Hermes Real Estate Investment Management (HREIML), one of the UK’s largest real estate managers, has launched its first senior debt fund.
The firm is in negotiations with a cornerstone investor and has begun to engage with other institutional investors, insurance companies, pension funds, wealth funds and consultants in order to source third party capital, a spokeswoman said.
Hermes Real Estate Senior Debt Fund will be invested in UK commercial real estate loans, the firm said in a statement. Its portfolio will comprise “well-structure private loans secured on UK-domiciled CRE and overseen by HREIML”, it said.
“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,” it added.
Hermes estimates there is £143 billion (€168 billion; $229 billion) in CRE debt scheduled to mature between 2013 and 2017 in the UK alone, and a dwindling number of lenders willing and able to underwrite loans of £50 million or more. As a result, a funding gap is growing.
Marcus Palmer, head of real estate debt at HREIML, said in a statement: “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 £30 million and £100 million,” Palmer added.
The firm will aim to deploy between £750 million and £1 billion each year, a spokeswoman said.
Oliver Smiddy writes for PERE's sister publication Private Debt Investor.