Mayfair Capital closes second residential debt fund

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Mayfair CapitalMayfair Capital Investment Management has completed a first close on its second London residential debt fund, Mayfair Capital Residential 2 (MCR2), with £17 million of commitments.

This second fund follows on from the success of Mayfair Capital Residential 1 (MCR1), which was launched in October 2012 with £30 million of committed equity. MCR1 made seven investments, of which five have been fully realised, returning 89 per cent of investors’ equity. The two remaining investments are expected to be realised in the next 6-12 months. MCR1 is on track to exceed its target of delivering investors an IRR of 15 per cent per annum net of all fees, expenses and carried interest.

MCR1 was focused on investing in and lending to residential development projects in Zones 1 and 2, whereas the strategy for MCR2 is to focus on Zones 2 to 5.

James Thornton, Fund Director and Chief Executive Officer of Mayfair Capital, said:

“The funding gap for developers in London continues to exist, with a gap between the amount senior lenders are prepared to advance and the level of developer equity.

“Each investment will generally be structured on the basis of an interest-bearing loan and a profit-participating loan. We do not, therefore, see ourselves as pure mezzanine lenders, more as property partners to the developers we back, given that part of the return is linked to the success of a scheme.”

MCR2 is structured as a closed-ended English limited liability partnership with a feeder fund for exempt investors. Investor commitments will only be used once, with capital and loan interest returned on a project-by-project basis. Although the fund is set up with a five to seven-year life, it is expected to run for only four years.

In terms of investable area, Simon Martindale, Fund Manager with responsibility for investment, said:

“Parts of London look highly valued and are vulnerable to further value falls, as the Government’s tax changes and other measures are fully reflected in the high end segment of the market and buy to lets. For this reason, we are focusing on backing developers with good track records in developing in Zones 2 to 5 in what we call “affordable” London. Projects will comprise a mixture of apartments and houses and we will be avoiding prime central London”.

MCR2 is aiming to deliver an IRR of 10 per cent per annum net of all fees, expenses and carried interest. Investors include investment companies, pension schemes and private investors. Five Directors of Mayfair Capital have committed equity to the new fund in order to align their interests with investors. A second close is scheduled for later in the year which is expected to raise a further £20-30 million.