Alternative financiers are expected to consolidate their position in the European market over 2023 following a period of widespread retrenchment by the major banks, according to Nunzio Laurenziello, head of debt at Generali Real Estate.
'Lenders are focusing on core deals and being very selective because they are looking to reduce their exposure to commercial real estate,’ Laurenziello told PropertyEU in an interview. ‘There is definitely more space for alternative lenders to be active and as a result, we are seeing several US asset managers for instance entering the market. Continental Europe in particular does not have a high level of penetration by alternative lenders in the debt market as is the case in the UK and I believe 2023 will be a good year for alternative lenders to increase their share in the total real estate debt market.’
Laurenziello manages Generali Real Estate’s second debt fund, Generali Real Estate debt investment fund II (GREDIF II), which has just hit the market with a target size of €1 bn.
The vehicle has raised €500 mln from different companies within the Generali Group and is now open for investment by third party institutions. ‘Considering the low loan to value ratio and the security package of the loans, this type of asset class has a very low capital absorption for insurance companies and has an interesting risk return profile for institutional investors,’ Laurenziello said.
Compared to the group’s maiden debt fund, which launched in 2019 with €1.45 bn of commitments, fund II is targeting a smaller volume to allow the group to launch vehicles of different vintages going forward. Laurenziello: ‘The lending market has changed significantly and it continues to change so fast that we are planning to launch different vintages in order to be more aligned with both market sentiment and what the investment market requires.’
While Generali’s first two debt funds focused on senior loans, it does not rule out investing in both whole loans and mezzanine debt in the future. Laurenziello: ‘We really believe in the senior strategy, and we are monitoring the market to understand if there could be appetite for mezzanine or whole loans in the European market.’
GREDIF II focuses on senior debt investments with a loan-to-value of up to 60% at variable rates as well as with an ESG angle. The fund targets investments in the €40 to €60 mln range, located in Continental Europe and particularly on markets such as Italy, France, Germany and Spain, with a minor allocation to the UK.
‘In terms of asset classes, we are focusing on logistics, centrally-located offices and retail as well as living, with a core plus/value add risk profile,' Laurenziello noted. 'We are looking to finance transitional assets from brown to green and refurbishments that will allow the borrower to reach a high ESG standard. We are not so keen on financing core assets considering that in this type of arena the margins are extremely low.'
The vehicle has closed its first transaction in France by joining forces with two major French banks to finance a mixed-use scheme in the Triangle d’Or area of Paris. The asset is planned to be refurbished with a portion of the loan being reserved for a capex programme on the asset. ‘Although the start of the year is often very quiet and especially this year considering the volatility of interest rates, we have lined up a number of transactions in the logistics market and some in the Private Rented Sector market in Italy and in Europe,’ Laurenziello said.
