Starwood and Cheyne flotations will target UK and Continental lending

Cheyne Capital aims to raise £200m and Starwood £250m for mezzanine and senior lending

Three debt specialists plan to float new investment companies to raise up to £700m of capital to make loans.

Private equity group Starwood Capital is seeking £250m for Starwood European Real Estate Finance; ICG-Longbow intends to raise a minimum of £100m, capped at £250m, for Senior Secured UK Property Debt Investments (SSUP) (see story below); while Cheyne Capital hopes to attract up to £200m.

Of the three offers, ICG-Longbow’s will make senior loans in the UK only, while the other two will invest in both senior and mezzanine, in the UK and western Europe.

Starwood’s SEREF plans to make an 8-9% total return, with a 7% dividend yield, by making whole loans at loan-to-value levels of up to 70%, selling on the lower yielding 0-25% pieces to other investors.

One source said Starwood was most likely to sell these super senior slices to fixed – income investors and pension funds, rather than banks.

Starwood, led in Europe by Jeff Dishner and supported by former banker Peter Denton as head of European debt, is not commenting on SEREF’s initial public offering.

However, at the CREFC Europe conference in London on 14-15 November, Denton said: “Real money buyers that used to buy CMBS are looking to get their hands on loans.”

Starwood announced this month that it has set up a European finance platform called StarFin, in partnership with Cushman & Wakefield Investors (CWI).

In that announcement, Denton said: “Coming together with Cushman & Wakefield Investors gives us a full house of experience in Europe when a debt maturity bubble is looming, banks are severely constrained from lending and new property activities need funding.”

Starwood’s advisers and book runners, Dexion Capital and Jefferies, hope to close the IPO next month. As well as investing across the capital stack and jurisdictions, SEREF will consider investments  across institutional-quality offices, retail, logistics, residential and hospitality assets.

Denton’s deputies, who will also originate business, are Duncan MacPherson, who joined Starwood earlier this year from Citibank, and Jens Cremer, formerly at Westbrook. Cushman’s EMEA head of capital markets, Michael Rhydderch, will represent CWI.

Starwood to replicate US debt launches

Starwood has a track record for taking advantage of debt market distress to make billions of dollars of real estate loans: it took two US funds public to create iStar in 1998 and in 2009 floated Starwood Property Trust, the US’s largest commercial mortgage REIT.

It is thought that the new European vehicle will be structured as a London Stock Exchange-listed, Channel Islands closed-end investment company, but could become a mortgage REIT later, if the Treasury were to approve the concept.