Singapore underwrites Laxfield’s £1bn fund

The government of Singapore has emerged as the unlikely source of finance behind a £1bn mortgage fund for the UK’s beleaguered developers of offices, shops and industrial real estate.

The Government of Singapore Investment Corporation (GIC), the country’s $100bn sovereign wealth fund, will underwrite the loans which will be issued by Laxfield Capital, the specialist property-focused lender.

The move highlights the growing role of alternative finance in the UK property market. Property developers and asset managers have become increasingly strained during the financial crisis as banks, many of which grew overexposed to the sector during the past decade, cut back their real estate lending.

Thus far, however, much of the non-bank capital coming into the UK property market has been in the form of small loans, bridging finance and mezzanine debt – a type of debt that is typically riskier than bank debt and safer than equity – and has focused on low risk property, mostly located in London and the southeast.

“There is quite a lot of debt in the market for core property in the right locations but we will not be restricted to just one area of the country or one type of property,” said Adam Slater, managing director of Laxfield Capital.

“That said, we are not gung-ho and are not about to do anything high risk; we have very conservative backers,” he added.

The senior tranches of the loans, which will range between £40m and £185m and will be for up to 75 per cent of the value of the building, will be syndicated to UK institutions. GIC will hold the junior debt.

The GIC-backed fund is the latest source of non-bank finance to try and gain a foothold in the real estate debt market, following moves by insurers and specialist boutique finance companies.

Last year, Legal & General, the UK insurer, extended its first property-backed loan, providing Unite with a £121m loan for 10 years.

Bank lending to the property sector has declined during the financial crisis, with some banks, including Commerzbank and Société Générale, withdrawing from real estate lending. UK banks alone have £153bn of outstanding commercial debt, according to a study last month from De Montfort University.

The situation is likely to worsen this year, however, as sweeping changes to UK banking regulation increase the amount of money lenders must hold against loans secured on commercial property.