HIH is preparing the launch of its first debt fund following the appointment of Heino Betz as head of debt in August this year.
Betz, who joined the group from investment manager aam2cred and previously spent 14 years at Commerz Bank, talked to PropertyEU about his plans for the business – a new and expanding area for HIH.
PEU: What do you see as the priorities for the business in your new role as head of debt at HIH?
Betz: As head of debt at HIH, my most important task is to bring an attractive debt fund product to market for our investors and borrowers. This will be our first debt fund and we are pleased to be able to broaden our diversified product portfolio once again and to use our experience to serve our customers' needs with precision.
PEU: Is this a good time to get into real estate debt?
Betz: It’s a very good time to start a real estate debt fund business. Alternative lenders, especially banks, are challenged with huge additional regulatory requirements of higher equity deposits, which lower their possibilities of debt origination in the future. As a direct result of having to set aside more equity for investing in real estate loans, the credit margins of banks will increase. At the same time, banks show a higher risk aversion for certain kinds of financings. And most of the banks have already built large real estate debt portfolios. So as a result, real estate debt funds will become more interesting and more necessary for borrowers in the future.
Nonetheless, debt funds and banks will not be competitors at all, rather they will, whenever it is necessary, complement each other to complete the chain of economic value added to the underlying project. For investors, especially under the current market conditions, real estate debt offers a very good risk profile. In the near future debt yields will be higher than equity yields.
PEU: Could you provide a few details about the new fund?
Betz: Our first debt fund will have a volume of €300 to €500 mln and will be launched in the first quarter of 2023. It will be based on the requirements we have worked out with our customers. On the one hand, it will be aimed at HIH's existing investor base, which is familiar with our equity funds; on the other hand, we are targeting additional investors specifically focused on debt. The fund will mainly finance projects in Germany, but does not exclude investments in Austria and the Benelux countries.
Investments will be possible in asset classes that are well known to HIH on the equity side. So the focus will be on residential, office, logistics and healthcare. In terms of ESG requirements, we will use a similar scoring to our equity investments. Our first debt fund will fulfill the Article 8 criteria under the EU's Sustainable Finance Disclosure Regulation (SFDR).
PEU: what type of debt products will HIH and the new fund focus on?
Betz: Our first debt fund will mainly originate whole loans. Senior loans will also be possible, although we will be very selective in this sense. There are no typical returns in today’s high dynamic markets. But we are confident that we will find attractive returns for our investors, which will also enable attractive products for our origination business and our lending partners.
PEU: Is the company planning to enlarge the debt team in the near future?
Betz: Our plans are to have an efficient team for the new business. A proven debt specialist, Jan van Graffen, has already been hired in our Capital Management team. As the volume of new business grows, so will the debt team. We will also have synergies provided by our established equity business.
