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Rivercrown data identifies significant demand for ‘special sits’ credit in Europe


  • Demand highest for construction & repositioning facilities, along with investment, residential inventory loans and land bridge loans.

  • Large borrower appetite for hotel and residential.

  • Data split roughly 50:50 across UK and Western Europe.

Since the lockdown of economic activity in March, real estate investment and advisory firm Rivercrown has analysed £4.5bn of special situations credit opportunities from across the UK and Western Europe. This huge level of potential deal volume has been broken down into market snapshots revealing strong demand for special situations real estate finance by purpose, real estate sectors, and borrower appetite.


Construction finance has seen the highest demand from sponsors, accounting for c.50% or £2.25bn of enquiries. Demand for investment finance came in second place, representing 29%, followed by repurposing, residential inventory, and land bridging at 8%, 7% and 6% respectively.


Hotels account for the highest demand by sector at 36% or £1.6bn, followed by residential at 26% or £1.16bn, with mixed-use, student accommodation and offices accounting for 8%, 7%, and 4% respectively. Under 4% related to retail, despite current headwinds in the sector and unsurprisingly, less demand came from PRS/BTR and industrial/logistics sectors reinforcing the strength of these sectors in the current environment. Conversely 9% came from the specialist sectors covering a wide range from the increasingly mainstream senior living, medical and life sciences sectors, through to bespoke regeneration and construction projects.


The type of specialist finance borrowers required differs by geography. In the UK, there was for a broad range in demand from investment, construction and bridging finance, whereas demand for construction across continental Europe was greater and included a handful of large hotel construction finance requests which are considered challenging in the current climate.


Across Europe, 67% of enquiries were for construction finance, followed by investment finance at 23%. 46% of EU borrowers needed specialist credit for hotel projects, 19% for residential, 16% for mixed use & bespoke projects and 7% for student accommodation.


In the UK 35% of enquiries were for investment finance, followed by construction finance at 33%. 34% of UK borrowers needed specialist credit for residential projects, 25% for hotels, 7% for land and 6% for student accommodation.



Charles Archer, Rivercrown’s head of debt commented:

“A lot of the lending market has been closed or limited for new business, but the significant volume of special situations deals we are seeing means that attractive opportunities exist for alternative lenders with the right resources to identify the strongest prospects. We are seeing demand coming 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.”


In June 2020 Rivercrown launched its Special Situations Credit Vehicle, to support borrowers with funding gaps or short-to-medium term dislocation, whilst targeting attractive risk-weighted returns underpinned by quality real estate and sponsors. It is targeting multiple structures across the capital stack, accepting out of favour sectors, but only with credible Sponsor business plans and re-development or re-positioning upside potential.


Rivercrown caveats that the values presented with each loan request are likely to represent pre Covid-19 levels, that need to be re-affirmed and stress tested; and the debt underwrite requires careful attention to ensure sufficient headroom between Rivercrown’s rolled-up debt basis and a discounted valuation.


Archer added:

“This high deal flow allows us to be particularly selective, with only the most attractive opportunities making it through our deal screening process. We always target sponsor, property and transaction quality, but we do consider a balance of the three, and can accept construction risk with strong tier one sponsors. Hotels are a good example of where you can find these attractive opportunities at present – Covid-19 has shaken up owner business plans but ultimately, if the Sponsor has a quality asset & strong track record and simply requires a refinance to afford some room to breathe; we are comfortable with providing support, taking the view that the best hotels and Sponsors will be well positioned to recover the strongest when life returns back to normal”.

Of the £4.5bn potential deal volume Rivercrown analysed, 49% was from the UK, 15% from Iberia, 7% from Germany, 6% from Benelux, 6% from Ireland, 5% from Scandinavia, 2% from France and the remainder from pan-Euro portfolio’s and smaller geographies. Rivercrown adds that attractive whole-loan opportunities were available in the stronger banking markets of Germany, Benelux and Scandinavia at the onset of the lockdown, but whilst those markets have now recovered quite strongly, higher leverage or mezzanine opportunities still exist.


Rivercrown’s data revealed that the majority (83%) of development loan requests are for 70%-80% LTC (Day 1) and the investment loan requests are split roughly 50:50 either side of 60% LTV. 75% of all loan requests are at indicative margin (pre-fees) of 10%-15%, suggesting a greater reliance of specialist credit during the current environment; with either areas of situational distress, or well capitalised Sponsors still happy to accept a higher cost of capital which remains accretive to the deal.


The £4.5bn of special situations credit opportunities Rivercrown has obtained this data from is part of the wider £8bn of debt deals it has analysed since March 2020. Rivercrown is a team of 30 experienced finance and real estate professionals located across Europe, skilled in functions from loan origination, underwriting, execution and servicing, all carried-out in-house.


For all enquiries, please contact:


Jacob Lyons

Managing Director

T +44 (0)20 7629 6634

M +44 (0)78 5033 1793

jacob.lyons@rivercrown.com

52 Conduit Street

London W1S 2YX

United Kingdom



Stephen Benson

Managing Director

T +44 (0)20 7629 6634

M +44 (0)77 3617 2872

stephen.benson@rivercrown.com

52 Conduit Street

London W1S 2YX

United Kingdom



Charles Archer

Director

T +44 (0)20 7629 6634

M +44 (0)79 2007 8060

charles.archer@rivercrown.com

52 Conduit Street

London W1S 2YX

United Kingdom



 CONTACT US

Rivercrown Head Office

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United Kingdom

+44 (0)20 7629 6634

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Madrid 28001
Spain

+34 627 25 54 93

Rivercrown Portugal Office
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14 - 6º - 1050-121 Lisboa
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+351 213 021 763

 

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Rivercrown Finance Limited is a registered company in England and Wales with registered number 09077487 and registered office at 4th Floor, 52 Conduit Street, London W1S 2YX. Rivercrown Finance Limited is authorised and regulated by the Financial Conduct Authority. Rivercrown Management Limited is an Appointed Representative of Rivercrown Finance Limited.

Directors: Jacob Lyons, Stephen Benson and Gilad Tal.