Rivercrown to target ‘situational distress’ with new European debt vehicle

The principal investment and advisory firm is aiming to invest up to €500m through its special situations strategy.

Rivercrown, the principal investment and capital markets advisory firm, has launched a special situations credit vehicle designed to target European real estate debt opportunities brought about by the covid-19 crisis.

In an announcement, the company said it is seeing a wealth of opportunities across property sectors, often in cases where there is a funding gap combined with an element of “short-term, situational distress”.

Through the vehicle, Rivercrown will offer a range of debt products – ranging from short-term bridging facilities and preferred equity stakes to five-year stretched senior loans – in parts of the market it described as “out of favour”, such as value-add retail or leisure property in need of repositioning.

It also plans to draw on its advisory experience in the non-performing loans market to buy existing debt from lenders.

Rivercrown has so far raised €50 million, including in-house seed capital and investment from a third-party source. It is aiming to raise additional investor capital in the coming year, to create between €250 million and €500 million of lending capacity.

Jacob Lyons, co-founder and co-chief executive of the company, told Real Estate Capital that it will aim to achieve “low-to-medium double-digit IRRs” through the strategy.

“Larger funds such as the US private equity companies are well equipped with opportunistic capital, but they are more focused on the US credit market for the time being,” he said. “We can do smaller deals than such investors would in Europe now. In the US, it is possible to talk to the big PE firms about $5 million-$10 million cheques, but they aren’t doing such small deals in Europe, yet.”

Stephen Benson, Rivercrown’s other founder and chief executive, added that the sweet spot for deals done through the vehicle will be €20 million-€50 million. The volume of capital raised for the strategy will depend on the duration of current market conditions. He added: “We need to prove that this is a structural investing opportunity, rather than just a three-month window.”

Demand for finance is increasing as Europe’s commercial real estate market copes with the impact of covid-19 lockdowns, Lyons said: “In this market, the phone rings constantly. We often get calls from banks and distressed sellers looking into what they will do with existing positions.”

Financing opportunities are also likely to be sourced from sponsors and brokers, Lyons said. As well as retail and leisure sponsors, Rivercrown will also target serviced offices in strong locations, plus hotel developers or investors in need of short-term capital or bridge finance to stabilise assets. It also suggested it will target student accommodation and residential investors requiring inventory bridging loans, and other markets with pandemic-related issues.

Benson: expects lenders to divest loans

The company will also aim to buy performing, sub-performing and non-performing loans and portfolios from banks and alternative lenders as they seek to exit positions, for reasons including increases in regulatory capital costs or increased provisioning.

However, Benson foresees loan purchasing opportunities to be on a smaller scale than in the wake of the 2007-08 financial crisis. “I doubt there will be a return to the large portfolio sales, but we will definitely see banks and funds sell off individual loans,” he said.

Lyons added: “We have started to call alternative lenders to ask about buying specific positions from them. Such lenders are not always interested in selling, but such calls often lead to conversations about other loans or positions with breaches which the lender may be keen to sell.”

Rivercrown, which rebranded from CR Management in 2019, said it will look for opportunities across Europe, with a particular focus on its core target markets of the UK, Ireland, Spain, the Netherlands, Germany and Portugal.

“Existing lenders have lost appetite for real estate, but we are looking to invest as the market comes out of the worst of this crisis,” added Benson.