Schroder Real Estate Capital Partners has launched a UK debt fund together with debt advisor Venn Partners.
The Income Plus Real Estate Debt Fund is exclusively for Schroder Real Estate Capital Partner (SRECaP) clients and has £100 mln (€114 mln) of commitments at first close, from 11 investors.
Graeme Rutter, head of SRECaP, said he expects the fund to grow by a further £75 mln - £100 mln, to an eventual size of £200 mln.
SRECaP invests indirectly on behalf of its UK institutional clients, mainly UK pension funds, by investing in third-party vehicles or by setting up partnership funds with experienced managers to get access to specialist property markets, like debt.
The new debt fund will make bilateral whole loans up to 75% loan-to-value, to achieve returns of 6-7%. Venn will target smaller lot sizes, typically £20 mln-£30 mln (€23 mln-€34 mln) and value add style assets.
Lower entry costs
Rutter said the strategy at this point in the UK property market cycle offered attractive risk adjusted returns and lower entry costs than buying many types of real estate assets - with the probable exception of industrial properties. Schroders believes industrial bricks and mortar properties will continue to outperform the wider market.
Speaking to journalists last week, Duncan Owen (pictured), head of real estate at Schroders, said that via debt investing, ‘you can generate returns without taking equity risk at mid to high single digits, from a risk in the capital structure that is lower than equity.’
At Venn Partners, the investments will be originated by managing partner Paul House and deputy portfolio manager of commercial real estate Beatrice Dupont.
Venn specialises in asset-backed debt investing, including real estate: it has its own discretionary Commercial Real Estate Debt Fund which has invested all £185 mln since launch in 2015; and it manages the government’s £3.5 bn Private Rented Sector Housing Guarantee Scheme which issues bonds providing long-term finance for newly-completed UK private rental residential.
