Savills IM buys minority stake in DRC Capital

The firm enters property lending as it aims to exploit the ‘attractive’ alternative the asset class offers to direct equity investment.

Savills Investment Management, the real estate investment management business of property services firm Savills, has acquired a minority stake in debt fund lender DRC Capital, as the firm expands its investment offer to real estate lending.

The London-based firm has bought an initial 25 percent stake in DRC, with the option to acquire the remaining 75 percent in 2021. The value of the deal was undisclosed, although expectations are for a potential rise in DRC’s value when the rest of the company is up for sale, PERE’s sister publication Real Estate Capital understands.

“This structure was the most appropriate way to start working on this partnership as we move gradually to a full integrational ownership,” Nick Cooper, chairman at Savills IM told Real Estate Capital.

“Together we will use our complementary resources and strengths to focus on growing the platform over the next three years,” Dale Lattanzio, chief officer manager and managing partner at DRC added. “We will operate as DRC Capital over the course of that initial period.”

Founded in 2012 by Lattanzio, Rob Clayton and Cyrus Korat, DRC has been a significant player in the emergence of real estate debt investment vehicles in Europe. It has arranged more than £2.6 billion ($3.4 billion; €2.9 billion) of debt investments and has assets under management of £2 billion across a range of senior debt, high yield and whole loan products.

“This structure was the most appropriate way to start working on this partnership as we move gradually to a full integrational ownership,”

Nick Cooper, chairman at Savills Investment Management

“DRC will form the basis for Savills IM’s entrance into the debt market, while the acquisition will help to grow their income-based investment strategies, with debt being a key component of that initiative,” Lattanzio said.

“We will launch new core senior debt strategies immediately and, with Savills, we will continue to expand our business across the debt sector in Europe,” he added.

Savills IM’s move comes at a time when debt is seen to offer defensive investment positions in European property investment at this point in the real estate cycle. Fundraising activity for real estate debt has been in full swing, with total Europe-focused real estate debt raised in 2017 totaling $10.48 billion, up by $4.98 billion over 2016, according to Real Estate Capital data.

With growing interest in private real estate debt as an asset class, other real estate equity players, such as Schroders, Amundi and BNP Paribas Asset Management, have recently moved into the space.

“We have looked at the debt space for a while and we don’t think the popularity of this asset class is a short-term phenomenon,” Cooper said, adding debt is often seen as an “attractive” alternative to direct equity investment due to the benefit of regular income and the borrower’s equity cushion.

Through the stake acquisition, Savills IM and DRC will promote each other, while any new products will be launched together, Cooper said. At the same time, Savills aims to increase DRC’s exposure to Asia to raise capital to deploy in Europe. “We are seeing interest in debt [in Asia] and we haven’t been able to offer that to our clients yet,” he noted.

Savills IM, with currently €16.7 billion in AUM, has been expanding over the last few years. In 2017, Savills IM integrated Zaphir Asset Management after the €67 million acquisition of Aguirre Newman, the Spanish and Portuguese real estate advisory. Two years earlier, the firm completed the acquisition of the Asia-focused real estate investment manager SEB Asset Management for up to €21.5 million in cash.

With the latest acquisition, Savills IM aims to seize the opportunity offered by real estate debt as a complement of its existing portfolio. “Real estate debt is a legitimate way of obtaining real estate exposure,” Cooper noted.