GLOBAL – Singapore sovereign wealth fund GIC will provide "substantial" junior debt on big-ticket UK commercial property loans as part of a £1bn (€1.16bn), two-year joint venture with Laxfield Capital.
Laxfield will offer 5-7 year loans of between £40m and £185m with a loan-to-value ratio of up to 75% on office, retail, industrial and residential assets.
The structure of the loans will mean that, in effect, the cut-off point for super-senior investors will be around 55% loan-to-value.
GIC will retain 55-75% loan-to-value.
Senior debt will come from "one or two" unnamed bank and institutional lenders. It is understood that an existing pipeline of deals and the commitment of the $100bn (€75bn) sovereign wealth fund were pre-requisites for their involvement.
A spokeswoman at Laxfield said: "GIC's long term junior investment in every loan will undoubtedly be attractive for some senior lenders as a way to gain entry to the market, or a steady pipeline of senior loans."
GIC itself moved out of the senior debt market in the wake of the financial crisis after it failed to meet the return targets of the fund's real estate portfolio.
Up to 75% of each loan will be syndicated to other investors.
Laxfield managing director Adam Slater said in a statement the vehicle provided "an ideal market entry point" for investors seeking access to mortgage investments.
Although GIC is already active in Europe's junior property debt market, Laxfield's whole-loan vehicle will be one of the few to target significant-sized mortgages on assets outside the UK capital.
"There are attractive returns to be made by providing large whole loans at slightly higher leverage than the standard senior market," the spokeswoman said.
"We are very cautious and will only lend to the best owners and managers of property, but will consider assets outside prime, core London."
Laxfield calculates that it can mitigate higher leverage risk with the cash flow underwriting the loan.
The spokeswoman said it was "working off lower values outside London, low interest rates giving strong interest cover, good lending returns, very rigorous loan covenants, relentless focus on sponsor quality and being extremely selective about the assets".