QuadReal Property Group, the Vancouver-headquartered manager which has formed a partnership with London-based lending platform Précis Capital Partners, believes ‘market dislocation’ makes now an interesting time to enter the UK real estate debt market.
The company, which has C$67 billion (€46.5 billion) of assets under management globally, has bought a stake in Précis – which has been rebranded as Precede Capital Partners – and has committed up to £1 billion (€1.1 billion) of capital with which Precede will originate whole loans in the UK residential development sector.
QuadReal already has around C$10 billion of real estate debt AUM through its role as manager of the real estate debt program of BCI – the investment manager for British Columbia’s public sector pension scheme. However, it joins other North American managers, including KKR, which are expanding their credit activities into Europe as they perceive greater opportunities for non-bank lenders as banks become more risk-averse.
“It has always been part of QuadReal’s long-term plan to extend its credit business from North America to Europe,” Jay Kwan, managing director, head of Europe, at QuadReal told affiliate publication Real Estate Capital Europe.
“Current market dislocation only makes it more interesting to do so now,” he added.
Kwan also explained QuadReal’s decision to enter the UK debt market by backing a residential-based strategy. “Whether we’re investing in equity or credit, we invest in sectors in which we have high conviction. UK residential is one such sector, and we have a significant presence already in UK – and North America – residential for rent.”
Precede was founded as Précis in March 2021 by Randeesh and Daljit Sandhu, the former co-founders of residential development financing platform Urban Exposure, as well as Karen Dunstan, who was previously general counsel at Urban Exposure. The firm was launched with the backing of private equity company TowerBrook, which remains its largest shareholder following the QuadReal agreement.
Since its founding, Precede has arranged loans totallng £1.5 billion for residential for sale or rent, student accommodation and later living schemes. In 2021, it formed a lending partnership with US investment firm Carlyle, through which it subsequently arranged financing deals alongside lenders including US manager Apollo Global Management.
For Precede’s co-founders, the agreement with QuadReal represents the beginning of a new stage of growth for the company.
“We went out to the market to raise more discretionary capital, leading to conversations with QuadReal,” said Randeesh Sandhu, chief executive and co-founder of Precede. “Companies that are interested in entering the UK lending market have the option of either launching their own platform or backing an existing one. Through this deal, QuadReal has gained access to a ready-made lending infrastructure and pipeline,” he added.
“The synergies with QuadReal were an attraction for us”, commented Daljit Sandhu, co-founder and chief operating officer of Precede. “We get to partner with a global, well-respected organization that has a specific focus on the residential asset class around the world.”
Daljit explained that the £1 billion committed by QuadReal provides Precede with greater reserves of capital with which to solely underwrite development financing deals, and subsequently syndicate portions of them. “We expect to underwrite transactions of on average £250 million,” she added.
In total, by using the £1 billion of capital in syndicated and leveraged financing deals, Precede is aiming to arrange more than £3 billion of loans in the UK market.
To date, Precede has arranged large-scale development financings, with syndication partners committed from the outset. Its largest loan, in May 2022, saw it arrange a £772.4 million facility to recapitalize and fund the completion of a high-end residential and hotel development in London’s Nine Elms area. Apollo provided a £540 million senior construction loan, with Precede, Carlyle and Crosstree Real Estate Partners providing a £232 million mezzanine facility.
Looking forward, Randeesh expects returns generated through its strategies to remain relatively stable, albeit with the levels of leverage it provides averaging 65 percent loan-to-cost, to reflect the greater uncertainty in the market.
“The residential development financing market in the UK in general is generating double-digit returns on an unlevered, floating-rate basis, because of the increase in the SONIA rate,” he said. “We as lenders are very much open for business, but we have always been highly selective as to who we lend to, so nothing has changed there.”
As part of that cautious approach, Precede is prioritizing lending against operational assets, such as build-to-rent, due to downward pressure on values and strains on end buyer affordability in the residential for-sale sector.
Looking forward, QuadReal’s Kwan sees growth potential for the company in European lending markets. “We plan to expand into other geographies and sectors, but only in the future, and only if the right opportunities present themselves in the sectors we like,” he explained.
“For now, we want to ensure we make good investments in this specific strategy in the short term, and that success will allow us to expand further in the medium to long term,” he added.