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U.S. private equity giant Oaktree is making a major push into UK residential development lending, looking to take advantage of a part of the property market that traditional banks have vacated.
Oaktree has backed a new development lending platform, Silbury Finance, which will be run by two debt veterans. Silbury was founded by Matthew Pritchard, formerly head of European Real Estate Debt at Man Group, and Gavin Eustace, formerly head of Residential Development at Octopus Real Estate.
The platform will underwrite senior loans typically in the £10M to £150M range with a loan-to-value ratio between 60% and 70%, and it is targeting half a billion pounds of lending in 2021 and up to £3B of lending over the next six years. It will focus on the residential, retirement and student accommodation sectors. It said credit supply in its targeted segments is constrained in part due to the decreased capacity of UK clearing banks to lend to certain real estate sectors.
“We view the challenging economic backdrop as a compelling entry point to the sector and plan to take full advantage of the lack of a legacy book to focus on expanding quickly,” Oaktree Director Pablo Velez said. “UK real estate, in particular senior secured lending collateralized by residential developments, offers an attractive combination of risk and returns, and we expect this to continue for the foreseeable future.”
“Middle-market residential developers continue to be hugely underserved by the lending markets, and we expect the current uncertainty to only exacerbate this trend further,” Pritchard said. “Swathes of UK lenders, comprising both the high street banks and alternative lenders, have retrenched due to uncertainty generated by the COVID-19 pandemic and are committed to managing their current loan books. Large debt funds continue to seek the higher returns available from the large single ticket loans.”
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