EfTEN Special Opportunities Fund

EfTEN Special Opportunities Fund

image
image

🚨 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)

efTEN currently manages eight funds (Dropdown)

  • EfTEN Kinnisvarafond II AS (founded in 2015), targeted mainly for institutional investors. The fund follows core and core plus investment strategy. Funds investment region is Baltic States capitals.
  • EfTEN Real Estate Fund AS (founded in 2015) is a public closed real estate fund, targeted mainly for retail investors. The funds investment strategy is value added and opportunistic. Funds investment region is Baltic States.
  • Usaldusfond EfTEN Real Estate Fund 4 (founded in 2018) is alternative, closed-end investment fund. The fund follows core and core plus investment strategy.
  • Usaldusfond EfTEN Real Estate Fund 5 (founded in 2021) is alternative, closed-end investment fund. The fund follows core and core plus investment strategy.
  • EfTEN Residential Fund usaldusfond (founded in 2020) is alternative, closed-end investment fund. The fund invests in real estate residential in the Baltic States.
  • Usaldusfond EfTEN Special Opportunities Fund (founded in 2023) is alternative, closed-end investment fund. The fund follows core and core plus investment strategy.
  • EfTEN United Property Fund
  • PE FoF usaldusfond

efTEN Funds Key Assets (Dropdown)

image

efTen Core Team (Dropdown)

Viljar Arakas - Fund Manager / EfTEN Capital co-founder and CEO since 2008; Fund manager for all EfTEN funds. Former CEO of Arco Vara, leading real estate company in the Baltics; CEO of Arco Transport (22 years industry experience)

Tõnu Uustalu - Investment Manager / EfTEN Capital co-founder and CIO since 2008; Fund manager for all EfTEN funds Former portfolio and investment manager of East Capital; SEB Corporate Banking and RE financing (28 years industry experience)

Maie Talts - Head of Legal / Co-Founder and Head of Legal since 2008 Former lawyer and head of the legal team of Arco Vara, leading real estate company in the Baltics (27 years of legal experience)

Marilin Hein - CFO / Co-Founder and CFO since 2008 Former Chief Accountant of Arco Vara, leading real estate company in the Baltics; Chief Accountant at legal firm Luiga Mody Hääl Borenius (28 years of financial experience)

Viktors Savins - Head of LV / EfTEN Latvia Country Manager since 2013 Former Partner and CEO of Arco Development and SIA Arco Real Estate’s real estate brokerage, valuation and property advisory unit in Latvia (22 years industry experience)

Laurynas Žilys - Head of LT / EfTEN Lithuania Country Manager since 2015 Former partner of CREalty advisors; Head of Investment Department at Colliers Lithuania (19 years industry experience)

Special Opportunities Fund

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

icon
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

efTEN Capital funds and historical track record

icon
Return on invested capital (ROIC): 11%...20%
image
image

efTEN Track Record with distressed assets

In addition EfTEN Capital purchased in Dec 2008 a portfolio of 14 distressed or semi-distressed assets (primarily located in secondary towns in Estonia). The portfolio was successfully brought out of stress and exited the result of 12% annualized return since portfolio’s lifetime (2004-2023)

image

image

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.
image
  • 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”.
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.
image
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.
image
  • 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.
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).
image
  • 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

icon
efTEN Special Opportunities Fund is looking to obtain Direct Control after acquisition
icon
efTEN Special Opportunities Fund is aiming for 50+1..80% of ownership

  1. Sourcing of investments: personal relations, open offers, contacts with banks
    • IC members
  2. Preliminary analysis: short memo
    • IC (unanimous) decision to proceed/not to proceed
  3. Extensive DD-s
    • Legal DD – internal or external (depending on the nature of investment)
    • Technical DD – generally external
    • Financial DD – internal
  4. IC unanimous decision
  5. Follow-up
    • IC members meet weekly via conference calls and physically at least once a quarter to discuss the status of the investments made
  6. Exit: personal relations, open offers
    • IC (unanimous) decision to dispose/not to dispose

Sustainability

  1. 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
  2. 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
  3. 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

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

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

Retail centre cash-flow forecast (mio EUR)

image

Sample Transaction 2

icon
Reconstruction (Etapas Group) of amortized office complex in Kaunas (Savanoriu 339B)

Overview

GLA: 7300 sqm

Expected equity (deal size): 3…4m EUR

Development cost: 13m EUR

Project details:

Development cost: 1 770 EUR/sqm

Average rent: 13,5 EUR/sqm (triple net)

Exit yield: 7,5%...8,0%

Exit price: 15,5-16,5m EUR

Tenants (signed): Cognizant

Sustainability impact: potential effect on bank financing

Deal Structure

Fixed rate loan (2nd rank mortgage): 12% p.a.

Equity upside: on exit

image

Sample Transaction 3

icon
Developer of headquarter for Wise in Tallinn has a 10m EUR financing gap.

Overview

Wise, London listed fully profitable EST founded fintech

Developer: Invego OÜ

Development: A+ class 30k m2 office (2 buildings)

Development cost: ca 51mio EUR

Terms:

Rent agreement: 10y unbreakable with Wise

Annual exp NOI: 4,9mio EUR (ca 16 EUR/m2 for upper ground office areas)

Wise invests 10mio EUR into fit outs – compensates upon moving-in

Banks are willing to lend 10mio EUR less as compared to autumn 2022 indications

Developer is looking for 10m EUR 1,5y bridge

image
image

Fundraising Status

image