A dearth of bank finance in Europe’s
commercial property market represents a significant opportunity for
non-bank financial institutions to fill the void, believes
Prudential Financial, the US’ second-largest life insurer.
To exploit this potential the insurer’s
property unit, Prudential Real Estate Investors (PREI), has initial
secured capital of £150m ($220m) from institutional investors
including APG which manages the €240bn ($290bn) Netherlands’
government pension fund.
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“The dramatic shortage of debt capital in the
commercial real estate markets has created significant borrower
demand in the short-term, which we expect will increase and endure
as the markets evolve in the face of looming capital shortfalls,”
said Jack Taylor, MD and head of PREI’s global high yield debt
initiative.
Focused primarily on the UK and Germany, PREI
targets deals where underlying assets are income producing
commercial properties. PREI’s strategy is to provide mezzanine and
preferred equity finance to mid-size, high-quality private and
public property companies and funds targeting borrowers that are
looking to finance property acquisitions of between £10m and
£300m.
It will also work with banks and other
institutions on refinancing existing borrowings, as well as
restructuring performing loans where a further injection of capital
is required. PREI will not invest in distressed or securitised
debt.
PREI’s portfolio management team is led by
London-based MDs Andrew Radkiewicz and Andrew Macland, who formerly
ran the real estate finance division at investment bank NM
Rothschild & Sons. The European property move forms part of an
initiative launched by PREI in 2009 to build a global debt
team.
Macland commented that he and Radkiewicz they
are encouraged by the number of opportunities they are seeing in
the market.
“We believe there is clear demand from a number
of good quality borrowers for a lender that is prepared to fund the
gap left by the banks,” said Macland.
At the end of March 2010 PREI managed $43.8bn
in gross real estate assets ($22.8bn net) on behalf of some 490
clients worldwide.
Fidelity joins two UK insurers that have
recently launched European commercial property investment vehicles.
In November 2009 Standard Life launched its closed-end, leveraged
Property Recovery Fund with a five-year limited partnership
structure. With a gross asset value of £180m, the fund is targeting
a 12% net annual return.
Standard Life was followed by Legal &
General which launched its UK Property Income Fund in April 2010
targeting properties ranging from £50m and £100m in the office,
retail and industrial sectors. The objective is to build its
portfolio to £1bn over two years with net annual returns of 15%
leveraged and 10% unleveraged over seven years.
