Cyril Hoyaux and Arnaud Heck

AEW and Ostrum Asset Management’s real estate lending platform is raising capital for a third fund as part of the joint venture’s European senior lending strategy.

The firms expect to raise €700 million within two or three closings of their Senior European Loan Fund III. The capital will be deployed in senior lending deals across Europe, excluding the UK. The fund’s target return will be in the range of 2.3-2.5 percent.

Cyril Hoyaux, co-head of the platform, told PERE sister publication Real Estate Capital that SELF III’s first close is expected to take place in early June. He did not disclose the amount of capital that is expected to be raised.

“We are very happy with the interest in the strategy we are seeing from investors,” said Hoyaux. “We are very optimistic about the fundraising. So far we have raised significant capital.”

SELF II, which AEW and Ostrum launched in March 2016, closed last June having raised a total of €550 million in equity. The fund gathered €162 million by its first close in May 2016. It is now fully deployed across 17 deals, generating a gross return of up to 2.5 percent.

Arnaud Heck, co-head of the platform, said of SELF II: “We outperformed in terms of yields, compared to what we announced initially to our investors, which was less than 2 percent.

“Our investors are happy with our track record and, for this new fund, they are increasing their investment allocations, while bringing along some new investors as well. We are seeing increasing appetite for the asset class, so we are confident we’ll meet the fundraising target.”

SELF III will follow its predecessor’s strategy of building a diversified pan-European portfolio of senior loans across different real estate asset classes. Two thirds of the commitments in SELF II were deployed in France and Germany, with the rest across Italy, the Netherlands and Poland. In terms of asset classes, the fund was invested mainly in offices, but also in high street retail, industrial, residential and data centers.

“Our strategy is to build a truly diversified fund, a mix between different geographies and asset classes, with the aim to create a low-risk portfolio of investment-grade quality,” Hoyaux said.

SELF III, like its immediate predecessor, will not target the UK, which was a core market for the first vehicle in the series. Hoyaux cited Brexit and the volatility of credit as reasons to exclude the UK market. However, the new vehicle will have the capacity to target more geographies than SELF II, such as Portugal and Ireland.

Through the new fund, AEW and Ostrum will deploy capital in deals with loan-to-value ratios of up to 65 percent. Maturities will typically range from five to seven years, though longer-term debt – of up to 10 years – may also be provided. Heck said that investors in the fund would all be from Europe, and predominantly from the insurance sector.

Hoyaux said the new vehicle, like SELF II, would deploy capital through direct lending and club deals – rather than by buying into syndications – in order to capture additional margin.