GreenOak plots UK senior lending market entry

The firm started in 2010 by the ex-heads of Morgan Stanley Real Estate Investing is expected to bring to market its first investment fund in Europe in the form of a senior debt fund focused on UK properties.

GreenOak Real Estate, the private equity real estate firm launched by the former heads of Morgan Stanley Real Estate Investing (MSREI), is planning its first real estate vehicle in Europe.

PERE has learned that the firm, started in 2010 by Sonny Kalsi, John Carrafiell and Fred Schmidt, is planning to launch a vehicle aimed at providing real estate owners in the UK with senior debt financing later this year.

The firm has spent the best part of a year brokering one-off senior loans in the UK on behalf of individual institutional investors. According to market sources, it is now planning a capital raising of approximately £300 million for a dedicated vehicle.
It would be led by partner Jim Blakemore, the ex-European head of Lehman Brothers Global Real Estate Group, who joined last year with a team of real estate debt specialists. Blakemore previously oversaw Lehman Brothers’ commercial mortgage lending and mezzanine lending activities while at the bank.

The structure of GreenOak’s vehicle is still to be determined at this early stage but it could be a formed either as a private closed-ended or open-ended fund or as a listed entity –  structures used for providing debt in the UK by certain of GreenOak’s private equity real estate peers.

In the last month ICG-Longbow raised £212 million for its second UK debt fund, a private vehicle, while Starwood Capital raised £228 million via a public offering for its UK debt platform, Starwood European Real Estate Finance.

In slight contrast to the strategies of these two groups, however, GreenOak is planning to focus its lending activities in the senior debt space versus the higher-yielding, junior debt space.

In so doing, the firm is adding its name to a growing host of alternative senior financing sources in the UK spanning from insurance companies to sovereign wealth funds, all bent on filling a large hole left by the banks which previously were the primary sources of debt for borrowers in the country. Property services firm DTZ predicted in its research last year that non-bank lenders would add $75 billion of new lending that would help bridge a debt funding gap expected to be $182 million during the next two years.

Typical borrowers from GreenOak’s vehicle are expected to be owners of Grade B commercial properties in London and in refinancing situations. The firm is expected to engage in transactions where the loan to value ratio would be little higher than 65 percent. Individual loans could be between £20 million and £50 million in size.

Such a strategy would likely yield a loan level return of between 7 percent and 10 percent, lower than the types of returns traditionally opportunistic groups like GreenOak has generated.

Since forming GreenOak has raised capital for closed-ended opportunity funds focused on the US and Japan. In Europe the firm has invested on a deal by deal basis mainly for separate accounts.

In the US, the firm has made significant headway in the opportunity fund space since forming, investing already more than the 50 percent of $310 million in equity collected for, and in a side car to, its GreenOak Real Estate US Fund I opportunity fund. Indeed, a second fund stateside is already in the offing. GreenOak is also raising equity for a Japan opportunity fund for which it has collected close to $200 million so far.

GreenOak declined to comment.