UBS Global Asset Management has teamed up with Mitsubishi Corporation to launch its first UK real estate debt fund and has secured financial backing from a “major European pension fund”.

UBS GAM revealed last year it was talking to investors about a proposed £350m (€421.5m) Participating Real Estate Mortgage Fund (UBS-PREMF).

Today, it was announced that Japan’s Mitsubishi Corporation would act as a “co-general partner” in a fund targeting £500m.

Mitsubishi Corporation has seeded the fund with £50m, while Swiss bank UBS and an unnamed European pension fund will also provide capital, giving UBS-PREMF an initial lending capacity of £114m.

UBS GAM and Mitsubishi Corporation already work together in Japan, where their joint venture MC-UBS Realty Management, established in 2000, manages two Japanese real estate investment trusts (REITs).

In a statement, Mitsubishi Corporation said it had previously “focused on the domestic real estate market” but was now “intending to expand its asset management business to foreign real estate and other real assets”.

Two Mitsubishi employees will join the UBS-PREMF team in London, led by UBS GAM managing director Anthony Shayle.

Shayle and Lily Lan, made assistant portfolio manager in December, will be able to start making deals for the fund while capital-raising efforts continue.

The new fund will provide single loans to borrowers with relatively high loan-to-values (LTVs) – up to 75% – that would typically require a combination of senior and mezzanine debt from separate lenders.

There are other ‘whole loan’ strategies being employed by real estate debt funds in the UK, but the ‘participating mortgage’ model is unusual in that the lender also takes a share of the rental growth and capital appreciation of the underlying property.

UBS GAM already has experience with mortgages in the US through its $2bn (€1.5bn) Trumbull Property Income Fund.

Shayle said the UK fund would target borrowers looking for loans in the range of £10m to £40m, where “there is a shortage of lenders willing to take on these smaller requirements”.

He added: “We are able to look at development and investment prospects across the UK and most sectors.”

UBS-PREMF is targeting a total internal rate of return of 8-10% per annum and for annual income to make up approximately 75% of its total return once fully invested.

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