Standard Life moves into property lending

The move comes as banks including part-nationalised Lloyds, owner of Bank of Scotland, and Royal Bank of Scotland reduce their stock of real estate lending having taken billions of pounds of writedowns when the property bubble burst.

SLI will start making funding available for projects in the fourth quarter of this year with the first deals expected before the end of 2013.

The investments will be overseen by former RBS and Deutsche Pfandbrief Bank staffer Neil Odom-Haslett, who joined as SLI's head of commercial real estate lending at the end of August.

SLI figures show that bank lending to UK real estate amounts to £200 billion, down from £250bn in 2008, while non-bank lenders are starting to move into the sector.

But regulators remain concerned about banks' remaining property loans, which still account for around 40% of their commercial lending books. The Bank of England has estimated that a third of British commercial real estate loans by value have received forbearance and they could be worth £30bn less than their value on banks' balance sheets.

Any worries that banks could yet become forced sellers of property and drag down the market were dismissed by SLI's head of global strategy Andrew Milligan, who cited the sale by the Government this week of a 6% stake in Lloyds.

He said: "You are not going to put Lloyds on the market if you think there is an enormous black hole in commercial property lending in its balance sheet."

Anne Breen, SLI's head of real estate research and strategy, said: "This is a 10-year work out in bank loan books. We are five years into that. There is still five years to go."

She said there had been concern that banks' activity could have a big impact on the UK real estate sector.

"If they were to unwind their exposure quite quickly, that would flood the market. But they have unwound their exposure in a relatively organised fashion," she added.

Ms Breen said that, unlike the 1990s when banks were hit by losses on speculative development, most borrowers have tenants in place and are still servicing their debts.

SLI estimates that institutions other than banks are already beginning to move into real estate lending with around 10% of new loans in 2012 coming from insurance companies.

It sees this trend continuing as European markets move to models closer to that of the United States where there is a range of lenders involved in the sector and there is less reliance on commercial banks.

SLI estimates that returns from UK commercial property will average 8% over the next three years.

Ms Breen said: "Real estate typically provides a positive return to investors when the economy is growing."

But SLI, which manages £12bn of property for its clients, warned that returns from UK real estate will not be evenly spread.

It tips larger shopping centres and major City of London prime office space for strong performance. But the fund manager has a gloomier prognosis for areas like the high streets of small towns which are suffering as retailers pull out.

The £250m segregated mandate that SLI will manage on behalf of its parent will focus on "good quality senior secured loans in the UK market", the house said.

Ms Breen believes that while lenders have focused their activities on London in recent years, more deals could come from outside the capital.

"There are interesting opportunities for lenders outside of London," she said.

David Paine, head of real estate at SLI, said investors are keen to add variety to their real estate exposure by considering property debt.

"Interest from institutions in investing in real estate debt has increased significantly as they seek to diversify both their real estate and fixed income portfolios whilst maintaining and often enhancing yields and risk adjusted returns," he said.

SLI has run a real estate lending business in Canada since the early 1960s.