While several UK-based real estate debt advisory firms have expanded their reach across the English Channel in recent years, it is unusual to see continental European intermediaries target expansion into the UK.
Germany’s Laurus Property Partners is pursuing that strategy. The firm has hired former Lloyds Bank real estate banker Andrew Wheldon to run a London-based office as it aims to win advisory mandates in the UK.
Former investment bankers Oliver Richter and Matthias Dahmen were London-based when they launched Laurus in 2015, although the firm targeted business in their home country from the outset and they subsequently relocated to Munich.
Laurus has raised around €2.3 billion of capital for borrowers across 55 deals in the last four years. Real Estate Capital met Wheldon and Richter to discuss the rationale behind the strategy.
Real Estate Capital: Why does it make sense to enter the UK real estate debt advisory market, which is much more competitive than in Germany?
Andrew Wheldon: The UK market is served by brokers, but not by many full-service advisory platforms. There are now lots of one-man-band brokers, but there is a lack of quality in the debt advisory space, especially for clients which need independent advice from inception to the execution of a deal. There are also opportunities in the UK, such as build-to-rent, where I have been active in recent years. This sector will present opportunities across the capital stack including debt, equity and forward funding.
REC: Why enter the UK now, with Brexit looming?
Oliver Richter: Uncertainty and volatility and an ever-more fragmented lender universe means specialist, up-to-date knowledge of lender appetite across all parts of the capital stack is more valuable, rather than in an environment where it is plain-sailing. Regardless of the Brexit outcome, the ability to add value by understanding where the alternative pots of capital are is important.
REC: What impact is Brexit uncertainty having on the real estate debt space?
AW: There has been no shortage of liquidity since the global financial crisis, particularly in the last three or four years, but there is no doubt that both UK and overseas banks are becoming more cautious about the market. The past 12 months has seen a sharper focus on what type of Brexit deal the UK will be able negotiate with the EU and the potential impact for the real estate markets. Perhaps more importantly, however, focus remains on where the UK is in the property cycle, particularly as we are starting to see late-cycle signs of stress in certain sectors of the market. Both of these factors are acting to limit liquidity.
REC: How would you describe lending conditions in the German market?
OR: Between 2014 and 2017, the German market was extremely liquid. If you were a capable sponsor, you would be able to get multiple term sheets with pretty competitive terms, including for value-add and opportunistic deals. Over the last year, as lenders feel it is late cycle, many of the large lending institutions have become more restrictive and selective. So, it is important for borrowers to be able to access the alternative pools of capital in the market, such as insurance companies, pension funds, specialist and regional bank lenders and debt funds.