Algebris on the road with second NPL fund – exclusive

The fund targets investments in the Italian NPL real estate market and is aiming to raise between €500m and €750m by October 2017.

Algebris Investments is eyeing up a final close of between €500 million and €750 million for its second fund targeting investments in the Italian real estate market.

So far, the firm has attracted €150 million in commitments to the fund that invests in non-performing loans (NPL) with an additional commitment due to be completed soon. The fund primarily focuses on residential properties, but also completes transactions in the commercial and hotel spaces and targets predominantly secured loans.

For Massimo Massimilla, chief executive of Algebris Italy, the number of opportunities are set to open up in the Italian market as the country’s leading banks continue to reduce their NPL portfolios following pressure from European regulators. “As announced in a number of business plans, banks are aiming to offload a significant amount of NPLs over the next 18 months. Transactions are getting bigger and the market is heating up,” he said.

This, coupled with a number of legislative changes, including the recent elimination of stamp duty on real estate auctions and a speeding up of the rate at which NPL books can be recovered through the judiciary, has made the market more attractive, Massimilla explained. “The reform has introduced the possibility to bid at 25 percent discount to the reserve price of the auction, reducing the time needed to reach the clearing price. As a result, NPL portfolios are more attractive and banks are able to sell their portfolios at a quicker rate.”

Massimilla said that the final close is slated for October 2017, but is expected to raise the capital by the first quarter of next year. It has a six-year life with a total investment period of three years. The preferred rate of return is 8 percent.

The second fund’s final close target is a step up from the previous fund, which raised €437 million from 22 institutional investors with two investors contributing 80 percent of the total commitment raised. The firm declined to disclose the identities of the anchor investors. Around 90 percent of the fund has been fully invested across more than 30 transactions. Notable deals include the acquisition of NPL portfolios from European banks such as Sparkasse, BPER and Deutsche Bank, which had nominal values of €300 million, €190 million and €170 million respectively.

While interest in the Italian market has been growing and a number of funds have been entering the market, Massimilla said that it is Algebris’s commitment to the long term, demonstrated by the firm having skin in the game and operating from an office in Milan, that gives it the edge.

“We’re here for the long haul and are not opportunistic. We plan to be in the asset class for the foreseeable future. Internal capital is 2 percent of the fund and we have a team of five based in Milan. This team leverages on the operations of a well-established specialist servicer with 20 people and an extensive real estate network across Italy. For every property we invest in, we’ve visited the location and understood the risk,” he added.