Duet Private to launch EUR 118m listed mezzanine debt fund

Duet Private Equity has announced plans to launch a quoted mezzanine debt fund later this year to help fill a widening European commercial real estate financing gap. The Guernsey-incorporated closed-end fund, Duet Real Estate Finance, will be the first of its type to be traded on London's main market and will target a gross internal rate of return of 15%, Duet Private Equity said.

The vehicle, with a fundraising target of £100 mln (EUR 118 mln), will invest in mezzanine debt focusing on the 65%-80% loan-to-value layer in the capital structure, filling the gap between owner equity of about 20% and the 55-65% senior debt provided by banks. The company will plough all the net proceeds of its fundraising into the European Real Estate Debt Fund, which will invest in commercial real estate debt backed by income-producing commercial real estate assets primarily in the UK and Germany.

The offer will be made at an issue price of 100 pence per share, with admission expected for early March. Oriel Securities is acting as financial advisor and bookrunner. Duet Private Equity, part of the Duet Group, is investment advisor.

'Values of commercial real estate in Europe have been impacted by a lack of financing for commercial real estate from the European banking system, and the recent closure of the capital markets alternative,' Duet said. 'There is approximately EUR 950 bn of commercial real estate debt outstanding in Europe, the vast majority of which was provided by banks and is held on their balance sheets. Significant falls in asset values, increased capital requirements and the overall need to reduce balance sheet size are forcing banks to reduce their real estate exposure.'