Stoneshield holds €100m close for core-plus PBSA fund

In just over a year, the manager has raised €600m to invest in student accommodation assets across Southern Europe.

Luxembourg-based manager Stoneshield Capital has held a closing for its open-end fund focused on purpose-built student accommodation assets across Southern Europe. The firm has now raised more than €600 million for its European Student Accommodation Core Fund, which was launched in March last year.

The manager raised around €100 million in equity commitments for the fund in April. According to Juan Pepa, Stoneshield co-founder, the long-term objective for the ESAF fund is to exceed €2 billion in total commitments.

Investors in the fund include pension funds, insurance companies, sovereign wealth funds and asset managers from Europe, North America and Asia. The firm targets a core-plus return for the fund’s investments of 10 percent IRR and a loan-to-value ratio of 30 percent.

ESAF’s portfolio, which comprises 46 PBSA assets representing around 10,000 beds across 18 different locations in Spain and Portugal, has a gross asset value of more than €1 billion. Assets are operated by MiCampus, a PBSA operating platform backed by Stoneshield.

“Our bread and butter is to create private equity companies backed by hard assets. Operational real estate investments offer a higher return premium,” said Pepa.

Pepa: Southern Europe PBSA is a deeply undersupplied market

Recent single-asset acquisitions for the fund have ranged between €20 million and €30 million in size. Most recently, the firm acquired two new, fully occupied student residences in the Asprela Campus in Porto in a deal valued at €50 million.

“Southern Europe PBSA is a deeply undersupplied market in the same way the UK market was in terms of provision ratios 20 years ago, requiring extensive long-term capital investment to meet the excess demand,” said Pepa, explaining why an evergreen core-plus fund was deemed best suited to investing in this particular market.

Amid an 11-year low for private real estate fundraising overall, strategies at the lowest end of the risk spectrum for closed-end vehicles have been particularly challenged, PERE data shows. Capital raised for core and core-plus strategies combined declined significantly in 2023, falling more than 50 percent year-over-year. Their share of total fundraising also declined from 14 percent in 2022 to 11 percent last year.

The European residential sector is benefiting from clear tailwinds, said Pepa of the fund’s ability to attract capital in this challenging environment. “Regulated markets across Europe are mitigating the inflation protection of traditional residential markets, whereas ESAF is offering our investors very stable, inflation-protected yield in a non-regulated market,” he added.

Morenés: now, PIGS can fly

Felipe Morenés, the firm’s co-founder, said: “ESAF was also formed in this new, higher rate environment. This is a clear differentiation versus legacy core funds that have to adjust valuations to reflect the higher rates scenario.” Pricing in the PBSA market in Southern Europe has remained resilient, he added, with double-digit net rental growth offsetting cap rate expansion across most markets.

ESAF’s investments are backed by Morgan Stanley and local Spanish and Portuguese banks, said Morenés. “The stronger macroeconomic outlook for southern Europe when compared to the rest of Europe – double the GDP growth, half the inflation levels, the independence from Russian gas – and the clean balance sheet of the local banks is a completely different picture to what it was post-global financial crisis. At the time, these countries were referred to as the PIGS [Portugal, Italy, Greece and Spain]. Now, PIGS can fly.”

UBS Investment Bank’s real estate private funds group acted as lead financial adviser and placement agent for the ESAF fund. PJT Parkhill acted as placement agent and Eastdil Secured acted as real estate and financing adviser. Linklaters and Maples Luxembourg acted as legal advisors to Stoneshield.

Stoneshield was founded in 2018 by Pepa and Morenés, both former partners at US opportunistic real estate manager Lone Star Funds.

According to PERE data, Stoneshield closed its second closed-end fund in November last year, having raised $600 million for Stoneshield Southern European Real Estate II. Through the opportunistic fund, the firm targets distressed and highly discounted transactions in Southern Europe, primarily across alternative sectors including student and senior living, data centers, life sciences and industrial outdoor storage, as well as logistics.

The firm is raising capital for the third vehicle in the closed-end opportunistic fund series, according to PERE data. Stoneshield Opportunity Fund III has a target size of $750 million, and has attracted $518 million toward its target, per a filing with the US Securities and Exchange Commission dated February 26. Stoneshield declined to comment on the fundraise.