Fund manager Aeriance Investments S.A. has launched a property debt fund to provide bridging loans on top-end London residential property as a sustainable "significant lack of liquidity" from banks because of forthcoming regulation on capital cushions creates anomalies.
Fund manager Aeriance Investments S.A. has launched a property debt fund to provide bridging loans on top-end London residential property as a sustainable “significant lack of liquidity” from banks because of forthcoming regulation on capital cushions creates anomalies.
The move comes in the same month a leading international property fund manager predicted this would become a new area of activity for more managers in the sector, as private equity, hedge and direct lending funds all move to fill the gap banks have left open.
Aeriance said its £100m Orel closed-ended debt fund would provide two- to three-year financing.
But the bridging finance provided by the fund will not be open to everyone. Experienced property entrepreneurs and wealthy individuals wanting senior and junior financings in London will be main targets.
Typical assets will be homes in Belgravia, Knightsbridge and Mayfair with values of £20m, and which have “continued to show resilience throughout the economic downturn”.
Aeriance hopes commitments will grow the fund to £200m, and that it will deliver net returns of between 10% and 12% per annum.
Daniel Bendavid, senior investment officer, said: “The UK residential real estate lending market is still characterized by a dislocation which has been created by a significant lack of liquidity from financial institutions.
“We anticipate that this environment will continue for the forseeable future as new lending volumes from banks will probably remain expensive and severely limited, driven by new capital adequacy rules.”
Justin O’Connor, chief executive at international property fund manager Cordea Savills, said recently he expected growing interest from fund managers and their clients in this area.
“A lot of non-performing loans are coming to market [from the banks] but other portfolios that are performing are, too, and banks might not want them because the banks are getting out of the business. There is a real role of investors to take on the role of lenders, too.
“If you provide senior debt at 5% which will stand before the equity, and by lending 50% on a property where you can underwrite and which you understand, then you can get a 5% coupon and have risk lower than the equity.
“If banks say they will not carry over deals, and borrowers need to recapitalise, you will need to find new sources of financing.”
Property fund managers could select suitable loans from a bank selling its portfolio of debt, negotiate sale terms, and then manage the assets and identify risks.