M&G Investments is planning to raise follow on capital for its European senior and junior debt strategies and is considering a development finance fund, after investing £2.2 billion in CRE debt in 2015, Real Estate Capital can reveal.
Last year, M&G’s real estate finance team headed by John Barakat provided £2.2 billion of financing to European real estate in 24 transactions. Some £1.7 billion was senior debt while almost £500 million was deployed into junior debt investments for M&G Real Estate Debt Funds 2 and 3.
The two junior debt funds closed on a total of £1.35 billion of capital in March 2014. Their investment periods end during 2016, and Barakat said that they are on course to be fully invested as planned.
This indicates M&G will be raising follow-on high yield capital this year. It continues to win mandates from in-house and third-party insurance groups and pension funds for senior private real estate debt; last year third-party institutional investors commited £750m to senior mortages.
Barakat said the manager was closing “another few hundred million for a senior mandate” this month.
M&G offers borrowers debt solutions across the capital stack from senior to mezzanine, including whole loan financing and can co-invest for its senior and junior clients in the same deals. It usually holds the entire loan to maturity. So far, it lends in the UK and major Western Europe property markets.
The £2.2 billion lent during 2015 was the business’s highest to date, topping 2014’s tally of close to £2 billion and taking the total invested since 2010 to £5.5 billion.
Barakat said it was “quite possible” that M&G will add additional debt strategies this year. One under consideration is a dedicated development fund that would be able to write shorter-dated loans.
Last November, using existing equity from existing funds, M&G wrote £70 million of two-year finance for Westrock to develop four south-east England private rented sector (PRS) residential projects.
UK PRS is attracting more interest from lenders as the sector grows, with RBS expecting to lend £1 billion into residential development for rent over the next 12-18 months.
M&G’s debt investment business is also exploring raising capital for specific sector concentration or new geographic targets.
M&G’s financings in the second half of 2015 included £153 million for Cosgrave Property Group’s refinancing and refurbishment of Romford’s Liberty Shopping Centre and €60m in a syndicate lending on Starwood and Brookfield’s German Interhotels portfolio.
“Q4 2015 was our busiest quarter ever” Barakat said. While some banks had pulled back by that time, having met targets, he added: “We didn’t see any slowdown; the market was as busy as it’s ever been.”
Barakat said private real estate debt was an asset class which had “more and more come of age.”
Institutional investors’ search for yield and security “has ensured that real estate debt remains in the spotlight and these investments continue to offer among the most attractive relative value opportunities in fixed income.”
Several other CRE debt fund managers are starting to raise new capital after a busy 2015, including DRC Capital, Lasalle Investment Management and Pramerica.
“I think 2016 has the potential to be an interesting year. I’m not predicting that 2015 will turn out to have been the high watermark. But if at the end of this year we look back and we have repeated 2015’s levels, it will be impressive,” Barakat said.