate of Natixis Investment Managers, the asset management arm of French banking group Natixis

It will be led from Paris by AEW’s head of debt funds and mandates, Cyril Hoyaux – a co-head since the platform’s inception – working alongside a team of 10 professionals. According to Hoyaux, one of the main reasons behind the consolidation was the manager’s eagerness to improve its visibility and accessibility to clients. “The team was before split between two of Natixis’s sister companies,” he told affiliate title Real Estate Capital. “Now that the platform is bigger, it is the right time to simplify all processes for our clients and have the two teams together in the same place.”

After more than doubling its assets under management in debt to more than €2.5 billion over the past three years, AEW is confident it can maintain a similar pace of growth. According to Hoyaux, the platform’s consolidation, coupled with a “good amount of dry powder and deals in the pipeline” make its growth targets even more achievable. “After doubling the platform’s size over the past three years, we now seek to double it again over the next three to €5 billion AUM by 2024.”

AEW is currently raising capital for its third real estate debt fund, Senior European Loan Fund III, which it launched in 2019. AEW had initially targeted €700 million but has revised the target to €500 million due to the fundraising process being impacted by lockdowns in 2020.

AEW has so far raised €300 million and expects to hold its final close next year. “Fundraising has been slightly delayed by covid-19,” Hoyaux said. “But we expect the fundraising to end by Q1-Q2 2022 and the capital to be deployed also by the end of 2022.”

High-yield expansion

Looking further forward, as part of AEW’s strategy to achieve its €5 billion target, the manager is planning to expand its lending offer beyond senior lending, in which it has been most active since launching the platform almost a decade ago.

AEW is working on a new strategy designed to offer its clients a wider range of risk and return investment throughout the property debt spectrum. Hoyaux said the company has the ambition to launch a new fund to combine senior, junior, and mezzanine lending. He described the new strategy as “something between senior and pure mezzanine lending that dedicates roughly two thirds of its capital to senior tranches and one third to subordinated tranches, either junior or mezzanine.”

He added: “We want to be more active in the high-yielding space, to be able to offer our investors a wider range of products to cover most parts of the risk/return spectrum.”

In addition to the ability to provide higher returns, AEW’s push into this market segment is driven, according to Hoyaux, by the lending opportunities it is presenting. “We believe there is a decent market in this particular segment, even if it has far less depth than the senior tranche market, in which we issue annually around €150 billion of debt,” he said. “An expected imbalance and discrepancy between what investors need and what traditional lenders can offer will present opportunities for us.”

According to Hoyaux, some of these opportunities will be linked to the potential refinancing gap that could emerge in some parts of the market as banks continue to reduce their exposure to property sectors, including retail.

“In this sector, there will be some refinancing issues for loans coming to maturity by the end of 2021 and early 2022, due to asset repricing but also due to banks’ eagerness to reduce their exposure and offer lower loan-to-values,” he said.

“Where you previously had a 60 percent LTV on a retail portfolio valued at €100 million, this might be now valued at €80 million, and the bank might not want to extend the facility at more than 50 percent LTV. This means €60 million needs to be refinanced and possibly any financing covering more than €40 million cannot be found, so there is a €20 million gap in which a mezzanine tranche could help. We see opportunities to step in that should offer a good risk-return profile.”

Beyond specific sectors, Hoyaux believes bank lenders will continue to retrench from what they perceive to be ‘risky’ transactions, presenting further opportunities to alternative lenders like AEW. “This is normally the case with the most speculative transactions, including development finance and asset repositioning,” he said. “We have a leading role in that segment that compensates the reduced capacity of bank lenders.”

Deployment capacity

By the end of June, AEW expects to have deployed around €180 million in European real estate debt across six transactions this year, secured against different sectors and jurisdictions.

Hoyaux said the company is aiming to deploy €500 million in loans across Europe’s property markets in 2021, via its four debt funds through which it is actively investing. In total, the company manages seven real estate debt funds and mandates.