Post-Event Write-up - The Real Estate Debt Series: Event 3

16 Jan 2025

On 16 January 2025, we hosted the third event in "The Real Estate Debt Series" at CMS Cameron McKenna Nabarro Olswang LLP in London. Organised by the AREF Education & Training Committee, the session focused on the practicalities of alternative real estate lending, including market opportunities, borrower perspectives, and ESG considerations.

Key Highlights:

Networking Session:
The morning began with a networking breakfast, offering attendees an opportunity to connect with others in the industry.

Panel Discussion:
The panel, moderated by Patrick Groves (Partner at CMS), featured:

Cyrus Korat, Founding Partner at DRC Savills Investment Management
Maddy Greene, Head of Transaction Management at DRC Savills Investment Management
Simon Norris, Partner, Victory

Key Points Discussed:

Cyrus Korat outlined the growing role of whole loans in the market, noting, "The shift from mezzanine lending to senior strategies over the past five years has created new opportunities in whole loans, offering a compelling risk-reward profile." He explained that whole loans typically cover 65-70% of project costs, with returns of 8-10%. He also explained how, in their view, current economic conditions favour credit strategies over equity.
Maddy Green presented a live case study of a London office refurbishment. She highlighted the incorporation of ESG targets within the loan terms, including achieving EPC A and BREEAM Outstanding ratings. "Our case study demonstrated how a focus on ESG credentials can enhance asset value while meeting modern standards," she explained. Maddy also detailed risk management measures, such as fixed price contracts, sponsor guarantees, and project monitors.
Simon Norris offered the borrower’s perspective, highlighting the importance of working with lenders who understand complex real estate projects. "Flexibility and trust are critical when choosing a lender for complex projects. Alternative lenders often bring the understanding and adaptability we need," he remarked. Simon ran through three examples of Victory Group’s projects to illustrate the importance of strong borrower-lender collaboration.

Panel Q&A Highlights:
The panel addressed several questions from moderator Patrick Groves and attendees, offering practical insights:

On the integration of ESG targets in loans, Maddy Green explained that “financial incentives tied to ESG performance can encourage borrowers to meet sustainability goals, and top-tier sponsors are generally receptive to these requirements.”
A question about lender-borrower dynamics prompted Simon Norris to emphasise the importance of flexibility, stating, “Complex projects evolve over time, and lenders who can adapt to these changes are more likely to build strong, long-term relationships.”
Responding to a question on market risks, Cyrus Korat highlighted the importance of proactive management, noting, “Early intervention and collaboration are key to addressing potential issues before they escalate.”
On the use of loan-on-loan leverage by alternative lenders, Cyrus Korat noted that the prevailing high interest rate environment meant that the case for employing loan-on-loan was less compelling and accretive to returns, with certain alternative lenders therefore preferring to retain the whole loan position.

Closing Remarks:

This event provided attendees with a practical understanding of alternative lending, supported by some fascinating market insights and real-world examples. Recordings and materials are available for AREF members below.

Thank you to CMS for hosting this event.