Deloitte’s new real estate debt advisory boss on being a ‘jack of all trades’

Deloitte has become the latest in a growing number of firms seeking to tap into rising demand for debt advice in real estate, as market confidence strengthens and deal volumes recover. Recent research from Link Group suggests that close to two-thirds of property lenders predict that loan origination will increase this year. Leading the accountancy giant’s bid to expand in this area is former Capra Global Partners director Chris Holmes, who joined as a partner last month to set up a UK real estate debt advisory business. Holmes tells EG why the firm wants to grow in this field, his plans for developing the business and which sectors might hold the greatest opportunities. Why did Deloitte choose to launch a real estate-focused offering now? It complements everything Deloitte does in other business lines. The real assets advisory business originally came together with the Drivers Jonas acquisition [in 2010], which is strong in advising on areas such as valuation, planning and development. There are situations where debt advisers are naturally needed, so there was a real need to complement those services. That’s why Deloitte has been looking at expanding to this area. It started doing much more about a real estate debt advisory offering last year, but obviously with 2020 being the year it was, everything moved at a slower pace. Real estate sucks in a lot of capital, and it needs all kinds – equity, hybrid and mezzanine capital, a lot of senior debt. The need for debt advisory to navigate a very fragmented market has not been greater than it is now. Which sectors offer the most opportunities? The polarisation of sentiment in sub-sectors has meant that interest has turned down on areas such as retail and hospitality. Conversely, it has turned up on logistics and other areas spinning out of e-commerce, and certainly anything with residential derivatives such as student housing, co-living and PRS. Capital will easily come into some areas, but the market will be starved in others. Capex requirements for certain real estate sub-sectors are going up. They are not just for dealing with obsolescence or old real estate, but also with new greenfield development where carbon needs to be reduced during construction to create sustainable, fit-for-purpose institutional assets in 2021 through to 2040. Generally, if you’re an FD or a CFO, you might cover a bit of the market and have some existing relationships, but if you need to source debt for a risk profile that is often not catered for by the regular banks – something that is high leverage or a development that’s a bit out there – you need to find new sources of debt and managers who are keen to grow their balance sheets. That’s key, as opposed to some traditional lenders that are standing still with their portfolios and, in some cases, trying to run parts of their portfolio down because they’re weighted towards hospitality and retail. What aspects do you plan to cover? In debt, we have the ability to be jacks of all trades. You get quite a lot of variety through that. We’re currently looking at senior debt, for both acquisition financing and refinancing. We are also looking at mezzanine debt financing situations. Across that, some of it is acquisition financing, refinancing of standing assets and construction financing. We also want to increase our sustainability exposure as we build the business. We recently submitted a proposal to act on a green bond issuance. What are your main ambitions in the short to medium term? Strategy-wise, my main targets are to use the depth of the Deloitte network to reach out to clients needing specific debt advice, to build profitable growth on the back of transactional deals, to hire externally and build a pipeline of transactions to allow for sustainable growth over an initial period of 18 to 24 months. The strategy is still being formulated. I’ve been using my first few weeks in the role to build internal networks and understand the existing skills resource. We are getting the recruitment process under way, but the t’s are still being crossed and the i’s dotted. Precise roles and locations are still being worked through. In an increasingly crowded market, how will Deloitte stand out against the competition? While the market has advisers, there is plenty of room and plenty of transactions for Deloitte to make a real impact in a way that differs from a property agency, as the traditional hotbed of mortgage and debt advisory. You’d probably call the listed New York brokers the top tier of property consultants, but Deloitte has a unique perspective as a Big Four player that can harness its internal service lines, bring everything together and get transactions completed. What is your outlook for the year ahead, and how do you expect lender behaviour to evolve during the period? Lenders are pretty active at the moment. There is a sense that the pandemic is fading – it is taking time but there is recovery, and that has clearly been seen in the activity led by equity investors. I think in the next 12 months we will see more of the same. You’ll always find, in any fragmented market, there are those that want to move and expand more aggressively and those that are happy because they’ve already reached a certain level of volume and are being more selective. There are those that have decided they don’t want to be in the business and they’re perhaps winding down, but that’s probably marginal. Confidence is in the market.   To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews