PAI holds first closing for new Nordic real estate strategy
Pareto Alternative Investments (PAI) has held the first closing of the new Pareto Real Estate Credit Fund (PREC), which will target first lien commercial real estate financing opportunities across the Nordics (ex Iceland) where borrowers are incentivised to improve the sustainability profile of the property and by doing so reduce risk on the investment and promote a more sustainable environment.
PAI has raised a substantial amount of capital to PREC in the first closing from leading institutional investors.
Morten Edvardsen, Head of Credit Investments at PAI, says: "We continue to see a large gap in the financing market for Nordic real estate which we believe represents an attractive opportunity for institutional capital to pick up risk premiums well above what the public investment grade market offers. For borrowers, the traditional bank market may not always offer the best terms, or be available at all, while the high yield debt market may often not be a good fit for non-recourse first lien commercial real estate financing. This leaves a large and diverse set of attractive investment opportunities for alternative lenders such as PAI. We have already established a pipeline of potential investment opportunities and expect to execute the first investment within 2020."
PREC is PAI`s fourth collective investment vehicle for real asset debt and the third vehicle for first lien commercial real estate debt financing. PREC is however the first investment mandate with a clear sustainability linked profile.
"While PREC has an opportunistic investment mandate in many regards, we strongly believe in incentivising borrowers to improve the sustainability profile of the property. There is ample capacity for financing in both bank and bond markets for what is already classified as "green" assets. PAI, however, believe there is significant potential and a low hanging fruit in reducing carbon emissions on existing properties, often with limited amount of capex required. From a sustainability viewpoint, reducing carbon emissions from existing buildings is in many ways more important than replacing them with new buildings. We try to work closely with our counterparties to identify meaningful and clear objectives to reduce carbon emissions and improve the sustainability profile. Our experience is that property owners also recognise the value of property sustainability improvements as it attracts tenants, reduces energy costs, raises the value of the property and promotes the environment," Edvardsen says.
Johan Anker-Rasch, Managing Director at PAI, adds: "While PAI has been an active lender to commercial real estate for some years now and already has an established portfolio of more than NOK10 billion of such investments, PREC represents a new and important milestone. We are proud and grateful for the continued trust from our institutional investor base. We are now expanding our investment universe to cover the Nordic market as we see the benefit of being able to source a more diversified deal flow. This also reflects PAI`s ambition to market PREC towards international investors. With PREC we can offer our investors a return profile which almost matches what you expect to see in the high yield market, but with first lien security in real estate and a clear sustainability link. In the current low interest rate environment, we believe this strategy will be attractive for our investors as the hunt for superior risk-adjusted return continues."