Cornerstone eyes European debt platform

Cornerstone Real Estate Advisers is joining the ranks of new institutional players building up a position in the European property lending market, the company's European head Charles Weeks told PropertyEU at the annual Mipim real estate fair in Cannes last week. 'Initially we will look at plain vanilla senior debt, but we may look at more exotic types of mortgages and mezzanine debt at a later stage.'

The European adviser which acquired Protego Real Estate Investors in January 2010 aims to have a new debt platform in place within the next 12 to 24 months. The new platform will draw on the experience of Cornerstone US and one of its leading clients insurer Massachusetts Mutual, Weeks said. 'One of our areas of focus is to bring the debt investment skills of Cornerstone US to Cornerstone Europe.'

The focus will be on loans of around £20-40 mln (EUR23.7 mln-EUR47.4 mln) with a 'very core' exposure in the UK, in particular London and the southeast of the country, he added. 'We will start to dip our toes in lending in the UK but in time we may expand our investment horizon to Europe.'

Cornerstone will seek to build a track record in the UK before moving into Continental Europe, noted Peter de Haas, head of business development. 'We need to understand the dynamics of the European debt markets, you can't just replicate the US experience.'

With rates in the UK currently up to 350 basis points above libor for LTVs of 50%, senior real estate loans are a good alternative to fixed-income products and real estate investments, De Haas added. 'The risk-return profile for senior real estate debt is currently very attractive. If you have the underwriting expertise for real estate, debt products are just another way of deploying capital.'

A growing number of insurers including Allianz, AXA, Metlife and M&G are moving into real estate lending due to the expected impact of Solvency II on capital requirements for real estate investments. Under the new regime, which is scheduled to take effect from January 2013, insurers will be required to make a capital provision of at least 25% of all real estate equity investments.

Europe faces a huge wall of refinancing over the next few years as major real estate lenders continue to shrink their lending portfolios and retreat to their home markets. Weeks puts the refinancing challenge of the UK market alone at around £70 bn for the next 12 to 24 months. 'There will be more opportunities to provide loans for good core products,' he predicted.

Cornerstone Real Estate Advisers is part of the US-based investment manager of the same name. In Europe, it manages some $2 bn (EUR1.5 bn) of assets in the UK, Germany and the Nordics. Globally the group has $32 bn of assets under management. Mass Mutual holds real estate debt of some
$22 bn in the US.