London-based DRC Savills Investment Management, which earlier this month formed a joint venture with Atlanta-based Quadrant Real Estate Advisors to expand its commercial real estate lending platform into the US, is hoping to build out its platform at a time when there is a dearth of available financing in the market.
“It is an interesting time to enter the US markets because the size and speed of the interest rate rises and the adjustment in capital values is creating an opportunity for non-bank capital, even in the US where there is a more balanced system of providers of this type of debt,” Dale Lattanzio, managing partner of DRC Savills, told Real Estate Capital USA. “We think the opportunity is so large and that it is timed well in terms of bringing our skill set and what we do into the market.”
DRC Savills, which has about £2 billion in assets under management in a portfolio that includes senior debt, high yield and whole loan products, is the joint venture’s majority owner. The firm already originates debt investments in the UK, Europe and Australia and will follow a similar strategy for its new platform.
“We want to back good sponsors with good track records in the residential and logistic space. We can offer a development facility or a stand-alone stabilized asset that is coming due for refinance or acquisition,” Lattanzio said.
DRC Savills offers what Lattanzio believes are straightforward, traditional lending products, with the ability to originate senior and mezzanine loans.
“One of the differences is that we don’t use as much of the capital markets innovations which are prevalent in the US. We make loans, leave them unleveraged and take our return through the income profile of the loan,” Lattanzio said.
DRC Savills got its start in 2008 when commercial real estate debt was just emerging as an investable asset class and was one of the firms to launch a fund platform dedicated to that part of the market. It is owned by London-based Savills Investment Management.
The ability to form a joint venture with Quadrant, owned by Kurt Wright, Jessica Eggins and Walt Huggins, was a key component of DRC Savills’ move to expand into the US, Lattanzio said. The firms have had a relationship for more than five years when Quadrant was active in the European market, he added.
“Having a like-minded team with similar view of risk, return, structuring and lending underpins the venture,” Lattanzio said. “We had been looking for the right time and the right way to enter the US at a time when Quadrant was looking for a partner to grow its business.”
Sector-wise, the firm’s existing views in Europe will translate well into the US, with the venture focusing on areas in which it sees structural underlying shifts and properties with durable cash flows.
“We like residential and we like different forms of multifamily, like student housing and co-living,” Lattanzio said. “The multifamily market is highly developed in the US and there is room for growth in certain regions in the US by backing good sponsors with good track record.”
In addition to working with Quadrant’s existing network in the US to source deals, Lattanzio noted DRC Savills has relationships with a number of global sponsors it has done business with in Europe and the Asia-Pacific region. The venture will focus on forming relationships with which it can conduct repeat business, he added.
“We like to be an investment adviser that offers the borrowing market a range of solutions,” Lattanzio said. “We feel like some alternative lenders are really becoming what banks once were for borrowers. That means having different elements of a lending program that meets different needs from stabilized to transitional to value-add to development.
“To be able to offer our clients a diversified global portfolio – we have the Asia-Pacific Region, Europe and the US – and to be able to articulate the difference between risk and return in those regions, which each go through different cycles at different times and in different ways, is fairly unique.”