‘A substantial inventory of debt at a very cheap cost has been piling up over recent years and needs refinancing,’ says Maxime Laurent-Bellue, head of tactical strategies at Tikehau Capital. ‘This is one of the themes that will dominate the next few years,’ he warns.
Tikehau Capital, a global alternative asset manager with roughly €40 bn of private credit, private equity and real assets under management, has just launched a new platform focused on real estate debt to take advantage of growing opportunities in the financing space.
Tikehau Capital is teaming up with French property group Altarea to launch the venture, with both partners contributing €100 mln each. The aim is to grow the strategy to a volume of €1 bn in the near future, Laurent-Bellue says. ‘We anticipate that the opportunities in this space will be substantial and we want to address them properly with this new strategy,’ he comments.
With banks being compelled to pull back from real estate lending in the face of falling values and the imminent introduction of new Basel III rules, opportunities in private debt are expected to grow enormously, according to Laurent-Bellue. ‘We are expecting an increasing gap in funding that is being driven by a dramatic change in the environment both in terms of the cost of debt and the valuation of the underlying assets. We think that, against this background, traditional lenders will continue to step back and the financing gap will increase as a result.’
NATURAL PLAY
Tikehau Capital had been considering launching a strategy fully dedicated to real estate debt for some time, notes Laurent-Bellue, who runs the new strategy. ‘This is a natural extension for us as a fund manager active in both private credit and real estate but the accelerating factor has undeniably been the environment which has evolved dramatically in the recent past.’
Although the world of private debt has shown incredible growth on the back of the global financial crisis, Tikehau Capital believes there is still plenty of room for new participants in this market. ‘We talk to asset owners and they are worried about their financings and how to secure new debt. The market is still in a wait-and-see period, with landlords caught up between a mix of denial and progressive price discovery on asset values across all asset classes.’
Under the new partnership, Tikehau Capital will manage the strategy with Altarea, a local real estate developer and investor, acting as exclusive advisor to identify new opportunities.
The new platform will aim at bridging an anticipated wide liquidity gap in the market across a range of property types including office, retail, industrial, residential, logistic and hospitality, with an exclusive focus on Western Europe. It will aim to address a broad array of situations by providing funding to real estate sponsors and corporates, with a primary focus on asset-backed and traditional corporate financings, notably through junior mezzanine or so-called whole loan debt instruments - a hybrid between senior bank credit and mezzanine debt which puts investors in a better position to recover funds in case the borrower struggles.
The strategy will target loan to value ratios between 50% and 75%. These loans may be originated in the primary market as well as acquired as secondary facilities and portfolios from existing lenders.
For now, the focus is on refinancing rather than lending against new deals, largely because few transactions are happening, says Laurent-Bellue. ‘Deal flow has been relatively quiet recently due to lack of transactions, but there is a massive opportunity opening up in the near term with a likely liquidity crunch ahead.’
Tikehau Capital has a growing deal pipeline with opportunities currently building up in France, Italy and the Benelux. ‘We believe that this platform could offer investors attractive returns while providing much-needed financing solutions for European property owners and developers, in particular in an environment where interest rates are rising sharply and liquidity dries up.’
