EUROPE - Luxembourg-based debt specialist Aeriance is aiming to exploit lending dislocation in the prime London residential property market with a €120m fund targeting a 10-12% annual return.
The closed-end vehicle, Orel, will provide two- and three-year bridging loans to developers and high net worth investors for residential acquisitions in the capital's "golden postcodes".
The fund manager plans to generate the return by capitalising on the liquidity premium rather than taking on additional risk.
Daniel Bendavid, senior investment officer, said: "Developers in general are struggling to secure lending over 55-60% of the funding costs from banks in the current environment, and there is a high premium attached to liquidity."
He said the main risk scenario would be an "unlikely" sudden, sharp fall of more than 30%, with no prospect of improvement within two years.
"In such times of uncertainty, investors tend to seek 'real assets', and, therefore, London's prime residential market has become the international preference, given its liquidity and despite current pricing levels."
Currency movements had also attracted overseas investors in London residential, boosting demand for super-prime assets.
"Given these factors, we don't expect a sharp drop in this market in the near future," he said.
Because the fund is focused on lending, its position in the capital structure would still be protected even in the case of a strong market movement, with a 30% equity cushion.
The fund, which does not use the leverage but invests in senior and junior debt, could grow to €200m with additional commitments from institutional investors.
Aeriance's existing junior and senior debt vehicles have to date issued loans totalling €700m for prime European real estate.