Pareto Alternative Investments AS ("PAI") launches Pareto Eiendomskreditt ("PEK"), a new credit structure for senior secured debt financing of commercial real estate in Norway. PEK will cover tenors up to 5 years and will be a complementary financing structure to Pareto Obligasjonsfellesskap Eiendom ("POFE"), which covers tenors between 5 to 15 years.
While POFE is a niche mandate targeting properties with the longer term leases and high quality tenants, we see a large financing gap in the broader market for commercial real estate debt in Norway.
Banks like to portray that they are active lenders, but the reality is that banks are only competitive for tenors up to 3 years, including steep amortisation profiles and flexible credit margins. The alternative for borrowers has been the public bond market, but for single property financing this is not a really good fit due to requirements of minimum amount, accounting standards and public reporting. In addition, a single property deal will typically be considered as a high yield investment, which implies that certain return hurdles have to be met as a function of the investor base, even if the underlying credit is of high quality.
Even if borrowers in principal can get debt financing from either banks or in the high yield market, the terms in many cases do not represent an attractive alternative for borrowers. With PEK we see the opportunity to fill this gap by providing bespoke debt solutions at attractive terms, tailored to meet the requirements from the broader market.
PAI believes senior secured real estate debt still represent an attractive asset class for institutional investors, given the overall asset inflation we see in the current market. In some cases the yield difference compared to buying the property itself is very tight, meaning the risk/reward is squeewed in favor of the debt provider. Due to the current financing gap in commercial real estate, institutional investors can harvest attractive risk premiums with relatively low levels of risk.
About PEK - Pareto Eiendomskreditt is a closed-end credit structure managed by PAI for investments in senior secured debt backed by commercial real estate in Norway. PEK targets tenors up to 5 years. The investors in PEK are Norwegian insurance companies and pension funds.
About POFE - Pareto Obligasjonsfellesskap Eiendom is a closed-end credit structure managed by PAI for investments in senior secured debt backed by commercial real estate in Norway. POFE targets tenors between 5-15 years. The investors in POFE are Norwegian insurance companies and pension funds.
About PAI - Pareto Alternative Investments AS manages a broad range of direct investments within real estate, shipping/offshore and credit. The company manages a total of NOK 12bn of equity, predominantly on behalf of institutional investors. PAI holds a license from the Norwegian FSA to manage alternative investment funds. PAI is a 100% owned subsidiary of Pareto AS and part of the Pareto Group, a leading independent operator in the Nordic market for financial services