UBS to expand debt fund business into continental Europe

UBS Global Asset Management could finish fundraising for its debut UK property debt fund in June and is exploring a follow-on strategy for continental Europe.

The fund manager expects to make a second close for its Participating Real Estate Mortgage Fund (PREMF) next week, adding a further £25m (€33.3m) to the £140m already raised. UBS hopes to reach £275m to £300m by this summer.

The new capital raised has been sourced by the fund’s co-general partner and cornerstone investor Mitsubishi Corporation.

Anthony Shayle, head of global real estate debt, said he hoped the Japanese group – which is looking to expand its business in Europe – would back successive debt funds, which could include a new European strategy.

Shayle said UBS would aim to raise €500m to €600m for the European fund and would begin fundraising before the end of June 2016, when PREMF investment period comes to a close.

The UK and European funds, Shayle said, would ideally “overlap” to avoid the prospect of having to turn away potential borrowers.

“What we are looking to avoid is the situation where a borrower is turned away and told to come back in five to six months,” Shayle explained.

Should a continental European strategy be launched, it would most likely pursue a ‘pure’ senior debt strategy, unlike PREMF, employs a whole-loan ‘participating mortgage’ strategy.

Shayle said it would be difficult to originate participating mortgages across Europe, due to the varying jurisdictions.

Such a fund would most likely target France, Germany, Spain, Italy and The Netherlands and follow the “UBS footprint”.

Last year, Mitsubishi backed PREMF with £50m, while parent bank UBS and an unnamed European pension fund also provided capital, giving PREMF an initial lending capacity of £140m.

Shayle said the UK debt fund is targeting borrowers looking for loans in the range of £5m to £30m and “possibly bigger”.

It recently provided debt financing for River Street Capital’s £50m acquisition of a diversified UK office portfolio, known as Silver Oak’, from a private seller.