Opportunity over for 6% return on senior lending in UK regions

UK commercial real estate fund manager ICG-Longbow says that returns have compressed as a result of increased competition.

Real estate debt fund manager ICG-Longbow said today that rising competition to lend senior debt on UK regional property means it could no longer deploy new capital for its listed fund at the returns promised last year, PDI's sister title Real Estate Capital reported.

The fund, ICG-Longbow Senior Secured UK Property Debt Investments, was raised in January 2013 and promised a dividend return of 6 percent from making senior loans. In a sign that the fall in margins for senior lending has now spread outside London and the south east, the fund's chairman, Jack Perry, said: “We have witnessed a material return of capital to the sector with price competition spreading to the regions and consequently we do not currently foresee the opportunity to deploy any further new capital at levels that would be accretive to investors”.

However, the listed fund is now fully invested and in the half year results to 31 July 2014, released today, Perry says a second quarterly dividend of 1.5p per share has been declared meaning the fund is on course now to meet the 6% distribution target.

From now on ICG-Longbow will focus on “investment monitoring and portfolio management” rather than raising any further capital.

After raising £104 million (€132.8 million; $170.3 million) in an initial public offering, ICG-Longbow made 10 investments with the last two using an extra £4m that was raised through the issue of extra shares at a premium to NAV, last April.

The manager said that some “small amounts of capital have been repaid” but all included prepayment protections and fees and are value enhancing.
All the loans are performing in line with business plans and compliance with covenants.

ICG-Longbow manages a separate £400 million (€510.7 million; $655.1 million) senior debt vehicle closed this year in May. The vehicle is a stand-alone debt mandate pooling together capital from four investors. Around 50 percent of this vehicle is now invested, Martin Wheeler, joint managing partner, told Private Debt Investor. Successors to the senior debt and whole loan / mezzanine funds are expected to be launched within six months.

Last week, Intermediate Capital Group (ICG) exercised an option to acquire the remaining 49 percent stake in the ICG-Longbow business that it didn't already own, resulting in an incentivised payment plan estimated at £37m for ICG-Longbow's partners.