Pramerica, the European property arm of US financial company Prudential Financial, has closed what it says is the region’s largest discretionary dedicated mezzanine debt fund launched to date.
The firm said it has secured commitments totaling £492 million (€554 million; $804 million) for Pramerica Real Estate Capital 1 Fund.
Commitments have come from leading, global investment institutions including pension funds and sovereign wealth funds from North America, Europe, the UK and the Middle East, it said.
“The extremely high calibre of global investors invested in the fund fully endorses our belief in the opportunities that exist as a result of the ongoing lending gap in commercial property,” said Andrew Radkiewicz, managing director and co-portfolio manager of the fund. “We are encouraged that clients view our debt strategy as an alternative to direct real estate equity investment and we see many opportunities that offer the potential for attractive risk-adjusted returns, while providing a viable and deliverable alternative source of capital to the property markets.”
The fund is the first offered to institutional clients as part of Pramerica’s global debt strategy platform, led by Jack Taylor based in New York, and the company expects to offer a range of debt products around the world. Pramerica said it designed the strategy to meet increasing global appetite for financing, beginning with a demand for alternative sources of funding amid the scarce sources of financing in the current UK and European market.
In it European Quarterly outlook published in April this year, Pramerica highlighted research by advisory firm Navigant, which estimated that up to €670 billion of European commercial property loans made by banks and other financial institutions will require refinancing within two years. Pramerica’s report predicted that this could produce a refinancing funding gap of €18 billion in Europe this year alone, €28 billion in 2012 and €42 billion in 2013.
Pramerica’s portfolio managers will seek opportunities to provide funding for acquisitions and refinancing, targeting the gap between traditional senior debt and equity and looking to provide mezzanine or preferred equity financing of £5 million to £75 million, secured against “quality” real estate assets, primarily in the UK and Germany.
Andrew Macland, managing director and co-portfolio manager at Pramerica, added in a statement: “We expect to see an increasingly large number of potential debt transactions in the coming months, and the additional funds that we have now secured will allow us to make the most of these opportunities. The current lending market remains extremely illiquid, and there are clear opportunities for us to work with companies that need financing or to bridge shortfalls in senior debt for property deals. The discretionary nature of our fund means that we are able to move quickly when we identify attractive opportunities, providing a mutually beneficial situation for our investors and the borrowers in whose deals we are ultimately involved.”