This article is sponsored by Mount Street.
What were the key events for your firm in 2021?
Last year was about building on the approach we took in 2020. We were determined not to furlough or lay anyone off during the pandemic because our employees are key to our success and as this is a relationship business, we needed to be ready for when market activity took off again. In 2021, we saw a lot of requests for proposals from real estate lending market clients, and we were able to win all the mandates that we went for.
In December 2021, we partnered with a listed fund administrator to collectively provide outsourced solutions in a £30 billion (€36 billion) deal with a major European institutional investor. We also continued to grow in the CMBS servicing market, in both primary and special servicing. Last year we were appointed on more than half of new CMBS issuance in Europe, by volume. The business will celebrate its 10th anniversary in 2023, so passing the £100 billion assets under management mark in less than a decade was a significant milestone for us.
How did you go about growing your portfolio of loans under management in 2021?
We spent a lot of time with our clients, understanding their needs. We have also been focused on diversifying into a broader range of sectors. Indeed, our clients extend beyond real estate, reflecting our expertise in sectors such as corporate debt, shipping, aviation, renewables and infrastructure. If clients like the service we provide in real estate, then we can provide that service to the whole firm, meaning that all their positions are looked after by one provider.
In total, we provide services to around 75 clients, including hedge funds and private equity firms, commercial and investment banks, insurance companies and pension funds. This gives us a broad knowledge of the real estate lending universe and helps us to spot and tackle potential problems at the asset level.
We also have our own ESG team, which can analyse a portfolio and help to manage the refinancing risk that will be posed by more stringent sustainability standards in the coming years. We expect that to be a driver for more outsourcing deals in the coming year.
How competitive is Europe’s loan servicing landscape?
The number of loan servicers in Europe is small, so it is imperative to provide the best service offering and tech solutions. In the US, there are hundreds of loan servicers, but in Europe we are often competing against four or five, and the differentiating factor is not always price, which has become clear during the pandemic. It has been vital to go that extra mile for clients, to find out if they are comfortable with their existing loan portfolios and whether they need extra surveillance.
We believe our proprietary technology platform, CreditHub, gives us a competitive advantage. It is a cradle-to-grave system for loan servicing: payments, asset management, collateral assessments and reporting can be done through it. The servicing world is underserved by technology providers and many of the off-the-shelf US-developed solutions are not fit for purpose in the European market.
Loan servicers manage lenders’ data, and the client should be able to access it easily. We are also building a borrower portal, so that sponsors can input relevant information into the system. As a loan servicer, providing multi-access data is important in today’s market.
It is also important to recruit people from all business backgrounds to remain competitive – a team should not just consist of servicers. You need underwriters, former lenders, developers and even engineers who understand asset diligence and ESG requirements. Everyone in the company can learn from them, and having that extra expertise leads to better service for our clients.
Why did you recently form a joint venture with Greek investment company Technical Olympic?
There will be an increasing volume of non-performing loans trading in Greece and Cyprus, and that will lead to more secondary trades. Big private equity firms are buying multi-billion-euro NPL portfolios, and they cannot work on all of those assets simultaneously with great results. They must break down those portfolios, selling packages to other buyers such as Technical Olympic, and then focus on the assets they are most interested in.
To service a loan portfolio with 20,000 line items, you need a mega-servicer with a thousand or more employees, not our Greek team of 20 real estate specialists. However, once a smaller portfolio of 100 to 150 line items has been sold to Technical Olympic, we can work alongside it to resolve those NPLs at a faster pace.
Are you seeing more distressed situations emerge as lenders and borrowers deal with the fallout of the pandemic?
In October 2021, we were appointed to work on a £350 million UK retail NPL portfolio – a pivotal transaction that shows the kind of opportunities that can emerge. In the UK, the moratorium on commercial landlords evicting tenants ends on 25 March, and a window is opening for change-of-use schemes for secondary and tertiary retail assets in particular. Landlords may want to evict tenants and get hold of outdated assets that need investment and regeneration.
Hospitality and retail businesses were impacted by the Omicron wave in late 2021. As those companies run out of cash, we may start to see more defaults in 2022. On the other hand, some travel and hospitality businesses will bounce back strong. It is hard to make firm predictions because the after-effects of a global pandemic are an unknown for everyone.