Property fund manager Mayfair Capital Investment Management has completed a first close of its second residential debt fund, Mayfair Capital Residential 2 (MCR2) with £17 mln (€22 mln) of commitments.
MCR2 is structured as a closed-ended English limited liability partnership with a feeder fund for exempt investors. Although the fund is set up with a five to seven-year life it is expected to run for only four years.
The fund is aiming to deliver an internal rate of return of 10% per annum net of all fees, expenses and carried interest. Investors include investment companies, pension schemes and private investors.
Five directors of Mayfair Capital have committed equity to the new fund in order to align their interests with investors. A second close is scheduled for later in the year which is expected to raise a further £20-30 mln, the company said.
'Parts of London look highly valued and are vulnerable to further value falls as the Government's tax changes and other measures are fully reflected in the high end segment of the market and buy to lets,' commented fund manager Simon Martindale. 'For this reason, we are focussing on backing developers with good track records in developing in Zones 2 to 5 in what we call "affordable" London. Projects will comprise a mixture of apartments and houses and we will be avoiding prime central London.'
Mayfair Capital's first residential fund was launched in October 2012 with £30 mln of committed equity. MCR1 made a total of seven investments, of which five have been fully realised returning 89% of investors’ equity. The two remaining investments are expected to be realised in the next 6-12 months. MCR1 is on track to exceed its target of delivering investors an IRR of 15% per annum net of all fees, expenses and carried interest.
'The funding gap for developers in London continues to exist with a gap between the amount senior lenders are prepared to advance and the level of developer equity. Each investment will generally be structured on the basis of an interest bearing loan and a profit participating loan,' added James Thornton, CEO of Mayfair Capital. 'We do not therefore see ourselves as pure mezzanine lenders, more as property partners to the developers we back, given that part of the return is linked to the success of a scheme.'
