abrdn seeing attractive opportunities in real estate debt market and accelerates deployment for UK pooled fund

abrdn has secured three new investments for its Commercial Real Estate Debt fund II (CRED II), taking deployment to approximately 50%.

The first investment by the fund is secured against a portfolio of best-in-class, prime central London ultra-luxury hotels with a long history of excellent performance. The loan has a 38% loan-to-value (LTV), is rated as A and delivers a total return of c.6% (>100bps pickup over equivalent rated corporate bonds).

The second deal, currently in documentation, is to be secured against a portfolio of high-quality logistics assets located across the UK with long leases in place to high quality tenants. The loan is structured as a 50% LTV loan, rated as BBB and is expected to deliver a total return of c.6.3% on completion (based on current interest rates).

The third investment, also in documentation, will be secured against a prime leisure asset which has demonstrated exceptional performance since COVID and has a long and proven operational track record. The deal is structured with a 45% LTV, rated BBB and is expected to deliver a total return of over 7% (again based on current interest rates).

In addition to these deals, the pipeline for the fund is increasingly buoyant and abrdn has a very positive outlook for the prevailing investment environment. With real estate equity capital value corrections, lower LTV’s and higher margins, abrdn expect to continue to see attractive opportunities in which to deploy the remaining capital in the fund.

Neil Odom-Haslett, Head of Commercial Real Estate Debt at abrdn, said: "We are delighted with the CRED II fund investments to date, which are providing investors with access to significant illiquidity pick up. Across the entire abrdn CRED book, we have had no loan losses to date since inception and indeed, high standards in our underwriting and rating methodology coupled with working alongside experienced borrowers, is key to the success of the abrdn commercial real estate lending platform. As we move through 2023, the lending market will see shake outs, meaning that partnering with a experienced lender will be critical for clients. For abrdn and indeed the alternate lenders, these are exciting times in having the ability to offer investors what could be compelling risk adjusted returns in this asset class. We believe that abrdn is well positioned to help those investors capitalise in this market”.

Commercial real estate debt demonstrates a particularly attractive opportunity in the private credit markets, with spreads and illiquidity premia reaching 10-year highs over the past few years. This comes because of the growing funding gap in this space as banks continue to reduce financing – allowing pension and insurance investors access to this area.

CRED II is an evergreen, UK-focused strategy for institutional investors. The fund is designed to generate attractive levels of income by investing in a diversified portfolio of predominantly senior, investment grade real-estate debt assets. CRED II will have an average rating of BBB and is targeting spreads and illiquidity premia in the range of 375-575bps and 100-300bps respectively. The fund held its first close in March 2022 with £205m in commitments and aims to grow to £1bn.

The commercial real estate debt platform at abrdn is supported by its £94bn1 Fixed Income team, and the Real Estate team representing over £40bn¹ of assets. abrdn’s wide-spanning Private Credit business has over £12bn1 in AUM and is well positioned to provide tailored solutions to clients’ long-term needs.

¹ As at 30 June 2022.