EfTEN Special Opportunities Fund

🚨 Disclaimer

EfTEN Capital AS is a fund management company focusing on commercial real estate investments in the Baltic States. EfTEN Capital AS has been granted a management license by the decision of the Board of the Financial Supervision Authority on 14.01.2009, and an alternative fund management license by a decision on 20.11.2014.

Established: 2008
Managed property funds: 6
Tenants: >1 300
Investors: >12 000 o/w 16 institutional

Managed assets (GAV): 1,1bn EUR
Managed properties: >60
Employees: ca. 60 (Est, Lat, Lit)

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efTEN currently manages eight funds (Dropdown)

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efTEN Funds Key Assets (Dropdown)

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efTen Core Team (Dropdown)

Special Opportunities Fund

EfTEN Capital is launching a new opportunistic strategy (the first one in the Baltics) fund: efTEN Special Opportunities Fund

All funds managed by the management company are alternative investment funds (alternative investment fund; abbreviated AIF) EfTEN Capital is the largest real estate fund manager in Baltic States.

Fund type: Estonian domiciled close-end limited partnership (usaldusfond)
Term: 5+1+1 years / 2 years investment period / Holding and divesting period: 3+1+1 years
Fees:

Management fee: 1,5% on invested capital (per annum)
0% on uncalled capital
Performance fee: 25% after full divestment
Hurdle rate: 10% per annum

Target return: 15%+pa (gross) / 11%+pa (net)
Risk profile limits:

Size of singe asset at purchase: max 25% of committed capital (max ca 5mio after 1st close)
Land plots: max 25% of committed capital

Leverage: leverage use is minimal and will primarily be used as a refinancing option when asset is brought out of distress

GP subsidiary of EfTEN Capital
Investing in assets and real estate projects in distress and/or additional capital need for the continuation of business plan
Where applicable, enhanced sustainability characteristics
Structuring of investments: equity and debt capital (preferably a hybrid)
Hands on approach and controlling the stake

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efTEN Capital funds and historical track record

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efTEN Track Record with distressed assets

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Rising interest rates – due to fastest increase in interest rates real estate sector (which uses a lot of leverage) is becoming under stress globally. With Euribor at 4+% levels, distress in property sector is likely to intensify.

Availability of capital – real estate sector is under stress globally and no new foreign capital is currently seen to enter the Baltic property market. It has already become significantly more difficult to roll-over debt financing as banks are tightening credit standards. EfTEN Capital has started to receive an increasing number of offers to become a “financing partner”.

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Transaction volumes – transaction volumes have plummeted in residential and commercial real estate. During H2/2022…H1/2023 there were almost no significant commercial property transactions in the Baltics.

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Property prices & default rates – most listed real estate assets have fallen in price. Assets with higher leverage ratios have received more punishment. Asking prices in unlisted markets have only shown first signs of falling, but decreasing transaction volumes are generally a leading indicator. Default rates in property market most risky corners of crowd financing have started to increase.

Investment case - for investors with little liquidity constraints current situation will open- up opportunities to purchase real estate assets in distress or in additional capital need. This can be executed either through equity or through providing project debt financing.

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Cooperation with banks – non-performing bank loan assets are natural candidates for the fund. Baltic banks have indicated their strong will to be a sourcing channel for such assets (instead of establishing own bad-asset units like during the 2009 crisis).

Management – EfTEN Capital, as the most successful and largest real estate manager in the Baltics, is best positioned (sourcing, deal making, restructuring, exiting, etc) to exploit the arising opportunities and deliver on them.

Investment process

efTEN Special Opportunities Fund is looking to obtain Direct Control after acquisition

efTEN Special Opportunities Fund is aiming for 50+1..80% of ownership

Sourcing of investments: personal relations, open offers, contacts with banks

IC members

Preliminary analysis: short memo

IC (unanimous) decision to proceed/not to proceed

Extensive DD-s

Legal DD – internal or external (depending on the nature of investment)
Technical DD – generally external
Financial DD – internal

IC unanimous decision
Follow-up

IC members meet weekly via conference calls and physically at least once a quarter to discuss the status of the investments made

Exit: personal relations, open offers

IC (unanimous) decision to dispose/not to dispose

Sustainability

EfTEN Special Opportunities Fund will promote ESG aspects in acquired assets (article 8) where applicable

Gathering of sustainability data
Sustainability performance assessed and (short-term) sustainability plan outline
Sustainability principles in maintenance and CAPEX where relevant
Green leases in tenant lease agreements where relevant

EfTEN Fund 4 and 5 are article 8 and GRESB assessed

EfTEN 4 received 5 stars in 2023 (up from 4 stars in previous years)
ETEN 5 will be assessed next year

EfTEN Special Opportunities Fund has the exclusion list of sectors and assets where it is not investing in

efTEN Special Opportunity Fund Sample Transactions

Transaction 1

Development (Projesta Group) of up to 8 retail centres in secondary towns of Lithuania (Alytus, Utena, Marijampole, Silute, Radvilskis, Taurage, Sirvintos, Telsai)

Overview

Volume: up to 58m EUR

Expected equity (deal size): up to 17m EUR (ca 2m EUR per property)

Expected bank financing: 60% of development cost

Deal Structure

Fixed rate loan (2nd rank mortgage): 15% p.a.

Equity upside: on exit

Project Details

Development cost: 1 750 EUR/sqm

Average rent: 13,0 EUR/sqm (triple net)

Exit yield: 7,5%...8,5% (depending on location)

Tenants (signed): Maxima, IKI, RIMI, Pepco, Sinsay, Deichman

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Retail centre cash-flow forecast (mio EUR)

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Sample Transaction 2

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Sample Transaction 3

Fundraising Status