Rivercrown, which revealed it had launched an alternative lending arm recently, said that despite the lockdown of economic activity since March this year, £5.2 bn (€5.6 bn) of credit opportunities has hit its desk, of which £3.3 bn meet the target returns for its special situations vehicle launched at the onset of the Covid-19 crisis.
Charles Archer, head of debt investment management, who was formerly at Legal & General, told PropertyEU, ‘Broadly speaking, the demand comes from two key camps; sponsors in situational distress needing short term support during this period of crisis, and well-capitalised sponsors who continue to see attractive market opportunities, where a higher cost of capital is still accretive to their cash-on-cash economics.’
He added, 'The reason we are seeing this positive deal flow is similar to the aftermath of the 2008 financial crisis. Most major lenders have pulled back from lending into real estate during the current period of uncertainty and are limiting their lending to existing relationships or “no brainer” type deals.'
Back in 2008, this contributed to a widespread tightening of credit as there wasn’t the depth in the marketplace that alternative lenders now provide.’
The Rivercrown professional is now wondering whether the increased presence of alternative lenders in the real estate finance market might help drive a stronger, faster recovery this time around.
‘The rise of alternative lenders has arguably been one of the biggest real estate finance stories of the last decade,’ he said, ‘Many were bred by the last financial crisis, filling the void left by big banks. They include the likes of Blackstone and Oaktree who have now become established debt funds. A further raft of new players followed them into the market – especially late cycle – taking market share from traditional lenders.
‘It is certainly true to say that in 2008, finance simply wasn’t there for real estate investors in the same way it is today. There are more flexible alternative lenders in the market than ever, and it looks like even more are gearing up to enter.’
Different crisis
However, this crisis is different to the last boom and bust one in which excess liquidity was followed by the taps being turned completely off.
‘The trigger has been different this time,’ said Archer. ‘Monetary and fiscal policies to tackle Covid-19 appear to have put a floor under asset prices and most commentators do at least agree on a recovery, if not the corresponding shape. All this will keep alternative lenders in the marketplace.’
Office prospects
‘Furthermore, contrary to popular, more alarmist commentary, we do not believe the current pandemic signals the end of the office, and we remain strong supporters of the high street and leisure.
‘The human desire for social interaction, together with the ancillary benefits of the office environment encouraging collaboration and mentoring amongst colleagues, as well as the professional relationships formed through doing business will prevail.
‘Consequently, offices, and the mix of retail, leisure, hotel, and residential properties that support workers in city centres will still be needed. And real estate finance to develop these properties will be needed too.
‘We see the current crisis more as a market dislocation rather than a trigger for more radical structural change.'
Rivercrown launched its Special Situations Credit Vehicle in June 2020 for borrowers with funding gaps or short-to-medium term dislocation.
Archer said the fund was targeting a variety of structures across the capital stack: ‘We are accepting out of favour sectors providing we are confident in the credibility of sponsor business plans and mitigants to the sector risk such as development upside potential.
He added, ‘We are comfortable with hotels, particularly those benefiting from both business and leisure spend. We will also look at retail with the potential to benefit from alternative use, and prime London residential where there is sufficient headroom between our rolled-up debt basis and a discounted valuation.’
