Citi is to fund the expansion of M7 Real Estate’s M7 European Real Estate Investment Partners III fund as the fund manager aims to enlarge the vehicle to €300m (£235m) under management.
The investment bank has already provided an initial loan of €85m to M7 to fund its €130m purchase of Dutch and German assets but the fund is expected to swell rapidly to a portfolio size of €300m, with several deals currently under offer.
Citi has provided initial finance, reflecting a 65% gearing level, on the current portfolio and it is intended that it will provide debt on similar terms for the remaining purchases, meaning it will have close to €200m of exposure to M7 REIP III.
Both Citi and M7 are increasingly looking to Europe for higher-yielding and higher-margin deals, as value-add transactional opportunities in the UK wane in light of aggressive pricing and the forthcoming EU referendum.
M7 will look to manage the portfolio intensively and take profits at an early stage where possible, a strategy reflected in the flexible terms Citi is providing to the vehicle – the first loan has a term of three years with the option of two further one-year extensions. The margin is in excess of 300 bps above Euribor.
The portfolio’s assets cover a total of 2m sq ft and span the office, retail and light industrial sectors.
They have been purchased from several sellers including Dutch bad bank Propertize.
M7 received investor commitments of more than €80m for the value-add fund following its first close in December last year.
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