Octopus raises £130m for commercial property debt fund
Octopus Investments, has raised £130 million to launch the Commercial Real Estate Debt Fund, a closed-ended limited partnership that will offer its institutional investors a credit-based exposure to the highly attractive UK commercial property market.
Octopus Investments, a fast-growing UK fund management business with leading positions in several specialist sectors including property finance, healthcare, energy and smaller company investing, has raised £130 million to launch the Commercial Real Estate Debt Fund, a closed-ended limited partnership that will offer its institutional investors a credit-based exposure to the highly attractive UK commercial property market.
The fund will be managed by Dragonfly Property Finance (‘Dragonfly’), the property finance arm of Octopus, which is widely regarded as one of the leading lenders to property investors in the UK. Dragonfly, launched just five years ago, has already lent in excess of £1 billion.
“We are delighted to have been able to offer institutional investors access to this exciting asset class,” said Simon Rogerson, CEO of Octopus Investments. “There is a real demand from investors for commercial property debt while Dragonfly’s track record in providing finance to entrepreneurs and property professionals is exceptional.”
The £130 million will provide Dragonfly with considerable financial firepower as it continues to lend to commercial property investors. Funding has been provided by Octopus and a broad range of third-party institutional investors. These investors include a leading European family office and a number of pension funds. Simba Capital acted as placement agent for the fund.
Dragonfly is targeting an annualised internal rate of return of 11%–12% for the fund, after all fees and costs are subtracted. The fund will have a three-year commitment period with full repayment expected after approximately four-and-a-half years.
“The commercial property finance that we provide continues to meet a very real need in the UK market,” said Jonathan Samuels, CEO at Dragonfly. “We provide short-term finance for entrepreneurial property investors who require speed of execution and flexible finance to unlock turnaround strategies.”
The UK’s commercial property sector has performed increasingly well in recent months, with rental and capital growth benefiting from the wider economic recovery. However, traditional lenders have maintained the highly conservative lending policies they adopted in the wake of the financial crisis, leaving many entrepreneurs struggling to access finance.
“For investors, commercial property debt is a compelling way to access the asset class,” added Ludo Mackenzie, Dragonfly’s Head of Commercial Property. “Not only are the potential returns very attractive, but we look to manage the downside, with lenders taking first charge on the properties against which the loans are secured.”
Octopus’ launch of the Commercial Real Estate Debt Fund follows swiftly on the heels of its acquisition of MedicX Holdings Ltd, the leading UK healthcare real estate investment manager. MedicX manages over £0.9 billion of funds across the LSE-listed MedicX Fund and two private closed-ended institutional funds. The acquisition provided a unique opportunity to scale the Octopus Healthcare business.
Commenting, Simon Rogerson said: “Octopus is growing rapidly as we look to expand our investment platforms to enable more investors – both retail and institutional - to benefit from the attractive returns and growth that these sectors have the potential to offer. Last month’s acquisition of MedicX and today’s launch of the Commercial Real Estate Debt Fund are key milestones in delivering on this strategy.”