An American fund has raised $1 billion to buy real estate in Europe, anticipating that prices will fall.

American fund King Street Capital Management is betting heavily on the decline in the value of real estate assets in Europe, after a period in which real acquisition opportunities were limited. The firm recently raised almost $1 billion for its second fund dedicated to special situations in the European real estate market. “We have never been more active in the European real estate market than we are now, and this is the most dynamic window of opportunity since the financial crisis,” said Paul Brennan, one of the fund’s partners, quoted by Bloomberg.

The fund anticipates big problems in the European real estate market

The company, which manages $29 billion in assets, is betting on the problems that are starting to appear in the European real estate market. In recent years, King Street has managed to acquire valuable assets in times of crisis, through an in-house team specialized in restructuring and a good knowledge of European bankruptcy law.

A successful example was the takeover of the famous Hotel Bauer in Venice, part of the bankrupt Signa empire. The firm bought debt secured by the property, used a legal mechanism in Luxembourg to take control, and quickly sold the hotel for over €300 million: “We focused on one asset where we had real structural protection and channeled all our efforts there,” Brennan explained.

King Street has also taken advantage of other one-off opportunities in recent years. It financed the McLaren Technology headquarters, a futuristic complex designed by the famous architect Norman Foster, in the midst of the post-pandemic crisis and offered almost £200 million to refinance a luxury residential project in London, at a time when banks exposed to the Chinese market wanted to withdraw. The transaction was generated through Asia, allowing the firm to obtain an interest rate double that of a similar one in London.

Hard-to-access assets hide the greatest value

The American fund currently invests in urban warehouses in France, Germany and the Netherlands and has a portfolio of 5,500 rooms in student dormitories in Spain, Portugal and Italy, with plans to expand to 7,500 rooms by the end of the year.

In the Italian hotel market, the company became an important player, financing the renovation of the Danieli and Four Seasons hotels in Venice, as well as the transformation of offices in Rome into the first W hotel in the country, later sold to the Canadian sovereign pension fund for a record amount.

“There are a large number of family-owned assets, with insufficient capital, that are difficult to access, but that is exactly where the value lies,” revealed Paul Brennan, stating that “it takes time and relationships, but when you succeed, the reward is compelling.”

The real estate crisis is just beginning, warns the fund

In London, the firm refinanced the Arlington House building, next to the Ritz Hotel, this year, which was in difficulty after the sudden increase in rates, and the last notable transaction was the financing of a package of projects by the luxury group Cipriani.

Brennan argues that the real problems in the housing market in Europe they have not really exploded yet, and the most active period in terms of investment is yet to come. In the years when interest rates were very low, many borrowed money cheaply and made risky investments, and European interest rates have risen or are set to rise, making loans increasingly difficult to repay. Although we are not yet seeing major crashes, signs of financial stress are beginning to appear: “A large part of the capital invested in the zero interest rate era is still facing the effects of rate readjustments. The problems have not been solved, they have only been postponed. And now we are seeing the first signs of stress.”