Comment: Property debt looks like best game in town for new wave of investors

The trend for non-traditional lenders to move into the property lending gap left by the banks is picking up. In the past few weeks Aviva, Legal & General and Prudential/M&G have all been active and insurers have made some of the biggest senior loans so far this year.

They are venturing into new sectors and backing a cross-section of borrowers. M&G Investments is funding a private equity investor with a £266m loan for Round Hill Capital’s purchase of the Nido business and was the first insurer to complete a loan-on-loan deal, for a loan portfolio purchase by Kennedy Wilson.

Aviva has been a property lender for 20 years, but is exploring areas it has not lent in before, no doubt in response to greater competition. The latest deal by Kevin Sales’ team is a loan to Big Yellow, the first by an insurer to the self-storage sector.

Legal & General’s debut property loan, just completed, was not secured on a prime London office building, but part of UNITE’s student accommodation portfolio, something that might not have been written into the business plan a year ago.

There are more new entrants too: AIG is putting out term sheets, but has yet to make a loan and Cornerstone is looking for opportunities with the origination team at Laxfield.

Fine differences between their strategies and preferred loan profiles are emerging, and with borrowers having half a dozen rather than one or two to get to know, banks and advisers who know the market well have a role to play – Rothschild introduced UNITE and L&G.

Fund managers, meanwhile, are lining up senior debt funds. More information is trickling out as they speak to investors. Renshaw Bay, a private equity boutique started by former JPMorgan bankers Bill Winters and Jon Rickerts, has hired Lynn Gilbert, formerly a CMBS originator. Peter Denton has left a bank to head Starwood Capital’s new senior lending business.

Investors, lukewarm at best about some equity property strategies, are interested in property debt, and aggregators of capital are working on strategies to deliver either fixed income or higher real estate-style returns.

A third funding source is expanding: US private placement market investors, who like UK property. In just a year, this market has gone from the preserve of old landed estates to (no disrespect) that of self-storage and student housing companies. By contrast, some banks have retreated to only financing listed property companies – or so one director says.

An RBS banker who worked on US private placement deals believes the UK “has a bit of a halo at the moment given the volatility in Europe”. The inconclusive elections in Greece and prospect of the country’s exit from the Eurozone have obviously increased that volatility.

This makes pricing non-performing loan portfolios particularly tough, especially in peripheral eurozone countries like Ireland and Spain, where investors expect more portfolios to come to the market.