Schroders, Lionheart Bet on Distressed Properties in U.S. Cities
(Bloomberg) -- Investment manager Schroders inked an agreement with Lionheart Strategic Management for distressed and transitional U.S. real estate property lending in mostly urban areas.
Schroders and Lionheart, an affiliate of real estate investment firm Fisher Brothers, plan to target pandemic-hit properties through a loan acquisition agreement, according to a representative of Lionheart. The $250 million joint venture will focus mainly on top 20 metropolitan statistical areas and urban locales on the assumption that cities will make a strong recovery.
“There will be a lot of pent-up demand; entertainment will come back, hotel and travel, too,” Winston Fisher, chairman of New York-based Lionheart and partner at Fisher Brothers, said an interview. “Shopping in person will change, but there’s opportunity. That’s why we’re lending. We believe in the recovery.”
The two firms will co-originate loans, with Lionheart helping Schroders source, service and allocate financing for construction and land loans, as well as transitional properties in the process of being redeveloped for another use. They’ll also invest in other distressed real estate opportunities that may bring in a safe, attractive return, Fisher said.
Lots of Opportunities
“We’re seeing incredible opportunities in the market as a result of the pandemic and its impacts on commercial real estate markets,” Fisher said, noting that his firm is a developer as well. “We underwrite each real estate investment as if it were equity, with a deep analysis on the properties.”
Widening spreads on commercial real estate loans -- a result of the upheaval caused by the pandemic -- means good risk-adjusted returns, Fisher said, especially since they are targeting fairly low-leverage projects, with loan-to-value ratios typically no higher than 75%.
The venture will undertake everything from mezzanine financing -- a riskier type of second mortgage that sits between senior debt and equity -- to whole loans from banks as well as new construction projects.
“Our loan acquisition agreement with Lionheart allows us to continue to deploy capital through partnerships with real estate experts,” said Michelle Russell-Dowe, head of securitized credit at Schroders, the U.S. unit of London-based Schroders Plc. “Schroders buys securities and we also lend, including making or buying whole loans. There are many opportunities to provide financing in this market.”
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