GII, Capital Bay launch senior living JV, following debt fund

The UAE-based, shariah-compliant financial management firm, is teaming up with Germany's Capital Bay Group to invest in European senior living real estate.

The new Luxembourg-regulated platform will launch in September this year with an initial €500 million offering focused on real estate investments, predominantly in core-plus and valued-added income producing and growth properties located firstly in Germany, and potentially in other European markets.

The platform’s debut offering is targeting a first closing in the fourth quarter of 2021, funded by both debt and equity.

The expectation is that a growing senior population in Germany and Western Europe will lead to an increased demand for all forms of senior living, assisted living, healthcare and specialised clinics for elderly people in the future.

According to Mohammed Alhassan, GII's founding partner and co-CEO, "The development of attractive investment opportunities in the European senior living real estate market, enables our MENA-based investors to participate in this highly desirable asset class which would otherwise be difficult to access from the region.”

Rolf Engel, group CFO of Capital Bay Group and CEO of Capital Bay Fund Management, Luxembourg, said: “A growing senior population in Germany and Western Europe will lead to an increased demand for all forms of senior living, assisted living, healthcare and specialised clinics for elderly people in the future.

"With our platform and network, we are delighted to offer GII, a successful and experienced global investor, the opportunity to enter and participate in this fast-growing market segment, and create the urgently needed supply for this asset.”

Engel added that the German healthcare market, extensively fragmented with more than 2,000 operators, predominantly managed by private investors running two to three nursing homes on decentralised sites, represents a particular hurdle for would-be newcomers to the market. Hence the need for a foreign investors to team up with a local specialist.

Capital Bay founder and CEO George Salden, never one to knowingly undersell his company's strengths, stressed the long-term outlook of the platform and its focus on managing-to-core and upgrade-to-core investments. “Our tailor-made platform allows us to act locally for our society and community by joining hands with established international capital. We truly believe that this offering will deliver superior risk-adjusted returns to investors around the globe”.

Capital Bay, with assets under management of nearly €6 billion and GII, with an AUM of over €2 billion, will be jointly responsible for all aspects of the platform, including the investment strategy, portfolio and asset management, the companies said.

Separately, in early August, Capital Bay launched a new open-ended debt fund under Luxembourg law, starting by taking over an initial portfolio of loans in London and major UK cities originated by London-based specialist lender EVH Finance, who will remain the fund's nominated advisor. This first issue involves a loan volume of nearly €400m, including individual financing commitments of between €13m and €79m.

The Capital Bay Europe Secured (CBES) Whole Loan Fund is targeting a value of €1.5bn which it will flesh out with a pipeline of new loans on development projects in Germany, and then later France and Italy. The target IRR is 6-8%, and the minimum investment from institutionals is €10m.

Capital Bay's CFO Engel said that Germany will be the priority market, primarily residential and micro-living, but also construction and development of healthcare and senior living assets - but avoiding speculative development without pre-lets. The fund will focus on Whole Loans, which enable developers to finance up to 80% of a project from one lender.

"We are a One-Stop Shop, which is a great advantage for developers, who more or less chronically suffer from financial bottlenecks", he said.

“We have seen during the corona pandemic that traditional bank financing has declined, especially for project developments, due to the uncertainties in the market and regulations such as Basel III. Project developers are increasingly turning to whole loans from alternative lenders to finance their projects.” The CBES Whole Loan Fund was created in response to this demand, he said.

With banks stepping back from financing development due to the prevailing much stricter regulatory regime, mezzanine finance providers had stepped up to fill in the funding gap. "Whole Loans are more attractive for borrowers, particularly developers, than bank loans and mezzanine top-ups, and are much less labour-intensive", said Engel.

He said he expected the fund to have lent a further €300m to €400m by the end of this year, with particularly investors from Asia and the Middle East showing "an enormous appetite" for investing in the fund, which to date has largely been underwritten by German and UK investors.