With SKr12 billion ($1.4 billion; €1.2 billion) of dry powder already raised for its third real estate debt fund, Brunswick Real Estate says it is aiming to take advantage of the shortage of liquidity in Sweden’s property finance market brought about by the coronavirus pandemic.
The Stockholm-based real estate investment manager has launched Brunswick Real Estate Capital III with the aim of providing senior credit in the Swedish market. According to the firm, it will have a keener focus on sustainability than its predecessor funds.
“A lot of borrowers are having a hard time securing long-term financing because of covid-19,” Pontus Sundin, Brunswick Real Estate’s chief executive, told sister publication Real Estate Capital. “The crisis opens up deals that might have been harder to reach in a stronger market.”
An advantage of the fund’s strategy during this period of market turmoil is the ability to provide long-term funding with maturities of up to 10 years, Sundin noted. “Swedish banks’ inability to offer 10-year duration loans works in our favor.”
The vehicle has secured investments from some of the largest institutional investors in the Nordics, including previous investors in Brunswick’s funds, such as Norwegian life insurer Kommunal Landspensjonskasse and Swedish insurance and pension savings company Folksam Group.
Brunswick declined to comment on the target and hard-cap of the fund. On the fundraising timeframe, Sundin said: “We have 18 months between first and final close and the formal first close will happen during the autumn.”
Some of the fund’s capital commitments were agreed to during the lockdown period. According to Sundin, that did not present major challenges because of the relationships the firm has established with its investors over the years. “They were all known to us, so the process ran smoothly despite not being able to meet face-to-face.”
Through the unlevered closed-ended vehicle, Brunswick will make senior loans to commercial property across 20 cities in Sweden in the range of SKr400 million to SKr800 million. However, Sundin said the company could also provide larger loans in some cases.
Brunswick previously offered ‘green’ loans through its second debt fund, but the firm said BREC III will have a clearer focus on sustainable property investments. “In addition to green issues such as reduced carbon dioxide emissions and smarter energy consumption, we also want to ensure that our investments lead to an improvement in aspects of social sustainability,” said the company in a statement.
The pandemic crisis could, according to Sundin, accelerate the fund’s deployment pace rather than slow it down because of the financial terms and stability offered by the product. “We had this successful fundraising during covid-19 because we have an investment-grade type of product: it is a low-risk strategy, the average loan-to-value of the second fund was 53 percent, with underlying properties being either core, core-plus or value-add.
“If there are small adjustments in the market, we can deploy even more capital because we can offer long-dated money. Borrowers want to secure long-term financing in times of turbulence and not have to worry about refinancing.”
Brunswick Real Estate Capital closed its second property debt fund on €640 million in 2018. It targeted net returns of above 200 basis points. Its maiden vehicle was launched in 2013 – the first fund focused solely on Nordic real estate debt.