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Schroders aims to raise £1bn for real estate debt platform in 2022

The London-headquartered asset manager has raised £100m for its UK senior loans fund and is aiming to raise capital for three lending strategies.

Schroders Capital, the UK-based manager with $74.9 billion of assets under management, is aiming to raise £1 billion (€1.2 billion) for its European real estate debt platform this year as it scales up a business that was launched in 2021, Real Estate Capital Europe has learned.

As part of the fundraising, the company has held a close for its UK Senior Loan fund on £100 million. The capital was raised from UK pension schemes and UK local authorities. Through the UK Senior Loan fund, Schroders will target a gross return of 6.5 percent by directly originating loans of between £15 million and £100 million across all real estate sectors.

The £1 billion fundraising that Schroders is targeting for this year will cover its three separate lending strategies – including separate UK and continental European senior loan funds, and a high-yield fund through which it can lend in the UK and continental Europe. Schroders said the strategies are designed to meet investors’ growing demand for private debt alternatives, which aim to offer “enhanced and differentiated” sources of return.

The platform was launched in January 2021, under the leadership of Natalie Howard, who Schroders hired from debt fund manager DRC Capital – which has since rebranded as DRC Savills Investment Management. In an interview with Real Estate Capital Europe in May 2021, Howard said there was increased withdrawal of banks from the market, creating opportunities for managers of non-bank capital.

“The natural fillers of the funding gap are the insurance companies and pension funds. It provides them with an opportunity to access a readily and easily accessible market, where there is plenty of product, with risk-return profiles for every investment appetite,” she said.

Since the launch of the strategy, Schroders has hired Kristina Foster, previously of Barings Real Estate, as fund manager, and Daniel Younis, as head of real estate debt in Germany, from Dutch bank ING. Andrew Macdonald, who previously had responsibility for the borrowing activity for Schroders’ real estate business, has transferred to the lending unit.

Speaking to Real Estate Capital Europe at MIPIM in Cannes, Foster said Schroders is close to completing its first two lending transactions for the UK Senior Loan fund – one against a retail asset and the other to provide higher leverage against newly built, longer leased assets.

“With retail, we are really focused on the refinancing risk and the exit loan-to-value,” Foster explained. “As retail is such a challenging environment, it is important the right environment is created for shoppers and that requires a focus on the ‘S’, the social part, of ESG, with the sponsor engaging with tenants.”

Foster added that Schroders’ lending strategy will have a keen focus on sustainability, with all funds aligned to Article 8 of the EU Sustainable Finance Disclosure Regulation.

“Sponsors are really open to discussing sustainability targets – to a much greater degree than I had expected,” Foster said. “Through this focus on ESG, we will inevitable reduce our borrower universe, because some sponsors and assets will not fit the strategy.”

In a statement, Howard said the need for real estate loans continues to grow. “According to research, there is €1 trillion of UK and European commercial real estate debt outstanding across European markets, with an annual financing requirement of €200 billion,” she commented. “We therefore believe there is a significant opportunity for Schroders Capital to meet the growing demand from institutional investors looking to diversify their private debt, real estate or fixed income portfolios.”