LaSalle Investment Management has raised £150 million (approx. 170 million) for a new junior loan program targeting newly originated loans secured against UK properties. The new capital raise brings the total discretionary capital that LaSalle has available for junior and mezzanine debt investment in the UK to over £400 million.
Amy Aznar, Head of Special Situations, LaSalle Investment Management says, "With over £400 million available for junior and mezzanine debt investment, LaSalle is very well positioned to fill the debt gap as borrowers look for new sources of capital. We are able to invest in a wide variety of UK financing situations across various real estate assets and risk profiles. Our new junior debt program is complementary to our existing Special Situations debt offer in that it looks for traditional junior debt returns at lower capital structure attachment points on core properties.
"We are seeing a growing number of opportunities to place junior debt and mezzanine at attractive risk adjusted returns. Many institutional investors see junior and mezzanine debt as attractive satellite strategies to their core real estate portfolios."
LaSalle's junior loan program targets 60-75% loan-to-value loans and will focus on institutional quality underlying real estate, strength of property cash flow, and quality sponsorship. This program adds a new dimension to LaSalle's existing debt strategy which was set up in 2010 to provide tailor-made solutions covering a wide range of situations in which a sponsor may need additional financing, which also includes high yield mezzanine finance, capital expenditure funding, loan acquisition funding, and preferred equity investments. Typically, LaSalle is targeting single loan amounts of £10 to £75 million over a three- to five-year term.
Michael Zerda, Director, Special Situations, LaSalle Investment Management adds, "In 2010 we saw a number of situations where high yield mezzanine was not suitable for a number of reasons, particularly in cases where high quality property owners were in need of lower leverage that traditional senior lenders were unable to fully fund. The new LaSalle UK junior loan program was specifically designed to fill that void in the market and is appropriately priced for borrowers needing 75% loan-to-value debt facilities in an environment where many traditional lenders (due to tight regulatory capital restraints) are limiting new senior loan proceeds even on the most prime of assets.
"We do not foresee lending conditions to improve over the medium term and are working with a large number of active senior lenders to provide combined debt packages and borrowers directly on bespoke junior debt facilities."
LaSalle believes that new subordinate debt investment makes sense in the current environment and that it is crucial to a sustainable market recovery. The investment manager is seeing senior banks quote debt terms at the 55-65% level with spreads of circa 180 - 250 basis points. It says that the cost of senior debt combined with junior debt or mezzanine finance up to the 70-85% level is accretive to equity resulting in better returns for a variety of asset owners.
Although the junior loan program targets new junior loans secured against core income producing properties, LaSalle's Special Situations team is also working with banks and borrowers on other asset classes to provide mezzanine on refinancing situations, acquisitions, and restructuring events.