GreenOak closes first European debt fund on €600m – Exclusive

The firm’s Europe debt head Jim Blakemore says fundraising for the regional vehicle was ‘a lot easier’ than it was for its first UK debt product thanks to investors being more comfortable with the strategy nowadays.

GreenOak Real Estate has wrapped up fundraising for its debut European debt fund €100 million above target, the firm’s Europe debt head told PERE. Jim Blakemore said the New York-based firm launched the GreenOak Europe Secured Lending Fund in the first quarter of 2016 with a €500 million target.

The vehicle is already 60 percent deployed through 12 loans in Germany, the Netherlands and Ireland. Its loan size ranges from €5 million – €100 million, with borrowers including US and European private equity real estate companies, as well as other kinds of local borrowers.

The Europe fund wrap-up follows July’s close for GreenOak’s second lending fund focusing on commercial property in the UK, the GreenOak UK Secured Lending Fund II, which corralled £625 million ($833 million; €709.8 million).

“All of our Europe-focused funds follow the same strategy: transitional lending. We’re lending on assets that are typically reasonably property intensive,” Blakemore said. “The risks we’re taking are tenancy or refurbishment or redevelopment risk, and all of the funds are unlevered.”

Through the Europe fund, GreenOak is doing more portfolio lending than in its UK vehicles, which Blakemore attributed to timing in the different real estate cycles. In one representative transaction for the Europe fund, the firm worked with a local Dutch borrower which acquired seven office properties with the intent to sell one asset to one buyer and three to another buyer, then hold the four remaining properties.

“The real challenge was you had to underwrite very short leases and the office use might not support the valuation, so you had to get comfortable with a residential conversion play. Most importantly, we had to close within two weeks of term sheet to funding,” Blakemore explained. “The borrower tied up the group of assets from a bank, and the bank gave them a specific time to close. The real risk was whether the lender would be there”

He said the Europe fund’s investor base includes existing investors, with “good support” from UK corporate pensions, as well as investors from Australia, Korea, Japan and continental Europe.

All of GreenOak’s funds are targeting a 7-9 percent net internal rate of return. Blakemore declined to comment on the performance of the firm’s other debt vehicles, but PERE understands the first UK fund is exceeding that target and the second fund is on track to meet it.

Ahead of the European vehicle’s investment period, GreenOak hired five staff. In June, Barry Porter joined as portfolio asset manager and Laura Manthe joined as director, both out of London, while in September, Lesley Laneflt joined as director in Stockholm. Earlier additions included two directors: Nikolaus Pongracz, based in Vienna, and Ulrike Broelsch, based in Hamburg.

“I think it was a lot easier to fundraise than our first. For the first fund, there was a tremendous amount of investor education around real estate private debt and lot of investors were trying to figure out how to allocate, whether from fixed income or real estate,” Blakemore said. “In this fund, most of the investors had a real sense of how this would fit, and investors liked that we have people on the ground. Many of us had worked together for a long time pre-crisis and through the crisis. We’ve seen a lot of stuff together.”

GreenOak was founded in 2010 by three former heads of Morgan Stanley Real Estate Investing – Sonny Kalsi, John Carrafiell and Fred Schmidt.

Since 2011, GreenOak has raised $7.5 billion of equity from institutional investors for real estate lending and investment in Europe, the US and Asia, and has acquired approximately $10 billion of assets. The firm’s first UK fund is fully deployed, having raised £224 million in 2015.

Law firm Goodwin advised the Europe fund.