GLOBAL – The New Mexico State Investment Council thinks there is a strong investment opportunity in European real estate debt over the next few years.

Vince Smith, deputy investment officer, said: "Our real estate consultant, the Townsend Group, stated in a board meeting that the real estate debt market in Europe is now 18 months to two years behind where the US is now.

"I agree with them, and there will be some strong investment opportunities for debt in Europe for a while."

New Mexico recently approved a $35m (€22.4m) commitment into M&G Real Estate Debt Fund II and III.

The commitments are split, with $22.5m for Fund II and the balance for Fund III.

The pension fund had stated in its investment plan for calendar year 2013 that it wanted to invest some capital in Europe, where opportunities could "last a while".

"It looks to me," Smith said, "like the current market situation will last for a while, and many of the banks in Europe will not be very active in the near term."

Townsend stated in a board-meeting document for New Mexico that the two commingled funds managed by M&G would aim to exploit the shortage of available debt by providing mezzanine and senior stretch loans to borrowers that no longer have access to traditional lending sources.

Fund II will target a low teens gross return by providing mezzanine loans in Europe with a loan-to-value (LTV) ratio of approximately 65:80.

Fund III will provide senior stretch loans with a high single-digit gross return target and an LTV of 50:70.

The debt provided by M&G will invest in the four main property types of office, industrial, retail and apartments.

The expectation is that at least 50% of the two funds will be invested in the UK.

The other two major markets of interest are Germany and France.

New Mexico has now made commitments on both the debt and equity side for real estate in Europe.

It invested $65m into the Perella Weinberg Real Estate Fund II in May.

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