ICG-Longbow has fully realised its value-add real estate debt fund which it launched in 2011 to take advantage of post-crisis lending opportunities in the UK market.
ICG-Longbow Real Estate Debt Investments (Fund II) reached final close in September 2011 with total commitments of £242 million and an initial five-year fund life. The focus was to target market opportunities by lending on a coupon and performance-participation basis, the company said.
The fund was fully invested by June 2013. The investments comprised 70 percent first mortgage whole loans and 30 percent mezzanine loans, with a London exposure of 39 percent. The average dal size was £16 million across 18 investments including retail, industrial, offices and student housing in the UK.
Fund II was the first of ICG-Longbow’s partnership capital series which has now raised a further £1.7 billion of capital through two successor funds and to date has deployed £1.8 billion across all three funds.
The cash coupon paid out during the fund’s life was on average 9.5 percent, with a gross IRR of 17.1 percent per year, a 1.6x investment multiple.
In total, Fund II made 18 investments. The largest deal was a £33 million mezzanine loan made in 2012 to refinance the 120 Holborn office scheme in central London and which generated a 20 percent IRR for the fund. ICG-Longbow participated in a £45 million mezzanine loan, which sat alongside £90 million of senior debt. The property was sold to Singaporean investor UOL in November 2016 for £222 million, following a refurbishment.
“Whilst cycle timing played a part, the fund clearly benefited from the asset selection and asset management of our partners and borrowers,” commented Kevin Cooper, co-head of ICG-Longbow. “The underlying real estate performance is best demonstrated by the fact that our funds outperformed direct real estate. As measured by MSCI all property total returns over the period January 2011 to December 2016, by 17 percent to 11 percent and that in the majority of the underlying transactions the equity returns enjoyed by our borrower partners exceeded a 2x multiple and many surpassed a 3x multiple.”
“In response to the uncertain political environment, many investors are avoiding properties that are perceived to be high risk, favouring core properties with secure income streams. However, against the backdrop of economic growth and continuing occupational demand, we believe this may lead to interesting buying opportunities for value-add or less stabilised properties for our partners, which we expect will generate attractive risk adjusted returns,” added Martin Wheeler, also co-head of the firm.
ICG-Longbow is the specialist real estate asset management division of Intermediate Capital Group.