Montello Capital Partners, the niche UK residential property lender, has launched a stretched senior and mezzanine fund to target the residential development market to lend up to £2m, in an effort to capitalise on the granular lending market often overlooked by banks.
The Montello Development Finance LP is in the process of raising up to £10m but has capital to deploy already to lend to high net worth individuals, family office investors and small developers on stretched senior to mezzanine terms, from £500k to £2m.
Montello will pay investor in the new fund a fixed 10% return per annum, paid half yearly in arrears, derived from deals which are priced on margins between 12% and 18%. The balance, between the two, will be Montello’s profit. The new fund requires a two year commitment from investors.
Christian Faes, managing director at Montello said the new fund will look to capitalise on the lack of lending capacity in the market for small ticket residential development deals.
Montello will lend up to 65% gross development value (GDV), on a first or second charge basis, over typical short durations of between 12 to 18 months, allowing for recycling of the fund’s capital in the open-ended vehicle.
The new fund, which has been seeded largely by existing Montello investors, builds on the three-year track record of the £50m Montello Income Fund, a UK bridging finance fund, which launched in early 2010.
Faes said: “Investing in short term loans secured against residential property in London, has understandably proved to be a very popular investment strategy in the current market. However, there are not that many operators that allow investors access to this investment opportunity in the same way that Montello does.
“We decided to launch the new development finance fund because we had a number of our existing investors that were saying to us that they were keen to go a little higher up the risk curve. We have consistently been able to construct a very conservative portfolio for our existing Montello Income Fund, with an average LTV across the book of around 60% – and that is exclusively lending on a first charge basis.
“We have listened to our investors, and put together the new fund which will be an exciting addition to our existing investor offerings.”
Montello is a specialist real estate bridging finance company based in London. It funds its transactions through alternative capital sources that include its own funds, family office investors, and bank funding.