EfTEN CapitalEfTEN Capital


Ten million euros — a lot or not?

EfTEN Real Estate Fund III AS (to facilitate reading, Fund III) raised, in the initial round of a public issue of shares, exactly EUR 10,492,630 of new equity, which is a pretty solid amount to launch large-scale investments in cash-flow generating commercial property. Moreover, during the notarised foundation of Fund III, the management company’s partners had invested a total of EUR 3.3 million. Thus, the current equity investment capacity is EUR 13.8 million.

In its prospectus, Fund III stated that it will use bank loans of up to 65% of the acquisition price of a real estate investment. Thus, the total initial investment capacity of Fund III is approximately EUR 40 million with leverage, which is a very decent amount in terms of the Baltic market. While last year commercial property investments totalled over EUR 800 million in the Baltic States, the investment capacity of Fund III would give it a market share of about five per cent. Truth be told, this year the expected investments on the Baltic real property market will go beyond a billion euros.

If Fund III had raised maximum EUR 36 million during the initial issue, the management company would have faced a challenge of immediately investing such an amount—we are interested in rates of return for investors over long periods. That is difference between real estate advisories and us who are mainly interested in transaction taking place. EfTEN is known on the market as a conservative investor that does not offer the highest bid at public auctions. We are more specialized in off-market deals. In view of the current state of the real estate cycle, too much instant owners’ equity would certainly pose a problem. There is not an investor who would be happy to see their capital sitting on the Fund account, uninvested and not earning anything. On the other hand, the fund manager would rather avoid investment pressure that does not serve the long-term earning interests of investors. Thus, owners’ equity should be involved gradually and this starting position is absolutely suitable to start investing.

The first fund of EfTEN Capital, EfTEN Kinnisvarafond (vintage year of 2008), is the largest real estate fund in the Baltics with its gross assets of EUR 205 million, of which owners’ equity was EUR 92 million as at end of June. Our first fund has undertaken 13 share issues during the past seven years totalling EUR 63.6 million, i.e., just five million euros per issue. The reasoning has been the same—not to raise so much capital at once that cannot be invested in the foreseeable future.

As for the structure of shareholders of Fund III, here are some statistics that investors have showed interested in:

  • Fund III has 160 different shareholders. There are no institutional investors, only Estonian resident physical and legal persons. Fund III was not marketed to institutional investors as the terms of the fund where suitable primarly for retail investors. Fund III plans an IPO after the investment period ends within 3 years.
  • Of the share capital, 46.4% has been invested by the management company, EfTEN Capital’s partners (total EUR 6.43 million), 14.1% by investors not partnered with the management company but having a history of investing in other real estate funds of EfTEN (total investment in Fund III—EUR 1.95 million). The total investment of shareholders who are new to us was EUR 5.47 million and their post-issue share is 39.5% of the share capital.
  • 80% of share capital was invested by 18% of investors – the fans of Pareto principle find their truth again. A median investment for other investors was EUR 20,000.

Fund III might have immediately raised more owners’ equity (although, I would like to emphasise once more that this was not a goal of ours) but there were two objective reasons why it did not:

  1. Our offer was late by about a month since we were the first that made a public offer of an alternative investment fund, which is a complex instrument in legal terms supervised by Estonian Financial Supervision Authority. All parties related to the offer thus needed more time than planned. This was one of the reasons why our offer was essentially made on the Midsummer Night when a lot of people were already on holiday.
  2. Fund III is a start-up fund which as of today has no investments yet. In the real estate business, transactions are never discussed in advance but always post factum. Once we have made our first investments and put the capital in use, it is much easier to organise subsequent capital-raising rounds. Therefore it is logical that the first round of investors where mainly those who know fund managers personally or have invested in other fund of the same fund manager.

We are planning to make the next public offer in all three Baltic States and only after the initial capital has been successfully invested. The new share issue will be made on the basis of the net assets value of the previous month. Based on the results of our first fund, the share value, on which the issue was based, has been rising over the time:

– Issue of March 2011,                                         share price:          EUR 1.28

– Issue of June 2012,                                           share price:          EUR 1.59

– Issue of October 2013,                                      share price:          EUR 1.87

As the fund manager, it is important to stress that events that have occurred in the past can never be a proper guide for future, however as far as cash flows in real estate are concerned, with stable monthly rent earnings plus repayment of the principal of the loan to the bank, the increase of the share price is very likely. In addition the semi-annual real estate valuations, carried out by an independent appraiser, have a significant effect to fund’s NAV.


Viljar Arakas

Fund Manager of Fund III

CEO of EfTEN Capital

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