Pramerica Real Estate Investors has completed a £492-million fund to provide financing for commercial property transactions on behalf of institutional investors in its closed-end Pramerica Real Estate Capital 1 Fund, the company has announced.
The investment has come from leading, global investment institutions including pension funds and sovereign wealth funds from North America, Europe, the UK and the Middle East. It is the largest discretionary, dedicated mezzanine debt fund launched to date in Europe.
"The extremely high caliber 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 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 its 'European Quarterly outlook (April 2011)', Pramerica, citing statistics from advisory firm Navigant, estimates 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 predicts that this could produce a funding gap (i.e. the difference between the current debt level and the amount banks are willing to refinance) of 18 billion in Europe this year, 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.
Pramerica will target experienced real estate investors focusing on medium to large public and private property companies, private equity funds and real estate investment managers. The discretionary nature of the fund will enable the team to move quickly to provide mezzanine lending for deals and give investors the potential to earn attractive returns.
Andrew Macland, Managing Director and Co-Portfolio Manager at Pramerica, said: "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."