Cairn Capital’s plan for a new fund that would provide up to £1.5bn of new property debt has been hit by Eurohypo’s lending freeze.
The Cairn Property Debt Fund is aiming to raise £250m of equity to provide junior debt for new property transactions.
It has an exclusive agreement with Eurohypo, giving it first right of refusal to provide an additional tranche of debt for any new senior loan underwritten by the bank.
However, the decision earlier this month by Eurohypo parent Commerzbank to suspend new business by its property finance unit until at least June next year leaves the fund temporarily stranded.
It is understood that Cairn is going to continue marketing the fund to investors, with the intention to start deals in the middle of next year if Eurohypo’s temporary lending suspension is lifted. There is no suggestion that the debt specialist will look for a new banking partner.
However, the delay is expected to raise issues in relation to investors which have already committed to the fund as it significantly changes the proposition.
Earlier this year it was reported that the fund had raised just over £70m of equity.
Peter Hansell, head of property at Cairn Capital, said: “The temporary withdrawal of Eurohypo from the lending market does not change the concept behind the fund and we are still confident that the concept works.”
Caroline Philips, head of structured debt at Eurohypo, said: “We still fundamentally believe in the concept of the fund, but our ability to source new loans will be limited until we commence lending again.”
“The whole concept of encouraging non-bank parties into the real estate finance sector is not going to go away.”
The Cairn fund was set up to provide junior debt, taking the total loan up to a maximum of 75%. It would allow Eurohypo to effectively offer borrowers loans at higher LTV ratios, while reducing the amount of equity needed.
The ability to provide loans at higher LTVs should allow the fund to provide an estimated £1.5bn of new debt. It aims to make between 10 and 20 junior loans of £5m to £35m.
Cairn is the fund manager, and Schroders was brought on board to give property advice over the seven-year life of the fund. The investment period was set at 18 months and the fund aims to provide a core return of around 7%.
bridget.oconnell@estatesgazette.com
