Fiera Real Estate establishes European debt platform

Originally published by Evelyn Lee, PERE.

The firm which has hired two executives from Cheyne Capital to lead the business, sees opportunities arising from ‘a wall of refinancing’. Fiera Real Estate has launched a pan-European debt business, which will be led by two executives from London-based manager Cheyne Capital, Richard Howe and David Renshaw. The platform, Fiera Real Estate Debt (Europe), has already secured £250 million ($285 million; €290 million) in seed commitments.

The real estate arm of asset management firm Fiera Capital expects to close on its first real estate debt deal in Europe early 2023. The platform will be sector agnostic and focus on senior secured debt opportunities, initially in the UK and then select markets in continental Europe, according to Renshaw. The business will target well-capitalized sponsors with a long track record in a particular sector and underlying properties that are developmental or transitional assets.

Howe and Renshaw previously worked together for five years in the real estate debt team at Cheyne Capital. Prior to Cheyne, Howe held positions at European credit-focused asset manager Chenavari Investment Managers, Lloyds Banking Group and Anglo Irish Bank. Meanwhile, Renshaw worked at listed UK residential company Grainger, Frankfurt-based real estate firm Kintyre Investments and Lloyds Banking Group. They have over 30 years’ combined experience and have originated and underwritten in aggregate more than £2 billion of pan-European debt and equity investments.

The pan-European real estate debt platform complements Fiera’s existing real estate credit offerings in North America and Asia, Charles Allen, head of Fiera Real Estate UK, told PERE. “From a Fiera Real Estate point of view, it’s a great opportunity for us to offer further diversification opportunities for our underlying investors,” he said. “And in terms of a market point of a view, I don’t think the timing could have been much better.”

Allen expects to see a “huge” amount of opportunity in the real estate debt space over the next 24 months. “One of the big areas to watch out for is the wall of refinancing that’s going to be coming through,” he remarked. Borrowers that had an all-in cost of debt of 3 percent and now need to refinance will be facing an all-in cost closer to 7 percent.

“There’s a fantastic opportunity to be able to come in as an alternative lending source at a slightly higher LTV to fill in some of the capital hole that the sponsors have got and be able to make a very good risk-adjusted return on a core-plus style asset,” Allen explained. “And you’re not even necessarily taking development risk or any significant asset repositioning risk in order to get it.”

Howe pointed to a recent research report that forecast €24 billion-worth of refinancing’s in France, Germany and the UK between 2023 and 2025, which highlights the scale of the market opportunity.

Typically, at the end of the year, there are end of year valuations,” he said. “What that will invariably lead to is potential LTV breaches and interest covenant breaches. And my sense is where they can, banks will use that to deleverage. There’s going to be a huge market opportunity for fresh capital to come in and deploy into that space.”

In the UK, nonbank lending accounts for over 20 percent of the commercial real estate debt market, or roughly £54 billion, while it represents less than 10 percent of the overall market in Europe, according to Renshaw. By comparison, alternative lending is roughly 40 percent of the commercial real estate debt market in the US.

“There is an evolution taking place in Europe, not just because of the capital requirements and capital constraints that banks now face, making it more difficult to actually deploy commercial real estate debt,” Renshaw observed. “I think there’s a general journey which favours debt funds. Sponsors are becoming used to dealing with debt funds as opposed to banks, for a variety of reasons. You’re talking about higher execution certainty, quicker decision making, potentially a more commercial mindset. And that often outweighs the potentially higher pricing that you get from debt funds.”

Fiera Real Estate Debt (Asia) has £1.1 billion in assets under management while Fiera Real Estate Debt (North America) has C$770 million ($562 million; €570 million) in AUM. Fiera Real Estate managed $5.9 billion in assets globally as of June 30.

Click here to find out more about the new European Debt product.