Debt asset manager AgFe has completed a £545 million (€691 million; $855.8 million) first closing of its second UK-focused commercial real estate debt fund, PDI sister title Real Estate Capital reports.
The AgFe UK Real Estate Senior Debt Fund will make floating rate, senior, short-term loans secured on UK properties. The fund complements AgFe’s first real estate debt fund which makes longer-term, fixed-rate loans and has £1 billion of capital from retirement specialist LV.
Natalie Howard, AgFe’s head of real estate, said both funds aim to generate low volatility returns for clients investing fixed income capital allocations. These investors are typically diversifying some capital out of investment-grade corporate bonds and getting an illiquidity premium with private real estate debt. “We have a strategy that people like” she said. “They get the illiquidity premium for the same risk.”
The floating rate fund will lend at margins over Libor of 150 to 300 basis points providing anything from £10 million to £150 million per deal at loan-to-values up to 65 percent and for terms of three to five years. It can invest in residential investment property as well as commercial.
AgFe will mainly originate bilateral loans but will participate in clubs alongside banks, especially on larger loans. Its first for the floating rate fund is a five-year loan to a private property company of just under £50 million secured on a retail asset.
Howard said there was a strong pipeline, especially from borrowers wanting to refinance. She said: “We are delighted to continue to grow our commercial real estate lending business. We are now able to offer UK commercial real estate borrowers a broad array of floating rate loans via the fund to complement the longer-term fixed rate loans we already offer from our fixed rate fund.”
A “handful” of investors participated in the first closing for the floating-rate fund, all UK insurance companies and pension funds. Howard said AgFe expects to hold two subsequent closings in the next six months to take the new fund up to about £1.25 billion.
“It is a sterling fund and UK investors are likely to dominate but we hope to have European investors in the next close” she said. The fund has a seven-year life and two-year investment period.
The fixed-rate fund has a longer, four-year, investment period and makes similar-sized loans, at terms of 5 to 15 years at margins of gilts plus 150 to 300 basis points. It has completed two loans of £10 million to £35 million on seven and 10-year terms and can lend as low as £5 million per deal.
AgFe, an independent fund management business with 35 staff, has been one of the most successful firms raising capital for senior CRE debt investing, trumping larger institutional houses.
Brent Williams, managing partner of AgFe, commented: “We view commercial real estate lending as one of our core business areas and highly complementary to our diverse array of existing private debt asset management and advisory businesses. We believe that our real estate team’s extensive lending expertise, strong relationships and flexible approach will prove compelling to UK borrowers.”