The majority of institutional investors are expecting interest in real estate development finance to increase over the next three years, a survey from an investment manager found.
Research from Downing with UK institutional investors responsible for £405.6bn of assets under management (AUM) revealed that 94 per cent predicted an increase in demand for real estate finance.
A quarter of respondents said the increase would be “dramatic”.
The investors, who work for private and public sector pension funds, family offices and insurance asset managers, believe this will rise because real estate finance is a good way to diversify asset portfolios.
It is believed that the investment will be attractive due to the potential yields and ability to meet environmental, social and governance (ESG) goals by investing in social housing and developing residential properties in areas in need of housing.
Downing’s research found that rate diversification was named as the main reason for investing in real estate, according to 56 per cent of responses, while 26 per cent cited yields. A fifth said the risk profile relative to yield could motivate investment.
Some 99 per cent said investing in real estate development could help to de-risk defined benefit pension schemes as it offered “high and stable income” while matching liability cashflows and growth.
Some 93 per cent of respondents predicted the scrutiny of ESG credentials would increase over the next three years.
Parik Chandra, partner and head of specialist lending at Downing, said: “Real estate development finance is firmly established as an attractive asset class for institutional investors as it combines the potential for high yields with the opportunity to meet ESG goals.
“That is reflected in Downing’s experience, and we are seeing growing interest from institutional investors in the sector.”
Downing’s specialist lending division provides funds to investors and property developers to deliver residential-led schemes and commercial developments. The specialist lending team has made commitments of more than £600m since its establishment.
The lender lends between £1m and £30m to developers up to 90 per cent loan to cost and 70 per cent loan to gross development value. It can lend more on a case-by-case basis.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
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