UK-based development finance provider Maslow Capital has launched its first loan book liquidity fund, aimed at supporting the completion of existing property development deals that could be facing liquidity stress due to the disruptions caused by the covid-19 pandemic, sister publication Real Estate Capital has reported.
The Maslow Liquidity Fund will acquire existing loan books from other specialist lenders to provide them with the working capital they could be lacking to continue funding existing development financing deals. Some non-bank lenders are more exposed than banks to the economic conditions caused by coronavirus, given their focus on riskier segments and their funding models.
Deposits in low interest current accounts provide major banks with a cheap way to fund loans, whereas many non-bank lenders rely on more expensive funding from capital markets, which has become more limited since the start of the pandemic. Alternative debt providers require a steady flow of investor capital to fund live developments.
“Sometimes the funding models we see in the industry mean that not all lenders have the necessary access to capital to continue to feed developments to practical completion,” said Ellis Sher, chief executive and co-founder of Maslow Capital. “Some of these funding models are currently coming under intense pressure creating opportunities for Maslow to work alongside lenders to find pragmatic liquidity solutions, whilst avoiding the risks of exposing fundamentally sound assets to a cautious market.”
The fund will target deals worth at least £50 million ($61 million; €56 million) or with the potential to achieve such an amount in aggregate through a series of loans. With the aim of allocating more than £250 million over an indeterminate time period, the fund will also refinance existing projects and provide costs for the completion of facilities.
Although most of the fund’s opportunities are likely to arise from non-bank lenders, whose funding models are coming under stress, admitted Sher, opportunities could also come from banks, which might decide to hold less real estate debt on balance sheet for the time being.
“Whilst we will continue to originate and finance the delivery of ground up developments, the launch of the Maslow Liquidity Fund will help broaden the range of transaction we can support,” Sher said. “The pandemic has caused companies to relook at their business models and our view is that in our development funding niche, existing lenders and borrowers will be seeking alternative ways of de-risking, generating liquidity while protecting asset values by ensuring developments reach practical completion.”