Scottish Widows has made its first foray into direct real estate lending with a £20m, 10-year facility at 3.935% to UK real estate company Custodian REIT, secured on a part of its property portfolio.
The deal is the insurer’s first since it launched a debt platform in April with its parent, Lloyds Bank, to target the fixed-rate, long-term lending market in the UK.
It marks the arrival of Scottish Widows into an increasingly crowded lending market where other pension funds and insurers, such as Aviva, Canada Life, Cornerstone, Legal & General, MetLife, Pricoa and Standard Life, are already active.
The Edinburgh-based insurer intends to make loans ranging in size from £20m to £100m for seven to 30-year terms with loan-to-value (LTV) ratios of 65% and returns around 200bps.
Leicester-based Custodian is expected to use the loan to help fund further acquisitions including the imminent purchase of almost £10m worth of properties. The company targets UK commercial real estate assets characterised by small lot sizes with individual property values of less than £7.5m.
The company said its net borrowings are 15.5% LTV, which will rise to 20.9% on completion of the £10m purchase. Custodian wants to increase its gearing towards 25% LTV.
“Securing long-term, fixed rate debt at a level significantly below the UK historical average demonstrates our commitment to achieving the target gearing ratio and mitigating risk,” said Richard Shepherd-Cross, managing director of Custodian Capital, Custodian REIT’s investment manager.
Custodian REIT launched in March of last year with a £95m UK property portfolio sourced from an existing portfolio of 48 properties held by clients of wealth manager Mattioli Woods, which owns Custodian Capital.