European privately-held investment manager GWM is preparing the launch of a new European Special Situations fund targeting equity of around €600 mln, PropertyEU can reveal.
The fund, the third in GWM’s Special Situations series of opportunistic funds, will focus on investment opportunities above €50 mln including opportunistic lending, distressed sales, NPLs and UTP facilities in Western Europe. The vehicle will target net returns of 15%+.
The launch of fundraising for Fund III follows the completion of Fund II, which was launched at end 2018 with €520 mln of equity and completed its investment period in late 2022, with around 90% of commitments deployed plus substantial co-investments taken by LPs.
‘The strategy at the time of Fund II was primarily focused on distressed debt opportunities with the aim to repossess and manage the underlying assets,’ commented Gennaro Giordano, managing partner at GWM. ‘With the new fund, especially in the next 12 months, we expect to be more active in providing mezzanine lending and preferred equity, also complementing what the Credo fund (the group’s senior debt fund) is doing.’
Fund III will focus on good quality assets with good sponsors and in need of refinancing in situations where the bank cannot provide loans to the same extent as they did in the past.
Said Giordano: ‘We see a lot more opportunities now than just distressed sales. We will be looking to provide capital solutions to borrowers and help them close a funding gap. We also expect more NPLs and UTP loans and in general more sales triggered by the banks. Leverage nowadays is much lower than after the financial crisis so it can potentially trigger more asset sales.'
Fund III will be run by Gennaro Giordano and Matteo Cidonio from GWM’s London head office. The two executives also oversee the so-called Credo Fund (Commercial Real Estate Debt Opportunities), with the help of Guillaume Soule who joined from Blackrock as new head of real estate debt origination in May last year.
Credo Fund is a senior debt fund launched at the end of 2020 with target equity of €500 mln. The vehicle has made a total of four investments so far, including a debut €40 mln senior financing to asset manager Azora’s hospitality fund earlier this month. The loan funded the acquisition and refurbishment of a beach resort located in Tossa de Mar (Cala Giverola), Costa Brava, Spain.
Credo focuses on investments between €40 mln and €60 mln by providing senior debt with a maximum loan to value of 60-70% and secured by all real estate asset classes. It has so far invested in Italy, Spain and Ireland and is now looking to enter new markets starting from France, Germany and the Nordics.
‘Because of our cost of capital, the typical asset for this fund is a transitional asset, which due to its size or the phase it is in, is not ready to get the traditional bank financing,’ explained Giordano.
In this case of the Cala Giverola transaction, the Azora fund acquired the asset from a distressed buyer and needed some capex to upgrade the property and reposition a part of it as a luxury camping site, which for a traditional bank is a difficult asset class to get comfortable with, Giordano added.
Similarly, in Dublin, the owner of a new 3-star-plus 249-room Hampton by Hilton hotel in central Dublin had difficulties refinancing a construction loan with traditional banks due to the high loan-to-cost ratio of the loan before GWM’s Credo stepped in.
‘The difficult part was that the asset had just been completed and hadn’t opened yet. Also, the amount of debt requested was good in terms of loan-to-value but very high in terms of loan to cost. For a bank, this makes it a tricky deal,’ he noted.
