Mayfair Capital reveals imminent £35m final close – Exclusive

The Swiss Life-owned firm’s second UK residential lending fund is pursuing a niche strategy of small, high-yielding loans in London’s suburbs amid a cooling high-end market in the capital.

Mayfair Capital has revealed a final close on £35 million (€40 million) is imminent for its second UK residential lending fund.

Mayfair Capital Residential 2 (MCR2) will focus on prime residential developments or refurbishments in the UK capital’s suburbs – a different investment approach from its predecessor, which targeted high-end properties in Central London’s most exclusive areas.

The move is a reaction to a cooling of the prime London residential sector over the past couple of years.

“We recognised the market was changing, due to factors including stamp duty and the clampdown on capital gains tax,” Mayfair chief executive officer James Thornton told Real Estate Capital, “so prime parts of London were set to take the biggest hit to capital values.”

The London-based firm was acquired by Swiss Life Asset Management in October 2016, and the final close will include more than £10 million of co-investment from its parent.

While the first fund, which was launched in 2012 and recently exited its final investment, delivered a 16 percent annualised return to investors, MCR2 targets 10 percent per year – net of all fees and expenses – reflecting the shift in returns across lending markets and the focus on more affordable areas of London.

MCR2 is a small fund by the standards of the real estate debt fund industry, but it lends to high-value properties. By originating short-term mezzanine loans in the region of £2 million to £4 million to developers, Mayfair’s niche lending strategy enables it to price loans in the region of 16 percent to 18 percent.

The fund was initially launched in 2016, with a first close in May that year on £17 million. However, the UK’s vote to leave the European Union the following month, caused it to halt its fundraising plans.

“We put the fund on hold for nine months and didn’t charge investors fees,” explained Thornton, “There was too much risk and we wanted to see how land values would settle. We began investing in Spring 2017.”

The six loans written since have funded residential projects in London’s suburbs, including Mortlake, Worcester Park and Ickenham. While the first fund financed schemes with a £2,000 to £3,000-per-square-foot exit value, the second fund’s sweet spot is around £750 per square foot.

Mayfair’s mezzanine loans sit above senior debt of up to 50 percent to 60 percent, with the firm providing an additional 20 percent to 25 percent of leverage, with a requirement for at least 10 percent of developer equity in deals. “The developers we back would be more likely to borrow senior debt from a challenger bank as the UK clearers can take too long to process for their needs,” Thornton said.

The firm is aiming to deploy all its MCR2 capital by the end of the year, with discussions about a third fund likely to be held later this year. The UK regions could feature in its future residential investment strategy, Thornton said.

The sale of the company to Swiss Life was driven by the ambition to grow its third-party business, Thornton explained. In March, Mayfair launched a £400 million UK ‘Thematic Growth Fund’ with co-investment from Swiss Life, to invest in equity property, with a targeted return of 8 percent to 10 percent. A total of £100 million of equity was committed by March. In May, the firm hired Matt Dimond from InfraRed Capital Partners to lead international business development in an effort to grow pan-European third-party activity.