Delancey, the UK real estate investment and development firm, is one of the latest equity-focused organisations aiming to take advantage of banks’ reduced appetite for property lending and the debt opportunities arising from the pandemic.
The London-based company, which is well-known for schemes including Here East, in which it transformed part of London’s 2012 Olympics venue into technology campus, and the ongoing regeneration of the former Earls Court exhibition centre in London, is now including real estate lending in its business activities.
Lorna Brown, the firm’s head of capital markets, who will be at the helm of the new debt strategy, defines the company’s expansion into debt as “an extension of its real estate investment strategy”.
“While people talk about debt and equity separately, for us this is a risk-adjusted investment in real estate,” she explains.
Brown, who joined Delancey in 2019 and previously led Legal & General Investment Management’s lending business, will lead a team of eight at Delancey, which the firm plans to grow over time.
The opportunity to enter the lending space now is, according to Brown, both structural and cyclical. “Since the GFC [global financial crisis], there have been structural changes in the lending industry including tighter banking regulations. But some of these trends have been accelerated by covid-19, which is causing some liquidity constraints in the lending market,” she said. “Both factors make it an interesting time to enter, now that the market can benefit from entrepreneurial capital to help support the delivery of good projects and asset strategies.”
Brown said the company has capital in place to execute the strategy. “Delancey is entering the lending market with the capacity of providing both whole loans and mezzanine debt to support borrowers.”
However, the company’s approach will be to provide “flexible capital”, she added. “The pricing will reflect the risk attachment point of the loan and the business plan of each transaction. Because we are able to invest throughout the capital structure, this will provide a wide range of solutions for borrowers. We can do everything from bridge to longer-term finance to support them.”
Delancey is looking to provide loans on investment and development projects, targeting what Brown described as “transitional loans” secured on commercial real estate “involving asset management or capex angles”.
In addition to being an area where the company has expertise and a long track record, it is a market segment underserved by UK banks, she said. “We are looking to use our real estate focus to underwrite transactions and business plans that may be outside of core bank lending. We will focus on good-quality sponsors and properties with strong business plans.
“There can be less liquidity for development finance projects, so part of our remit will be to bring debt liquidity to real estate assets through their business plans. A part of the market we expect to fill is the incubation stage. We can truly cost and underwrite the delivery and execution of business plans on properties because we have a long-standing track record in UK real estate.”
Delancey will consider financing assets across all real estate sectors, including during their development or stabilisation phase, on the strength of sponsor’s business plans, Brown explained.
Loan size will vary depending on the type of debt the firm is providing, but Brown said the company is mostly targeting the provision of loans against properties that have a value in the €75 million to €250 million range: “That is where there might be a greater pipeline.”
Looking ahead, Brown is confident in the firm’s ability to grow its debt strategy, taking advantage of its experience in the UK market from an equity standpoint. “We feel we will be able to source some interesting off-market opportunities as we have done in the past for our equity investments,” she said.