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Starwood Capital’s SWEF seeks to expand investment into Spain and Italy

Starwood Capital’s European real estate debt fund, Starwood European Real Estate Finance Limited (SWEF), is seeking shareholder approval to expand its commercial property investment policy to include Spain and Italy and its residential remit to four additional European markets including Ireland.

Steve Smith, the former British Land chief investment officer and current chairman of SWEF, wrote to shareholders yesterday proposing the major investment policy expansion would “future proof” the overall strategy ahead of future capital raising for the nearly fully-invested listed debt fund.

Spain and, to a lesser extent, Italy are increasingly returning to the forefront of opportunistic investors’ radars, with both equity and debt investors eager to capitalise on the nascent recovery ahead of a broad price discovery in the markets, which will lead to greater stabilisation and, eventually, a price rally.

Smith’s letter to shareholders stated: “The Board believes that this is justified in light of improving market conditions, the fact that opportunities have arisen in which the company has been unable to participate, notwithstanding that the transaction would have been acceptable on a risk/reward basis and the increased liquidity in the market which offers greater likelihood of a successful realisation.”

While it is not explicitly confirmed in the circular to shareholders, one of the Spanish opportunities for which Starwood Capital, SWEF’s investment manager, could be referring to and was previously targeting was Commerzbank’s disposal of the its legacy €4.4bn Spanish commercial property lending business in the formerly-named Eurohypo subsidiary.

CoStar News revealed on Monday that Commerzbank has selected four joint venture consortiums to progress to the second round of the Spanish property loan platform sales process, dubbed Project Octopus.

Starwood Capital’s joint venture bid with Goldman Sachs’ Special Situations Fund did not progress to the second round on Project Octopus, however, had it done so and eventually won, SWEF would have likely been employed for refinancing opportunities which arose from the portfolio.

To read the full story of who progressed through to the second round on Project Octopus, please click here.

Smith’s letter continued: “The occupational real estate markets in Spain and Italy have shown tentative signs of recovery and investment demand has also significantly increased as both opportunistic and core investors have sought exposure.

“Whilst any investment in Spain or Italy would be approached with caution, the Board believes that the company should have the ability on a selective basis to identify balanced risk return opportunities in these countries if and when they arise.”

SWEF’s focus in Spain and Italy is expected to centre on the commercial property sector, while shareholder approval is also being sought invest beyond UK residential into Ireland, Sweden, Holland and Germany.

SWEF’s Smith described these four residential markets as offering “an opportunity to benefit from continued population growth and/or sector recovery strategies and hence a moderate increase of the current investment limit is being sought”.

In its proposals to shareholders, SWEF stated it will not use these extended investment powers until the net proceeds of the IPO are substantially fully invested.

An Extraordinary General Meeting to pass these proposals, along with technical changes to SWEFs corporate borrowing policy, on 2 May 2014 at 12:15pm GMT at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL.

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