EUROPE NEWS: Two’s company

News of two more European debt funds arrived last month, one from a French bank and the other by asset manager BlackRock. PERE Magazine July, August 2012 issue.

The wave of disparate firms seeking to raise debt funds continues to grow in Europe, as two more firms jumped into the fray amid a retreat from lending by traditional banks.

In the first development, it emerged that La Banque Postale, which was established in 2006 and is a subsidiary of France’s nationalised postal service, has hired René Kassis and a team from Dexia to start a new senior debt programme targeting both real estate and infrastructure. In the second, BlackRock disclosed that it is eyeing the launch of a senior real estate debt fund for Europe.

Of the two, perhaps the most interesting move is that of La Banque Postale, given that its product appears to create a fresh twist in the tale of debt funds that continue to be all the rage in Europe.

At the heart of its programme is the European Infrastructure and Debt Fund, which will invest in both real estate and infrastructure deals.

The creation of a dual asset class debt fund appears to be a departure from the way most – if not all – firms are exploring the opportunity created by the contraction of traditional bank lending and the huge refinancing need of assets acquired in Europe over the past few years. Typically, firms that have raised debt funds, or are in the process of doing so, concentrate solely on one asset class.

Kassis has been hired in the asset management division of La Banque Postale as managing director and head of the new fund, having served as the head of infrastructure at rival bank Dexia. Pierre Saeli is heading the real estate element of the vehicle.

It is thought the fund, which is expected to reach a first close by autumn, will target primary and secondary deals across Europe. The bank had yet to issue a statement on the appointments or the creation of the new fund at press time, though an announcement was said to be imminent.

BlackRock’s plan seems to be more traditional in that it is a real estate product alone. The global asset management titan summoned reporters to a briefing in New York last month, at which new global head of real estate Jack Chandler said the firm had been pursuing high-yield investments in the US, such as real estate debt and housing, and was now exploring the launch of a senior lending platform in Europe. The new debt business would focus on a half-dozen markets in the region and help to line up capital for non-trophy assets.
“Real estate debt is a bit of a ‘bipolar’ investment opportunity,” Chandler said. “In 2007, it was a terrible idea, but we think it’s a great idea in 2012 because of your basis in that asset.”

Until now, BlackRock primarily has been focused on high-yield mezzanine lending, which Chandler called “one of the most interesting ideas.” The firm, which currently has more than $13 billion in real estate assets under management, has provided about $2 billion of mezzanine debt in Europe over the last decade, with such investments typically earning 8 percent to 12 percent returns on loan-to-value ratios of 65 percent to 75 percent.
However, BlackRock’s senior real estate debt business in Europe, if successfully raised, would be the firm’s first dedicated regional product. “It’ll be a terrific opportunity for us for the next half decade,” Chandler said. According to him, the firm has made a small number of hires, the details of which have yet to be revealed.