First close for sustainable real estate mezzanine fund

Velo Capital has raised €136 million ($148 million) at first close of a new real estate debt fund, which will focus on lending to sustainable projects.

The alternative credit firm, which is part of the Urban Partners group alongside real estate investment manager NREP, plans to raise €600 million for the Velo Mezzanine Credit Fund. 

Velo is targeting a 10% net internal rate of return by providing subordinate loans against developments, refurbishments and standing assets, with a focus on Germany and the Nordics.

Offering predominantly mezzanine loans, VMC will provide green financing to drive sustainability across the capital structure, with ‘brown to green’ projects prioritised.

The fund’s loans are anchored in a third party-validated proprietary green framework, oriented around CRREM decarbonization pathways with a duration of compliance of 5 years in addition to the initial loan term. The fund is an Article 8 fund, which allows for investment in both developments and transitioning assets.

Claus Mathisen, CEO of Urban Partners, said: “In the current market, some banks are pulling back. They are leaving a financing gap that represents a significant opportunity for alternative lenders.

“Business opportunities are immense, and with this new fund we want to demonstrate how alternative credit solutions can propel a green financing wave with the urban transition in focus.”

Urban Partners was formed in May as an umbrella platform for four businesses collectively aiming to undertake impact and sustainable urban investments.