€70m first closing for Caerus debt fund

One man who looked happy at the recent MIPIM conference in Cannes was Michael Morgenroth, the CEO of Düsseldorf-based Caerus Debt Investments, one of a new breed of German debt funds stepping into the market being vacated by several of Germany’s more traditional real estate lenders.

Barely nine months old, Caerus has now closed on €70m of equity for its first debt fund, Caerus Real Estate Debt Lux SICAV-SIF-Fund I, after receiving a commitment of €50m from major German insurance group Gothaer Versicherung, on top of the original €20m committed as a seed investment from Swiss private bank Reichmuth.

The debt fund, established under Luxembourg law and with that jurisdiction’s CSSF financial watchdog’s AIFM authorisation, has an actual target volume of €300m which it will concentrate on real estate financing with LTV ratios of between 50% and 80% - initially in Germany, Austria and Switzerland, but will be keeping a watching brief on opportunities in the Benelux countries. The minimum investment subscription in the fund is €10m upwards, and the target return is 6-7% annually.

According to Morgenroth, “We have now have achieved a volume of €70m at the first closing, which we now want to invest as soon as possible. We see this as confirmation of our view that institutional investors are increasingly discovering real estate debt as an attractive asset class for their portfolios.”

Morgenroth, a former chairman of INREV, has a history with Gothaer. Along with Caerus fellow founder Patrick Züchner, Morgenroth used to work with Gothaer Asset Management before moving to build up a debt fund for Signa Real Estate Advisory, a subsidiary of Austrian group Signa Holding. The two did a management buyout of the fledgling business last year and launched Caerus.

Separately, a report from Berlin-based rating agency Scope shows that the volume of debt funds targeting European markets has risen six-fold since 2012, but the trend is expected to slow down through 2014.

Scope identified a rise in debt funds from 6 to 31 over the past two years, targeting a fund volume that has risen to €29.4bn from €4.8bn over the period. The total planned target volume of all European debt funds is now about €33bn. While about half of this has been covered by promised equity commitments, less than 20% of the promised debt has been actually invested.

About 79% of the debt funds are being allocated to senior debt, with only 17% of the accumulated debt capital earmarked for junior or mezzanine tranches. Despite the focus on the less-risky senior loan segment, investors are still expecting an average return of 8-10%. Among geographic markets, the UK, France and Germany make up 92% of the target market for the funds due to their liquidity and transparency. Italy, Spain and the Netherlands have so far failed to attract much interest from the debt funds.

Scope sees the funding gap in Europe of about €500bn for 2014 and 2015 as providing further impulse for more debt funds, albeit at a slower rate of growth.