Aviva Investors, the asset management arm of the UK insurance group, has launched a commercial real estate debt fund focused on the UK.
The new fund will invest in fixed-rate senior mortgages advanced at a loan-to-value ratio of up to 65 percent, with maturities of five to 10 years. These will be secured against core and core-plus commercial real estate in the UK, “owned and managed by proven high-quality borrowers and sourced from the extensive borrower network of Aviva Commercial Finance,” the firm noted in its statement.
Aviva is targeting a final close by December 2014, although the firm has not declared a target for the fund. The minimum commitment will be £10 million.
Ben Stirling, managing director for European real estate at Aviva Investors, said in the statement: “Banks have been withdrawing from lending to real estate due to increased regulation, higher costs of capital and the requirement to shrink balance sheets and reduce the proportion of their overall lending to the real estate sector. At the same time, there is more than £140 billion of maturing real estate debt that needs to be refinanced over the next five years. We believe this significant funding gap and the attractive yields in the market present investors with a strong opportunity, especially for institutional investors looking for a good diversifier from traditional fixed income assets.”
James Tarry, who will manage the new fund, added: “We see attractive opportunities in the senior part of the capital structure, where the supply and demand imbalance is at its greatest and there is scope to deploy significant volumes of capital into good quality loans. We believe the opportunity in the market for senior debt investors is compelling enough for managers such as Aviva Investors to replace the space previously occupied by banks.”
The fund will be structured as a closed-ended English limited partnership with a 10-year final maturity from the end of a 24-month investment period. It is targeting yields of between 250 basis points and 350 basis points above equivalent maturity UK government bonds.