Schroders poised to enter real estate lending market

Schroder Real Estate is set to become the latest major fund manager to enter the commercial property lending market.

The fund manager is understood to be preparing to launch a debt fund with seed capital of about £100m.

Its strategy will be to offer loans of up to about 65% loan-to-value and sell down the lower tranche to banks, which continue to offer very competitive rates of up to around 50% LTV. The fund would retain the top slice.

Andrew MacDonald, Schroder Real Estate’s head of property finance, who secures and manages the debt for the manager’s funds and properties, will play a key role in the new venture.

Schroders will also partner up with a specialist in the debt market to help run the fund, which is believed to be targeting high single-digit returns.

Its push into real estate lending comes after other top UK fund managers such as Aviva Investors, Hermes Investment Management and Legal & General Investment Management have entered the debt market in recent years.

Attractive market

Real estate debt remains an attractive market for investors as it can offer equity-style returns with low levels of risk.

Debt funds have been able to take advantage of the retreat of the banks since the financial crisis and borrower demand for more flexible finance.

Alternative lenders are continuing to grow market share, as shown by last month’s mid-year De Montfort report, which revealed non-bank lenders (excluding insurance companies) doubled their share of loan originations to 16 in the first half of 2017.

Other new entrants to the market include ASK Partners, which was launched last month by three financiers including former co-head of Investec Specialist Private Bank Paul Stevens; and PMM Group, which launched a commercial real estate debt business focused on the UK and Ireland in September.

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