UK – Hermes Real Estate Investment Management (HREIML) is launching its first commercial real estate debt fund with a UK strategy backed by a "cornerstone investor", and aims to plough as much as £1bn (€1.2bn) a year into the debt instruments.
The new fund – the Hermes Real Estate Senior Debt Fund – will consist of "well-structured private loans secured on UK-domiciled CRE," HREIML said.
It said it would target commercial office, retail and industrial real estate classes, with the aim of providing a portfolio diversified 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 said.
A spokeswoman for Hermes Fund Managers said the firm was finalising a £400m cornerstone investment in the new fund and having discussions with insurance companies, pension funds, sovereign funds and others.
The intention is to deploy between £750m and £1bn a year in CRE debt loans, she said.
Asked whether the BT Pension Scheme was backing the new strategy, she said a cornerstone investor was backing it, and that this investor already had a long-term commitment to the UK debt markets.
Hermes Fund Managers is owned by the BT Pension Scheme.
Chris Taylor, chief executive at HREIML, said: "The current lending shortfall provides a large pool of transactions with strong risk/return characteristics for us to choose from."
The firm said £143bn of UK CRE debt was scheduled to mature between 2013 and 2017 and added that there were fewer lenders able or willing to underwrite CRE loans of more than £50m on a bilateral basis.
"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," Taylor said.
The firm said loans would typically be made to strong borrowers in partnership with other debt providers, and have values of between £30m and £100m.