Aviva Investors, the asset management arm of the UK insurance group, said the new fund would target yields of between 250 and 350 bps above equivalent maturity UK government bonds. It is targeting £500 million (€580 million; $768 million) in commitments, the minimum size of which is £10 million. Aviva is targeting a final close by December 2014, it said.
The fund has already raised £100 million from two LPs, one of which is an existing Aviva client and the other a pension fund, allowing it to hold a first close. The firm hopes to hold a second close later this year, according to a source with knowledge of the situation. James Tarry will manage the new fund, and is understood to have already agreed two loans totalling £50 million.
It will invest in fixed-rate first-ranking mortgages advanced at up to 65 percent loan-to-value, with five to 10 year maturities. These will be secured against core and core-plus commercial real estate in the UK, “owned and managed by proven high-quality borrowers and sourced from the extensive borrower network of Aviva Commercial Finance”, it said in a statement.
The fund will be structured as an English limited partnership closed-ended with a 10 year final maturity from the end of a 24 month investment period.
Ben Stirling, managing director or European Real Estate at Aviva Investors, said in the statement: “Banks have been withdrawing from lending to real estate due to increased regulation, higher costs of capital and the requirement to shrink balance sheets and reduce the proportion of their overall lending to the real estate sector. At the same time, there is over £140 billion of maturing real estate debt which needs to be refinanced over the next five years. We believe this significant funding gap and the attractive yields in the market, present investors with a strong opportunity, especially for institutional investors looking for a good diversifier from traditional fixed income assets.”
The fund's manager, James Tarry, added: “We see attractive opportunities in the senior part of the capital structure, where the supply and demand imbalance is at its greatest and there is scope to deploy significant volumes of capital into good quality loans. We believe the opportunity in the market for senior debt investors is compelling enough for managers such as Aviva Investors to replace the space previously occupied by banks.”
Aviva Investors’ real estate team comprises 60 investment professionals managing over £23 billion in assets under management.