Specialist UK property lender Octopus Real Estate has raised £462m (€537.7m) for its third debt fund.
The manager said the Commercial Real Estate Debt Fund III (CREDF III) fund exceeded its initial £450m target as it received capital commitments from pension funds and insurers across the UK and Europe. The fund has a £500m hard cap.
The amount raised for CREDF III is double the £231m raise for CREDF II in April 2018.
CREDF III is focused on originating short-term loans secured against UK commercial property. It plans to lend more than £1bn across sub-sectors including logistics, purpose-built student accommodation, supermarkets, retail warehousing, residential development land and hotels over the next three years.
CREDF III targets an internal rate of return of 8 to 9%. CREDF I and II have delivered a gross internal rate of return of 10.3% and 9% respectively.
Ludo Mackenzie, the head of commercial property at Octopus Real Estate said all property yields have hit their lowest levels ever, demonstrating the ongoing appeal of real estate.
”This is fuelling an interesting dynamic for investors, who will need to be cautious about their direct real estate exposure given the risk of a correction at some stage in the future.
”Senior debt offers significant downside protection due to the layer of equity sitting in a first-loss position. Short-term debt also offers equity-level returns, thus potentially inverting the conventional assumption that higher returns necessitate taking more risk.”
Benjamin Davis, CEO, Octopus Real Estate said: “Exceeding our fundraising target and doubling our previous capital raise for the strategy perfectly demonstrates institutional investors’ confidence in Octopus’s commercial real estate debt expertise.
”But this also reflects a wider sentiment across our entire real estate business, which has been successfully raising and deploying capital in both debt and equity strategies.”
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