EUROPEAN NEWS: The best of both worlds

Duet Private Equity, one of the few European private equity firms to have raised a mezzanine real estate fund this cycle, burned through £60 million (€69 million; $97 million) of capital so fast that last month it floated a company on the London Stock Exchange to provide more equity.

The initial public offering of Duet Real Estate Finance added another £50 million to the fund’s fast dwindling firepower as the firm continues to exploit the mezzanine finance gap left by banks.

In listing the vehicle, whose first day of trading was 14 March, Duet became the first company to successfully mount an IPO of a vehicle focused on the real estate debt opportunity in the UK.

Dale Lattanzio, managing director of Duet Private Equity, said investors in the public vehicle, which feeds into a master private fund that raised €100 million at the end of 2009, included banks with high-net-worth investors as well as brokerage firms that had a range of different investor clients. There also were some institutions that took up shares, such as pension funds that prefer making investments in a listed equity portfolio as opposed to a private
fund, he noted.

“Oriel Securities, which was our adviser and bookrunner for the IPO, believed that there were investors that would like the income profile of the investment and would understand the story that banks had retreated from the real estate financing markets,” Lattanzio explained. “Many people have read about this, but there are not very many ways for people to take advantage of it.”

Among the fund’s deals to date is a refinancing of Credit Suisse’s headquarters in London’s Canary Wharf. MetLife, the insurance company, provided the senior loan, and Duet provided the mezzanine piece. The sponsor was Ireland’s Vico Capital.

The fund also just completed a refinancing for The Blackstone Group of eight hotels in Germany. Deutsche Bank provided some of the senior loan, but it stopped short of the full amount because of its new loan-to-value restrictions in the current lending environment.

Meanwhile, a final close of the private master fund is scheduled for June. “We think there is an investor base that is two-fold: some that look at property investments and others that look at higher-yielding fixed income investments,”

Lattanzio said. “I think we can continue to raise money in this space for quite some time.”

Given that Duet is targeting 16 percent-plus internal rates of the return for its investors, raising additional capital shouldn’t be much of a problem.