The partners of Pluto Capital and Mountgrange, through its real estate opportunity fund MoREOF, have reached agreement to form a new fund to help finance residential developments in London and the South East of England. The new fund, to be managed by Pluto Finance (UK) LLP, expects to deploy £50 million (approx. 57 million) over three years into mezzanine loans.
Senior lenders have become more capital constrained and speculative lending for new developments has been particularly hard hit. At the same time, some development projects have stalled as a result of tightening lending criteria. Many traditional lenders have also left the market which has added more pressure on developers seeking to fund new development projects or conclude those which have commenced build-out.
Pluto and Mountgrange have identified this funding gap in the residential market as a potentially fertile investment opportunity and will focus their efforts in supporting developer projects in London and the South East. While the number of private residential developer units has dropped radically between 2007 and 2010 from 200,000 to 90,000 units per year, population growth and increasing household fragmentation should increase the number of residential projects in the UK at an average of 252,000 units each year until 2031.
Central London and regions close to London are expected to outperform and will lead the recovery in the residential market. The new fund, the first institutional fund of its type and size to serve this sector, will consider investment opportunities of £2 million upwards to sit alongside debt financing and developer equity.
Pluto and Mountgrange bring complementary skills and experience to the benefit of their new joint venture. Pluto has significant experience in residential development, real estate financing and real estate loan asset management. MoREOF is seeking opportunities to back innovative property propositions and this new initiative fits neatly into this strategy.
The Pluto team working on this venture are Chris Philp, Andy Blenkinsop, Iori Antcliffe and Andy Scotting and together they have developed Pluto's property financing model based on their experience managing a large portfolio of UK property development loans for a major US finance house.
Chris Philp, a Pluto Partner said: "We are aiming to fill the gap left caused by the significant reduction in banks' development lending. Having identified this opportunity, we sought a partner with the property investment expertise to marry up with our market knowledge and asset management skills.
"Pluto and Mountgrange together have the experience in this sector, and the funding, to make a difference to developers seeking to arrange financing packages to t