QuadReal sees debt opportunities in the UK amid market dislocation

The Vancouver-based investor last week made an entry into the UK debt market with the acquisition of a significant stake in alternative lender Précis Capital Partners. The deal, which will see Précis rebrand as Precede Capital Partners, follows a yearlong search for a development loan specialist in the UK, according to Jay Kwan, head of Europe at Quadreal.

‘We started looking to make a move in the UK debt market in late 2021,’ Kwan told PropertyEU. ‘We anticipated a financial dislocation coupled with regulatory changes, that was our main rationale to get into the market. We spent over a year speaking with partners, and one of the most attractive parts of this new joint venture is non economic, it’s the alignment of values and ethos with the management team and the company’s shareholder, Towerbrook. Going into 2023, it definitely seems like it was the right call to make a move in the credit business at that time, we now have the advantage to be an early mover into this market and we have actually already closed our first loan.’

Kwan sees the dislocation currently unfolding in the market as two-fold. On the one hand, recent regulatory changes including a reform of Solvency II and Basel III have dampened the appetite of traditional bank lenders for real estate financings. On the other hand, interest rate rises and price increases have resulted in a general slowdown of market liquidity. ‘Having the courage to invest in this market means an opportunity to secure pretty interesting returns,’ Kwan noted.

DIRECT LENDER AT HOME
QuadReal is not new to the credit business. In its home North American markets, the Canadian investor has long been operating as an active direct lender so branching out to the UK was ‘a natural step forward for the business’, added Kwan. ‘Given the common language and the shared culture, as well as our existing investment activity on the equity side, it was inevitable that we would enter the UK debt market at some point. Partnering with the deep bench of seasoned professionals at Precede Capital in this area, at this time, is a natural extension of both investment priorities and advancing our real estate credit business to the UK from within North America.’ The group’s debt portfolio currently stands at C$10 bn.

As part of its partnership with Précis (now Precede) and its founding institutional shareholder, TowerBrook, which has retained a significant shareholding, Quadreal is committing up to £1 bn (€1.1 bn) of capital to be deployed into development loans largely backed by UK living assets. Kwan: ‘Given our strong capital base, we are in the fortunate position to help drive the acceleration of Precede’s business. We are under no pressure to invest within a certain amount of time but given the current dislocation in the capital market we expect to have invested this amount over the next one or two years.’

The group will be focusing largely on whole loan construction lending, with a preference for UK living assets including built-to-rent, student housing and later living. ‘The living sector is one of the key pillars within our global areas of conviction. Our focus on this segment in the UK also aligns with our conviction on the equity side of the business because we are confident in the underlying characteristics of the market. We think however that there could be opportunities outside this narrow selection of assets, including in commercial real estate, and we remain flexible and open to invest in new segments as the opportunities change,’ added Kwan.

Precede Capital will be looking at the UK’s major cities starting from London, Leeds, Birmingham and Manchester. Since its launch in March 2021, the platform has originated and arranged loans totalling £1.5 bn to finance the construction of residential properties in the UK. With the new investment, Precede Capital expects to arrange an additional £3 bn+ of loans through capital structuring via syndication and leverage.