Stockholm-based private equity real estate firm Niam has acquired Brunswick Real Estate Capital – the lending arm of Swedish manager Brunswick Real Estate – bringing together their respective equity and credit businesses at what the companies’ executives describe as the cusp of an unprecedented investment opportunity in the Nordics, reports affiliate title Real Estate Capital Europe.
The deal, which was announced this week but completed in the second quarter, will create a real estate business with €5.5 billion of assets under management and a foothold in the debt markets for Niam that has been a decade in the making.
Jennifer Andersson, managing partner, Niam, said: “We have been thinking about expanding into debt since the global financial crisis. But then, and since, Nordic banks have been extremely active, and it was hard to see how we could make headway.”
Andersson, who is currently fundraising for Niam’s eighth opportunistic vehicle, said investors are now looking for exposure to real estate debt in the region, and more widely. “A number of sizeable investors we have been speaking with said they have allocated more money to debt funds than equity funds this year,” she said.
Pontus Sundin, who has been chief executive at Brunswick Real Estate Capital since 2018, will continue to lead the business – now known as Niam Credit – and intends to expand its activities beyond senior lending into subordinated debt for the first time, at what he calls a “pivotal moment” for alternative lenders in the region.
“We are seeing the withdrawal of lending from the capital markets, and I don’t think we will see the return of it to the same extent as before. So obviously, there will be gaps in the balance sheets of many property companies and those need filling. This new platform we have is suited to helping provide capital in that gap.”
In recent weeks, Sweden’s financial supervisory body, Finansinspektionen, has said the credit risk in the country’s banks to commercial real estate was of “prime concern,” forecasting that high inflation and rising interest rates could bring a “time of reckoning” when resilience will be tested.
Sweden’s commercial real estate sector faces $10 billion in debt repayments in 2023, with refinancing demands of $41 billion by the end of 2026, according to data compiled by Bloomberg.
“There are going to be sellers in the region that need to delever,” Sundin said. “Nordic banks have dominated commercial real estate market lending. But there are €3 billion of corporate bonds approaching maturity in the next 12 months, and we believe borrowers will struggle to refinance this in the capital markets.”
Sundin also foresees that Basel III regulatory capital requirements will mean bank lenders will “need to be smarter with their balance sheets.”
As a result, Niam Credit plans to begin raising capital for mezzanine loans, construction facilities and whole loans during the first quarter of 2023.
Meanwhile, Andersson says the equity platform is readying itself for “one of the best investment markets in over a decade.”
“We are excited about having dry powder in this environment. One reason is that a lot of listed property stocks have dropped materially, they have a lot of corporate bonds coming due. There will be year-end valuations, too, which will be interesting to see. It is this that will feed into an increase in turmoil for the next 12 months and more,” she added.
Andersson declined to comment on the company’s expectations for the latest vehicle but said Niam is aiming to exceed the €1.1 billion of equity raised by the manager in 2019 – at the time it was the largest ever Nordics-focused opportunity fund.
“We are grateful that investors that are having trouble over the denominator effect are doing everything they can to support our product,” she said.
While Niam Credit is seeking subordinated debt opportunities, Sundin says it will be able to do so at loan-to-values previously offered by senior lenders.
“I see we will be able to target deals at slightly higher risk than we have before. In our senior lending products today, we are now offering 45 to 50 percent LTVs and we are getting traction at those levels, so I would argue we will see a parallel shift in the reduction of LTVs on junior tranches.”
He said, however, that it was difficult to define subordinated debt in this riskier climate, as alternative lenders remain acutely aware of downside scenarios. “I don’t believe we have seen the full shift in cap rates. There is a lot of market uncertainty and lenders are using indicators other than LTVs to understand that.
“We have not seen everything we might have to deal with, so our underwriting is focused on debt per square meter, looking at rent scenarios over a longer time frame than previously and we are asking more questions about values.”
Brunswick Real Estate, which is focused on Sweden, Finland and Denmark, established its debt business in 2013 with Brunswick Real Estate Capital I, the first Nordic credit fund for senior secured financing.