Blockages in the supply of smaller commercial property debt have prompted a Florida-based investor to pump £450M into UK real estate lending.

Affiliates of Bayview Asset Management, the boutique hedge fund headquartered near Miami, have agreed to an initial £450M funding partnership with London’s Octopus Real Estate.

Octopus will use the cash to make two-to-five-year senior investment loans, which it said will help meet an undersupply of debt at the smaller end of the commercial lending market. The funding will target loan opportunities up to £25M.

“The granularity and liquidity of smaller loan sizes have been tested over the pandemic, showing robust performance. The opportunity to partner with Bayview was compelling,” Octopus commercial fund manager Nick Westoby said.

The deal follows a busy period for Octopus, including establishing a £175M Greener Homes Alliance with Homes England and announcing a £462M raising of funds for its UK commercial bridge lending strategy.

The undersupply of small-balance loans takes Bayview one step further into European non-bank lending.

In July 2021 it launched Bayview PACE as part of an effort to expand its business in the commercial real estate, clean energy and energy efficiency lending market. It described the move as “an inflection point” in its lending strategy, unlocking capital for property owners to make energy-efficient and renewable building upgrades, fund new construction and provide rescue capital toward recovery from the pandemic.

As of September 2021, Bayview assets under management totalled $14.7B.

PwC acted as lead adviser to Octopus on the funding agreement.