Special Opportunities Fund

May 24, 2021

Special Opportunities Fund...

Our funding & financing colleagues are working with a European Special Opportunities Fund. They have circa £3 billion of capital under management on behalf of pension funds, endowments, foundations and other institutional investors. They have offices throughout Western Europe and subsequently invest throughout Western Europe which includes the U.K and Southern Ireland. Real estate equates to 80% of their total investment funds and they need to deploy £1 billion during the next 18 to 24 months.

They prefer to provide the whole capital stack which, obviously, includes senior debt, mezzanine and equity. By providing the acquisition capital and development capital they attract a client's current projects and the client's pipeline of projects. In turn, this funder will offer a client up to £200 million as a funding line over the forthcoming 3 to 4 years thereby allowing the client to focus on projects as opposed to worrying about finance. The client needs to provide only 5% of the project costs.

The day 1 draw down has to be £20 million and subsequently the balance of the facility is drawn down thereafter.

Their preferred sectors are:

• Social Housing

• P.R.S

• Build to Rent

• Student Accommodation

• Hotel Purchase and Refits

• Commercial to Residential.

(They will not engage in planning risk at all)

Their cost of funds to the client are: 10% to 15% coupon plus an equity kicker to achieve an IRR of 20% which is very reasonable.

An example of a recent transaction is as follows:

A developer specialising in social housing which is pre-let to local authorities, received 95% of acquisition and development project costs thereby ensuring the developer input only 5% of project costs. The cost of the capital to the developer is 10% coupon + equity to reach an IRR of 20%. The funding line is £100 million over 3 years.

This facility is ideal for the following clients:

• The hotelier who wishes to expand the number of hotels in the portfolio.

• The build to rent developer/investor who wishes to expand rapidly with minimum capital input.

• The student accommodation developer/investor wishing to rapidly expand the number of beds within the portfolio.

• The developer who wishes to expand rapidly.

It should be noted that after the facility has been deployed the exit strategy for the funder and client will be either a sale to a third party institution or a refinance to discharge the funder by way of longer term and cheaper capital.

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