Hermes Real Estate Investment Management Limited (HREIML) is launching the Hermes Real Estate Senior Debt Fund to invest in UK commercial real estate (CRE) loans.
The portfolio will consist of well-structured private loans secured on UK domiciled CRE and overseen by HREIML. Commercial office, retail and industrial real estate classes will be targeted with the aim of providing a diversified portfolio by borrower, number of loans, underlying assets, tenant covenants and loan maturities. The security focus is for high-quality assets with a strong track-record of tenant retention in London and the South East, with regional transactions in prime metropolitan locations considered opportunistically.
The launch comes at a time when the funding gap remains substantial. With GBP143 billion of UK CRE debt scheduled to mature between 2013 and 2017, there are fewer lenders able or willing to underwrite CRE loans in excess of GBP50 million on a bilateral basis. This fund launch will create an excellent opportunity to ‘cherry-pick’ transactions with strong risk return characteristics, especially in an environment where loan-to-value (LTV) ratios have fallen and loan margins have increased.
Chris Taylor, Chief Executive of Hermes Real Estate Investment says: “The current lending shortfall provides a large pool of transactions with strong risk-return characteristics for us to choose from. The attractiveness of the opportunity is further enhanced by the decline of loan-to-value ratios on already reduced capital values, meaning senior CRE debt compares favourably with similar quality corporate bonds. While our existing commitment to direct real estate investment will remain strong, this move affords a further opportunity to capitalise upon our proven real estate underwriting skills.”
Marcus Palmer, Head of Real Estate Debt at Hermes Real Estate Investment Management Limited, says: “Our strategy for UK CRE debt plays to our existing strengths in UK real estate. Strong origination and structuring capability alongside HREIML’s proven in-depth understanding of property fundamentals will be key elements of our risk assessment and analysis of the market and specific lending opportunities. In addition, our strong links with borrowers and financial institutions means we are well placed to source the best opportunities, and ensure deal flow remains strong.
“Loans will typically be made to strong borrowers in partnership with other debt providers and of values between GBP30 million and GBP100 million.”