Matrix Group, a privately owned UK financial services business, is launching a Commercial Mortgage Fund to take advantage of what it sees as the continuing constrained bank lending conditions in the UK commercial property market.

The fund, which is targeting £200 million (about $320 million) of equity initially, is structured as a 6 year closed-ended Luxembourg SICAV. Distributions will be paid quarterly with an target annual income yield of 7-8 per cent when fully invested and target returns of 12 per cent net of management charges and costs. The minimum investment is £1 million.

The fund will be managed by Rick Gambetta, who believes that “the European commercial property industry continues to face significant funding obstacles and the recent market volatility and concerns regarding sovereign risk have not made these any easier to overcome.

With nearly half of the £244 billion of outstanding debt against UK commercial property needing to be repaid over the next two years, and with all banks facing tighter regulatory capital constraints, Matrix believes that the severe imbalance between the supply and demand of debt will continue to provide an opportunity, not only for borrowers to find much needed debt terms, but also for investors to earn consistent, high risk adjusted income returns from secured junior debt.

“This situation has created an attractive investment opportunity for new and alternative sources of capital to provide the debt finance that the commercial property industry needs to meet its own refinancing and ongoing funding requirements.”

The fund has been set up to exploit the funding gap in the 50-75 per cent loan-to-value range through the provision of new subordinated secured junior debt. This will be facilitated using the team’s close relationships with selective but active senior lenders to provide all-in debt packages to borrowers.

Patrick Bushnell, director of European property and European property investment at Henderson Global Investors from 2002 to 2008, is joining the team as chairman of the fund’s board.