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Schroders and Corestate join a growing manager cohort expanding lending capabilities

The organisations are among an increasing number of managers choosing the current volatile environment to better establish their European debt businesses.

This week, Schroders, the €578 billion asset manager headquartered in London, announced that it had brought on board some new expertise in the field of real estate debt.

It hired Natalie Howard, a property finance veteran most recently of debt fund manager DRC Capital, to lead the launch of a new credit platform designed to complement the company’s existing property investment offering.

Schroders is not the only manager with designs on the debt side of the industry. Last week, Luxembourg-based Corestate Capital, the €28 billion property investment company, acquired Frankfurt-based financing platform and securities trading bank Aggregate Financial Services in a €113 million deal. Corestate chief executive René Parmantier heralded it as the start of a “new chapter of growth” for its existing private debt segment.

Schroders’ and Corestate’s moves in the debt space are the latest examples of managers with track records in real estate equity further turning their attention to Europe’s property lending market. US mega-manager Alliance Bernstein, which already had a large US property credit business, set up shop as a lender in Europe in November. Fellow US manager Invesco Real Estate also established a European debt operation in October, citing attractive market conditions.

The trend pre-dates covid-19. In recent years, faced with high property prices, several managers have chosen to deploy capital by lending it against properties, rather than buying them, in anticipation of an overdue market correction. The pandemic has strengthened the case for lending, with banks stepping back from new deals, providing alternative lenders with more opportunities.

Organizations such as Schroders and Corestate are demonstrating a desire to increase the scope of their financing activities. Schroders first launched a UK-focused debt fund in 2018. It is now planning pan-European strategies including senior and high-yielding lending through its new platform. Since 2009, Corestate’s Swiss subsidiary, Helvetic Financial Services, has provided mezzanine loans in Germany. Now, Corestate has a securities trading bank, meaning it can offer clients diverse debt options such as corporate finance and bond issuance.

US private equity firm Oaktree Capital Management is another organization exploring new avenues for European lending. Oaktree, which is majority-owned by Canadian firm Brookfield, has a well-established high-yield property lending business in Europe. But it is now backing Silbury Finance – a platform set up to provide mid-market residential development loans in the UK.

Silbury co-founder Matthew Pritchard told Real Estate Capital plans for the venture were in train before covid. But he added current conditions could exacerbate the undersupply of finance in Silbury’s target market, strengthening its proposition.

The increasing diversification of managers’ debt products means there is institutional capital out there for lending deals across the capital stack, although managers are likely to reserve it for lending against only the best properties during this volatile period.

We can expect to see investors allocate more capital to debt strategies this year. The 2021 Investment Intentions Survey, conducted by the European Association for Investors in Non-Listed Real Estate Vehicles, revealed non-listed real estate debt was the third most popular strategy by assets under management among investors for this year, up from fifth in 2020.

INREV attributed this shift to increased investor interest in debt in recent years and a gradual evolution of the European real estate credit market.

Although debt has crept up investors’ and managers’ agendas in recent years, the pandemic has made it an even more attractive prospect. In 2021, we are likely to see more organizations like Schroders and Corestate plow more of their resources into debt.