Brunswick closes second Swedish senior debt fund on €640m

The Swedish asset manager is targeting a 2% net return as it provides longer-term credit across commercial real estate markets in its home market.

Brunswick Real Estate, the Stockholm-based real estate investment manager, has closed its second property debt fund, focused on providing senior credit in the Swedish market, with SKr6.6 billion ($745 million; €640 million) raised, PERE’s sister publication, Real Estate Capital, reported Tuesday.

The vehicle has deployed most of the SKr2.8 billion it raised by its first close in December 2016. Capital has been brought in from some of the Nordic region’s largest institutional investors, including Norway’s biggest life insurer Kommunal Landspensjonskasse (KLP), Swedish insurance and pension savings company Folksam Group and Sweden’s PRI Pensionsgaranti.

Through the unlevered closed-ended vehicle, which the firm claims is the largest Nordic fund focused on real estate senior debt, Brunswick will make loans in the range of SKr400 million to SKr1 billion, with a term of up to 10 years.

“The strategy of the fund is to provide senior secured loans to predominately cash-flow generating properties in growing cities in Sweden,” Louise Richnau, a partner at Brunswick Real Estate Capital, told Real Estate Capital.

“It’s low-risk strategy, the average loan-to-value of what we have done so far is below 60 percent, with underlying properties being either core, core-plus or value-add,” Richnau added.

Brunswick targets net returns to investors of above 200 basis points, which represents a yield premium compared with BBB-rated Swedish investment-grade bonds, typically generating around 80bps for a similar duration, said Brunswick Real Estate partner Svante Andreen.

“Our strategy is like an investment-grade type of product, as we provide loans with very low LTV, but we offer a significant yield take-up for the corresponding credit risk,” Andreen added, noting this can attract investor demand for Nordic commercial real estate debt.

Michael Kjeller, chief investment officer at Folksam, one of the fund’s investors, noted: “Investing in long-term senior debt is a good alternative to our fixed-income portfolio, especially with the current low-yield environment and uncertainty in the market.”

An advantage of the fund’s strategy is its ability to provide long-term funding, Richnau noted, as the Nordic banks usually provide shorter-term debt finance, typically up to five years. So far, the fund has provided loans with a blended maturity of around seven years.

“Over the longer term, market volatility might increase and, therefore, demand for longer-term debt capital. This means we are better positioned than the banking system which, due to regulation, is incentivized to provide the shorter end of maturities,” Andreen said. “Rather than competing with the banks in the short term, we are a complement to the banks in the long term,” he added.

Brunswick Real Estate Capital broke new ground in 2013 when it launched the first fund focused solely on Nordic real estate debt. The second fund can deploy capital across all sectors of commercial real estate except from residential development assets.