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asset manager partnerships
The UK commercial mortgage market delineates a private alternative asset class that offers balanced attributes to supplement traditional fixed income portfolios with good diversifications. Over the past decade, European institutional investors have made sizeable allocations to the UK commercial mortgages. In particular, in investment grade commercial mortgages that allow for easy capital deployment and diversification to achieve capital efficient returns and diversification benefits. In post-Brexit years, the UK commercial mortgage market has attracted a broader array of investors, including non-European investors and liability-driven investors like pension funds and sovereign wealth funds.
UK investment grade commmercial mortgages
Negotiation Leverage
Directly originated senior mortgage loans secured by cash flowing commercial real estates or/and multifamily real estates
Direct contact with the borrower provides the opportunity to structure deals with tailored covenant packages
Strong Deal Flow
Fixed and floating rate loans with loan-to-value ratios typically 65% or less and which benefit from existing in place cash flow
A strong supply of middle market debt opportunities is expected from the combination of numerous forthcoming debt maturities and significant strategic funding needs
Flexible Term
Under 12 months or 3–5-year loan terms;
Minimum return thresholds can be achieved through favourable call protection.
Strong Risk-Adjusted Returns
Private loans structured to deliver a maximum yield premium over comparably rated corporate credit
Significant yield premium relative to broadly syndicated loans, even with lower leverage levels
Historically lower default rates and higher recovery rates relative to large corporate loans
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SECURED INCOME
Senior loans secured by first charge on stabilised properties;
Investment grade senior
Fixed and floating rate
Agricultural loans
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ENCHANCED INCOME
Senior and subordinated loans secured by first charge or second charge on pre-stabilised or light transitional properties;
Whole loan
Junior debt
Levered senior
Senior Stretch
LBOs
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TOTAL RETURN
Whole loans and mezzanine debt with equity participations in value-add properties;
Sub-investment-grade
Whole loan
Mezzanine
Capital appreciation
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STRUCTURED CREDIT
Macroeconomic outlook with in-depth security-level analysis across all market sectors, especially in non-index-eligible securities;
ABS
MBS
CMBS
CLOs
CDOs
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A MAXIMUM YEILD PREMIUM
Unlike other yield enhancers that provide higher income to compensate investors for increased risk and greater volatility of returns, UK commercial mortgages offer added income primarily because of their lower levels of liquidity and the complexities of the market’s direct origination model. In addition to delivering a spread premium at origination, the UK commercial mortgages can earn additional income through origination and servicing fees, as well as exit fees that are often required as part of the loan terms. All these fee streams aid to provide increased overall income premium to realise a maximum yield.