EUROPE – Cordea Savills is mulling a residential development debt fund after the second of the two men hired less than a year ago to source mezzanine loans quit the business last week.

CIO Kiran Patel told IP Real Estate there had been no animosity in the departures of Keith Davidson and James Tarry, both hired to establish Cordea Savills' debt platform.

"They came in to do mezzanine transactions, and the market has moved on," he said. "They wanted to be in a different part of the debt spectrum – more opportunistic in nature."

The firm is now looking to mobilise the Savills residential brand to lend to house builders with a target 8-9% return. The plan, currently in its early stages, could result in a fund launch in Q2 2013.

Patel said loans issued by the mooted fund could cover a range of risk-return approaches within the senior and subordinated debt space, but he ruled out re-entering the mezzanine market.

Pointing to a lack of recent deal activity, he said: "If the mezzanine debt manager is promising 18% returns, investors need to take on equity risk and put in 20% capital.

"Neither banks nor insurers will lend sufficient capital to cover the 20%, so mezzanine investors are now going to higher-risk properties."

He added: "People created mezzanine funds offering a 20% return, but, when the market moves, what do you do?

"[Our] vehicle would need validity – not just today, but long term. It needs to be a business that can stand up for at least five years."

Patel also ruled out competing with insurers active in the senior space.

"For AXA, M&G and L&G – the big insurance guys – it makes sense," he said.

"But Cordea Savills would have to address the volumes and have access to the big fixed income investors."