Asset manager AgFe’s mandate to originate up to £1bn (€1.23bn) of UK commercial real estate finance transactions for LV=, announced this week, was 18 months in the making, according to the plan’s managing director for retirement solutions, John Perks.
LV= Retirement Solutions’ separate account with AgFe will enable it to make its first ever direct investments in commercial mortgages. LV= began considering the wider commercial mortgage market early last year, creating a tender process before choosing AgFe.
Perks doubts LV= would dedicate a similar period of time now, given market changes. “It’s questionable whether or not you’d be able to put that 12-18 months’ effort in today, given the prioritised efforts that providers need to put into business models following fundamental impacts of the Budget.”
AgFe will source fixed-rate opportunities. Floating rate, Perks said, may also be of interest to LV= in the future.
“There have been winners and losers in commercial mortgaging in the past,” he said, adding that LV= is “not new to the sector”, with previous banking experience in the company’s personnel.
Pressure on margins and increased competition in the UK’s commercial real estate finance sector do not concern Perks. “Margins are moving in, but that’s not an issue as long as bond yields are also going in the same direction,” he said.
Earlier this week, Savills noted a slowdown in the number of insurance companies entering the financing market, counting five new insurers last year, compared with nine in 2013.
Perks said: “Insurers are a serious source of finance. Solvency II has kept some at bay and we see an opening there. It’s segmenting as a market place and there are areas where banks have had to step back.”
Perks said LV= was concentrating its efforts on lenders looking for terms above five years and typically in the medium-term range of five to 12 years. Perks added, is “comfortable” with loan-to-value ratios of around 65%. “We don’t want to get into the yield chase,” he said.
Perks said the commitment to AgFe was spurred by a need to match LV= liabilities with stronger performing assets over the longer term.
ICG-Longbow has launched a £400m senior debt programme, backed by four discretionary mandates. The UK-focused debt investment manager said the new platform will invest in senior loans of up to £75m secured on UK commercial property, with a maximum LTV of 65%. Investors should, ICG-Longbow said, benefit from a spread of more than 200 basis points higher than corporate bonds with a similar risk profile.
Managing partner Martin Wheeler said the senior debt programme provides an opportunity to invest in newly-originated senior loans delivering a low risk profile, with a higher yield than from corporate bonds.