INTERVIEW: TH Real Estate to bring debt strategies to mainland Europe

Asset manager TH Real Estate plans to start lending in Continental Europe this year after being active exclusively in the UK since launching its debt platform in 2014, according to Christoph Wagner, director of debt strategies at TH Real Estate.

The London-based debt team currently manages around £500 mln (€634 mln) worth of real estate-secured loans, across a senior and junior lending mandate for the TIAA parent group as well as a UK debt fund opened to third-party investors.

‘We are looking to grow the platform this year both geographically and in terms of assets under management,’ Wagner told PropertyEU in an interview.

The company will initially focus on senior loans for its separate account in countries such as Ireland, the Netherlands, Germany, France and Spain, added Wagner. ‘These geographies offer good opportunities from a lending perspective and TH Real Estate already has a direct property investment business in place in these markets. We have already started the groundwork, we have gotten comfortable with the legal environment, and we believe we will complete our first non-UK financing transaction over the course of the year.’

The company’s senior lending mandate focuses on senior loans with a term of five to 20 years, secured by institutional quality assets, and with a loan-to-value ratio of up 65%. Recent financing deals in London include a £275m 10-year loan provided jointly with MetLife for a large office property in London’s Victoria submarket.

In total, TH Real Estate completed over £500 mln of financing deals last year and is looking to maintain or exceed this level of activity in 2016, said Wagner. ‘We are working on a number of transactions, but they are still at an early stage, so it is difficult to predict when the first Continental European deal will take place. But absolutely, by the end of the year we should have completed a number of transactions outside the UK.’

He continued: ‘One of the key attractions of real estate secured debt is the current low interest rate environment, investors look at the yield they get on their publicly traded fixed income portfolios, and they realise that private market debt currently provides a very attractive return. The low interest rate environment should stay for the medium term so real estate debt will continue to offer an attractive premium over bonds for some time.’

TH Real Estate’s senior and junior lending strategy is complemented by its UK Enhanced Debt Fund, which raised £138 mln of equity at first close in December 2014. The capital was committed by TIAA-CREF, TH Real Estate and Aviva Investors Real Estate Multi Manager. The fund targets net returns of 6-7% IRR with a 6% distribution yield.

The six-year fund invests in whole loans and selective mezzanine loans up to 75% loan-to-value ratio. Loan origination is focused on prime and strong secondary assets, as well as well-positioned regional assets in the core-plus and value-added sectors of the UK market.

‘The fund remains open to third party investors and we are in talks to increase its size in the near future,’ commented Wagner. Although the group does not have a concrete proposition for a European fund yet, he does not rule out that this option could be evaluated towards the end of the year. ‘But whether it would be this exact strategy, we do not know yet,’ he added.