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Wyoming makes Euro real estate debt debut

The State Loan and Investment Board has committed £82 million to M&G Real Estate Debt Fund III, its first investment in European real estate debt, thereby reaching its target non-core allocation.

In its first foray into the European debt market, the Wyoming State Loan and Investment Board (SLIB) has approved an £82 million commitment to M&G Investments’ latest value-added fund. According to chief investment officer Michael Walden-Newman, the commitment to M&G Real Estate Debt Fund III has brought the SLIB real estate portfolio to its target non-core allocation of 3.5 percent. 

Board documents compared the structure of Fund III to two of Wyoming’s previous investments focusing on US real estate debt, the Cornerstone Core Mortgage Fund and the WestRiver Real Estate Finance Fund. Believing the European debt market to be similar to the state of the US market a few years ago, consultant RV Kuhns & Associates advised Wyoming to take advantage of the financing gap with a commitment to M&G.  Meeting materials described debt as “more time sensitive than equity” and cited that “European real estate debt provides some of the best risk-adjusted real estate return opportunities available today.”

Run by M&G Investments, a subsidiary of UK insurer Prudential, Fund III is targeting $500 million. The vehicle will invest in stretch senior loans with a loan-to-value ratio of 50 percent to 65 percent collateralized by commercial real estate assets in Western Europe, with a primary focus on the UK and a secondary focus on Germany. The fund has an expected gross internal rate of return of 8 percent to 10 percent with a gross equity multiple of 1.2x to 1.7x. Other investors in the fund include the New Mexico State Investment Council, which committed $12.5 million in August, and the New Jersey Division of Investment, which committed $125 million in May.

In 2010, the SLIB increased its overall real estate allocation to 7.5 percent, with a breakdown of 4 percent to core and 3.5 percent to non-core. Currently, the non-core portfolio has a value of approximately $265 million. In order to maintain its non-core target, Wyoming will invest an additional $200 million over the next few years. Most recently, it approved a $150 million commitment from to Northwood Investor’s evergreen fund, Northwood Real Estate Partners (Series IV). 

The SLIB is comprised of Wyoming’s five elected state officials: Governor Matt Mead, Secretary of State Max Maxfield, State Auditor Cynthia Cloud, State Treasurer Mark Gordon and Superintendent of Public Instruction Cindy Hill. The board oversees $11 billion in permanent funds as well as $5 billion in state operating funds, which invest in cash and fixed income only.