The Future of UK Higher Education Webinar Highlights: ‘Impact on Financing’ hosted by Q Investment Partners
As the pandemic situation evolves, QIP are committed to optimising their investment strategy for a post CV-19 reality. The Future of UK Higher Education webinar series features insights and updates from their partners across the UK Purpose Built Student Accommodation (PBSA) real estate life cycle. In this edition of the series, Maslow Capital Originator, Sky Mapson joined the panel to share his insights and thoughts on what a post-CV-19 market will look like.
The key highlights of the webinar:
- Debt Capital Markets: Pre CV-19, the debt markets were liquid. When the pandemic struck, lenders applied a broad-based approach of lower leverage and higher pricing. We now see early signs of loan book distress especially from over-leveraged lenders with funding lines being pulled . As such, there are opportunities for special situation funds to provide liquidity at outsized IRRs. Lenders are working closely with borrowers especially with respect to off-site payments and business plans.
- Equity Capital Markets: QIP saw peak optimism pre CV-19 due to Brexit clarity – but when the pandemic hit they re-assessed their underwriting and now have the benefit of learning during CV-19 to stress-test certain markets. QIP see optimism emerging now, especially as investors look to deploy capital with adjusted underwriting. Deals that meet their post CV-19 adjusted underwriting only serve to potentially increase upside for investors if normality is restored.
- Commercial Issues (Development Finance): The key issue was identifying events of default arising from site abandonment, supply chain disruptions, and breach of milestones. Lenders are working closely with developers assessing the effects of cost overruns and guarantees to assess any maturity extensions or waivers. In new facilities, Forsters begin to see pandemic wording in build contracts and developers are trying to pass these on to lenders, albeit with time limits.
- Commercial Issues (Investment Finance): Common issues include financial covenants, students not paying rents/rental concessions and assets not meeting minimum occupancy levels – which will require investors to ask lenders for waivers of covenant breaches, amortisation holidays and in some cases interest payment holidays. Forsters continue to see lenders being co-operative in the short run, giving 6-12 month extensions as no bank wants to be the first “big bad bank”.
- The Future of Financing: Certainty is key going forward, where the panel sees a more conservative lending environment especially in the short term – and as such mezzanine financing may become more prominent in the market. In a recessionary environment, the panel expects higher demand for UK PBSA which will further give confidence to the debt markets. As an investor, QIP are adapting to the new environment by de-levering projects and working collaboratively with our developer/contractors. In particular, we see attractive opportunities in stretched senior or bridge financing – and the key ingredient to unlock these is dry powder.