Fisher Brothers affiliate Lionheart Strategic Management has entered into a loan acquisition agreement with Schroder Investment Management North America Inc. to target $250 million in transitional and distressed real estate credit investments.
The venture will co-originate transactions and source and service loan opportunities through Lionheart Real Estate Credit Strategies LLC.
“We’re seeing incredible opportunities in the market as a result of the pandemic and its impacts on commercial real estate markets,” said Winston Fisher, Chairman of Lionheart Strategic Management LLC.
“Now more than ever the need for a capable capital partner is paramount and we are well-positioned in that regard. Our value-add as a lender is providing senior lenders with comfort knowing that the mezzanine position is backed by a full-service real estate firm that can provide operational knowledge to complex construction projects. We continue to see high-quality investment opportunities backed by strong borrowers in fundamentally sound markets with significant downside protection given our targeted leverage points, locations and property types. We are long-term bullish on the prospects for economic recovery but are well positioned should that recovery take longer to materialize.”
The COVID-19 pandemic has caused default rates on CMBS loans to reach Great Recession levels and created a need for capital to provide liquidity to the marketplace. According to Fitch Ratings, default rate for fixed-rate CMBS increased to 16.5% as of the first-half of 2020 and is nearing the prior peak of 16.8% recorded in 2013.
Fitch has previously predicted cumulative defaults will reach 19% by the end of year. Many of the nearly $700 billion of construction loans that were originated in 2018 and 2019 will experience delays due to supply chain and labor issues causing these deals to fall out of balance and allowing for opportunities to provide rescue capital to undercapitalized sponsors.
Upon completion or maturity, assets will face drastically different operating fundamentals and a restricted market for financings of transitional assets.
Michelle Russell-Dowe, Head of Securitized Credit for Schroders said, “We are excited to partner with Lionheart to expand our sourcing and servicing network. We believe they are well positioned to help us allocate to opportunistic investments. Our loan acquisition agreement with Lionheart allows Schroders to continue to deploy capital through partnerships with real estate experts with shared credit discipline and patience.”
Christopher Peck, Peter Rotchford, Andrew Scandalios, David Giancola and JLL Global Capital teams advised on behalf of Lionheart in procuring capital for this strategy. Paul Hastings LLP acted as legal counsel on behalf of Lionheart and Ropes & Gray LLP represented Schroders.
Lionheart Strategic Management, LLC is an asset management firm that was formed in 2017 as an affiliate of Fisher Brothers to manage investments for individuals of the firm and on behalf of third party investors seeking exposure to real estate strategies with a primary focus on top urban markets within the United States.
Schroder is a global investment manager for a range of institutions and individuals.