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Eurohypo, Cairn Capital and Schroders have teamed up to launch a fund that will provide £1.5bn of new debt for the finance-starved UK property market.
The Cairn Property Debt Fund plans to raise £250m to provide junior debt for new property transactions. It has an exclusive agreement with Eurohypo that gives it first refusal for any new loan underwritten by the bank.
The arrangement is beneficial for both the fund and the bank, and should increase liquidity to the property market. New banking regulations such as Basel II make it unprofitable for German banks to lend at loan-to-value ratios above 55%.
The Cairn fund would provide junior debt of up to 75%, at interest rate margins of 450-600 basis points above LIBOR (London Interbank Offered Rate).