Fiera Real Estate has launched its debut European debt fund, Fiera European Real Estate Debt, six months after establishing a real estate credit platform targeting the region, PERE has learned.
Through the vehicle, the real estate arm of Canadian investment manager Fiera Capital will originate senior-secured, investment-grade real estate loans. FERED will target core-plus to value-add deals in the £20 million ($24.95 million; €22.60 million) to £50 million range, across sectors including residential, logistics, Grade A office, hotels and leisure. The vehicle will initially focus on the UK market before expanding into select European markets.
The platform has amassed £100 million to date from two Fiera Capital fund of funds and is seeking to raise in excess of £500 million for the fund, which does not have a hard-cap. A second close is expected after the summer.
The vehicle is classified as Article 8 under the European Commission’s Sustainable Finance Disclosure Regulation. Under SFDR, an Article 8 fund promotes environmental or social characteristics, provided the firm making the fund’s investments follows good governance practices.
“There are not many Article 8 funds in the real estate credit space,” said managing director David Renshaw, who along with Richard Howe joined Fiera from Cheyne Capital last year to launch Fiera’s pan-European real estate debt business. “I think the real estate credit space has been lagging versus the equity space in terms of SFDR classifications and chasing hard and fast green targets. And I fully understand why as well, because, to an extent, you’re one step removed from a sponsor. But we do think that over time, this is going to become a key feature of the space.”
The firm has created a responsible lending framework that will be used to assess opportunities during its loan origination process. “We have a bespoke guideline and checklist that every borrower needs to go through,” added Howe. “We wouldn’t lend on deals that wouldn’t pass it.”
Also, unusually for Europe, where most funds are closed-ended in nature, the debt vehicle will also have a semi-liquid, open-ended fund structure. The vehicle will have a lockup period of two to three years, with investors able to redeem on a quarterly basis. The fund also has a gating mechanism where redemptions will be paid out to investors over a period of time.
“We think that the semi open-ended nature of the fund will be appealing both to institutional capital – because you’re not locked in for eight years, and you do have more flexibility in terms of when you may wish to withdraw or add more money in – but also potentially to high-net-worth individuals as well,” said Renshaw.
A semi open-ended debt fund would be less vulnerable to gating issues than an equity vehicle, added Charles Allen, Fiera’s head of European real estate: “I think on a debt vehicle, this is less of a concern, because the average duration of loans is generally shorter. You’re not required to sell an asset at the end of the loan, you can just refinance and take your money out.”
For the fund, Fiera is targeting an average loan duration of two years and net returns of more than 10 percent, according to Renshaw. “We have a preference for value add or development plays, the idea being that you can actually create value over the life of the loan and then de-risk the debt basis over that time period,” he said.
In addition to the fund, Fiera has also formed a separately managed account with a Middle Eastern investor which targets higher yielding, larger debt investments.
In terms of pipeline, Fiera has seen £4 billion to £5 billion on transactions to date, according to Howe. The firm is expected to close on its first deal for the SMA in about four to six weeks.
With the debt funding gap in Europe forecast to be greater than €32 billion over the next three years, “this is probably the most elevated level of refinancing requests that I’ve seen over the last 10-15 years,” he remarked.
Although 90 percent of Fiera’s real estate debt dealflow was tied to a refinancing at the start of the year, Howe sees more lending opportunities for acquisitions starting to emerge. “I think sponsors are getting a bit braver and also looking to develop what sites they held for the last six months,” he said.
Allen believes raising a first-time fund will be an advantage for Fiera, despite the challenging fundraising market. “We think a lot of existing teams are going to be spending a lot of their time dealing with legacy issues, instead of focusing on deploying into the new, more attractive lending environment,” he said.
Concurred Renshaw: “I think you’re going to find over the next three to six months, there are peers who have probably taken on too much risk, quite frankly, who are going to have big issues.”
Fiera’s expansion into European real estate debt now gives the firm a global real estate credit platform, which currently manages $1.7 billion in assets across North America and Europe. Fiera Real Estate has total global AUM of $5.9 billion, or approximately 5 percent of Fiera Capital’s $117 billion in assets.