Aeon Investments Closed Its First UK CRE CLO Warehouse at $1.02B

Aeon Investments closed its first collateralized loan obligation (CLO) warehouse for real estate investment in the UK for approximately $1.02 billion (£900 million). This will allow the firm to ultimately finance acquisitions through bonds covering loan expenses.

It’s a tricky time for UK real estate, given recent financial and economic turmoil. The Bank of England has raised interest rates to fight inflation that had largely been a product of soaring energy prices. However, budget decisions under new Prime Minister Liz Truss’s government during the last six weeks are likely to drive up inflation at a faster rate. In a speech on Saturday, as the BBC reported, the Bank of England’s governor, Andrew Bailey, warned, “and as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

Conditions that had been driving up interest rates, as in the US and other parts of the world, have now accelerated in the UK, making CRE financing more challenging. That will likely lead to more call for bridge financing as many developers and investors try to wait for rates to stabilize.

A CRE CLO is a hybrid form of structured financing that is like a standard CLO but which is backed by short-term CRE loans, like bridge financing, rather than mortgages, as with commercial mortgage-backed securities (CMBS). The revenue gained from payments on the loans ultimately pays interest and principal to bondholders. The revenue from the bond issuance allows the lenders to leverage their capital. “It provides investors with a more liquid alternative to the commercial real estate loan syndication market,” the release said.

As Aeon notes, CRE CLOs until recently hadn’t been in use in Europe since the global financial crisis.

“Aeon’s recent agreements with WayPark Capital, a newly  launched commercial real estate lending platform, private bank Arbuthnot Latham & Co, and specialist SME finance platform Assetz Capital, expands its commercial real estate investment programme, which launched in Q4 2021,” said the release. “The originators will provide commercial real estate borrowers with tailored loans and financial solutions of between £2 million and £20 million with LTV ratios of up to 75% for acquisitions, refinancing, and asset upgrades across the UK, including offices, industrial units, warehouses, and some retail properties.”

Funding the loans will be Aeon’s own capital resources and a three-year revolving senior warehouse facility from Credit Suisse. Aeon looks to issue three CLOs over the next few years. Aeon will use proprietary systems to screen loans expected environmental, social, and governance (ESG) performance.