Insights / 27 May 2020
Property debt fund managers rethink how they are deploying capital in the time of Covid-19
Publication CoStar caught up with James Maunder-Taylor, Crestbridge’s Director for Real Estate Finance Advisory, to explore how credit fund lenders in the senior debt space are tailoring their strategies to account for Covid-19.
James made three observations:
First, given falling asset values and the subsequent chance for enhanced margins for both investors and lenders, there really is no time like the present to start a loan book. Real estate debt funds have had a decade of growing demand from investors, so there is substantial capital that can be invested now. It is noted that the asset class provides both a regular income "with the added benefit" of an equity cushion.
Second, he observed that the deals managers are doing now are "coming back to property fundamentals." Managers are looking to do more deals in prime (the so-called "flight to prime") and each deal is being carefully scrutinised, with particular focus on good income and covenants. This is usual when entering a recession, James said.
Finally, James commented on favoured and out-of-favour sectors, noting that the logistics sector is particularly popular and there is a sustained supply-demand imbalance; supermarkets that are in good locations, have been trading well with long-income and are not over rented, are on the radar for funds and financiers; and conversely, leisure and parts of the retail sector are "really suffering," whilst there continues to be a lot of uncertainty around the student housing market.