M&G Investments, one of Europe's leading institutional investors, has closed the M&G Real Estate Debt Fund with 343 million of investor commitments. This is the fund's third and final close, with assets committed by a range of institutions across Europe and the US.
The fund seeks double-digit, unlevered returns, over its seven-year life. The M&G fund will provide junior commercial mortgages against all property types in Western Europe (including the UK). Seven investments have been made so far, including transactions in the UK, Germany and Spain, and two additional loans are expected to complete in July. The portfolio has included loans on office, retail and industrial property but hotel and student accommodation transactions have also been considered.
Combining capital from the mezzanine debt fund with the growing interest from clients in funding senior mortgages, M&G is one of the few lenders in the market able to provide a 'one stop' solution to borrowers, and has undertaken a number of transactions on this basis. M&G will consider loans in the 80% loan to value range.
"We are in a terrific position in being able to match borrower needs with investor appetite for mortgage exposure," said John Barakat, Head of Real Estate Finance at M&G.
"With many traditional bank lenders seeking to reduce their real estate exposure, insurance companies and pension funds can help fill the 'funding gap' reported widely in the market. We help borrowers reduce their execution risk by being able to give them a single source for both senior and junior debt."
The latest research says that Europe's commercial mortgage market faces a shortfall of US $118 billion by 2013.
"Commercial real estate debt offers great value relative to other fixed income assets," said Barakat, "so our appetite is definitely increasing. We think this will be a growing asset class as more investors and advisors become familiar with the strategy. On the investing side, we are working on new acquisitions, refinancings and debt restructurings directly with borrowers and banks.
"We've also been purchasing performing loans. Capital, especially for anything other than prime assets, remains scarce, so we are finding a lot of receptivity from borrowers."