Why Germany’s Linus Capital wants to lend £100m in the UK this year

The Berlin-based real estate investment firm has opened an office in London and is looking for small and mid-sized lending opportunities.

Berlin-based investment firm Linus Capital, which has arranged almost €500 million of finance for property schemes across Germany since its 2016 launch, has opened in the UK with the aim of lending up to £100 million (€108 million) in loan deals in the country by the end of the year.

Linus sources real estate lending deals, in which it provides capital through its self-managed €350 million debt fund, alongside capital raised from private, family office and institutional investors via its online platform.

The UK arm of its business, which will be based in offices in London’s Mayfair district, will be co-led by managing directors Lukas Endl and Lee Abdul Sow.

The UK, and particularly London, is one of the most important real estate markets globally and has continued to attract global capital despite covid-19 and Brexit, according to Endl. “In the UK, there are many opportunities for entrepreneurial debt funds like us, which is why we chose it to be our next move,” he told Real Estate Capital.

Linus expects opportunities to arise from the funding gap in parts of the UK market brought about by the coronavirus pandemic, explained Sow in a statement announcing the new office launch. “The small to mid-market segment offers great opportunities for us and our co-investors, as we are filling a significant gap in the market. As established debt providers have paused lending activities in the UK due to covid-19 and Brexit fears, there is a unique window of opportunity to scale our operations quickly.”

The company’s ability to offer flexible underwriting standards and higher gearing than most lenders, will enable it to benefit from higher pricing in the current market environment, said Endl. He argued German debt fund lenders tend to offer higher gearing than their UK counterparts. “We tend to be more comfortable with higher leverage, which enables us to market our product competitively in the UK.”

Linus will target lending deals including development finance, mezzanine, bridge and whole loans, as well as senior structures, in the range of £5 million to £50 million. It plans to first focus on Greater London, before expanding to other major UK cities.

Mezzanine loans of between £3 million and £30 million, and whole loans of between £5 million and £50 million, will be provided at up to 75 percent loan-to-value.

Linus’s business model is to commit at least 25 percent of capital in each deal through the company’s debt fund. This requirement ensures all counterparties in the transaction that Linus remains in it as anchor investor, Sow told REC. “After committing the capital, we either onboard the co-investor or leave the entire investment in our debt fund but, either way, we always have 25 percent from the fund invested in projects.”

Although the co-managers said the firm will finance most property sectors, they added that Linus is particularly keen to finance residential assets.

The UK residential sector has demonstrated resilience during the covid-19 crisis and has long-term growth prospects, underpinned by strong fundamentals that are as relevant now as they were pre-pandemic, said Endl. “There is still a chronic housing shortage in the UK. Therefore, there is a need to develop residential schemes, which has been exacerbated by the renewed spotlight the pandemic has put on people’s homes.”