Aviva Investors, Cordea Savills reveal debt strategies

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Aviva Investors has revealed the details of its first commercial property debt fund after hiring fund manager James Tarry more than six months ago according to IP Real Estate.

Aviva Investors has chosen to focus on senior debt and so will target fixed income investors searching for alternatives to government bonds.

Tarry said there were “attractive opportunities in the senior part of the capital structure”, where the “supply and demand imbalance is at its greatest and there is scope to deploy significant volumes of capital into good-quality loans”.

Tarry joined Cordea Savills in 2012 to launch its debt business alongside Keith Davidson, but left several months later to join Aviva Investors.

Cordea Savills has since switched focus to development financing. This week, it announced it finished raising capital for its Prime London Residential Development Fund.

Cordea Savills has more than £200m (€152m) to provide financing to London residential projects and is also looking to enter into joint ventures “to achieve greater scale and diversification for investors”.

The fund has already attracted co-investment for two development schemes and is close to entering into two more joint-ventures, including an office-to-residential conversion in the West End and a new-build development in the Royal Borough of Kensington & Chelsea.

While Cordea Savills will be aiming to deliver 18-20% returns per annum over four years, Aviva Investors’ new fund will target yields of 2.5-3.5% above government bonds over more than 10 years.

Tarry added: “The opportunity in the market for senior debt investors is compelling enough for managers such as Aviva Investors to replace the space previously occupied by banks.”

The loans, which will go up to 65% LTV, will be sourced by Aviva Commercial Finance, a company that has already been active in the debt markets on behalf of Aviva’s insurance company.

The duration of the loans will be between five and 10 years, making them potentially shorter than Aviva’s traditional “long-term” debt business.

Kevin Sale, commercial finance director at Aviva, said the activity of the new debt fund would be “complementary to our traditional long-term lending and enable us to offer our customers loan terms of five years to 40 years”.

Aviva Commercial Finance has built up a diverse portfolio valued at £14bn. It announced earlier this month that it had provided loans for alternative property assets: a medical centre in Salford and 11 new fire stations in Staffordshire.

It was not disclosed what sectors the new fund would target, but Aviva Investors said it would originate new loans “secured against core and core-plus UK commercial real estate, owned and managed by proven high-quality borrowers”.

The closed-end fund will have a 10-year final maturity from the end of a 24-month investment period.

Aviva Investors expects to complete its capital raising programme by the end of 2014.

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