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Press article
from Börsen-Zeitung
18
.
06
.
2020

'Prices have not collapsed'

A yield of 5 to 10 % for the provision of subordinated debt capital, still 3 to 4.5 % for a senior tranche - the figures presented by David Neuhoff, founder and CEO of Linus Capital in an interview with the Börsen-Zeitung, make it clear why his investors include insurers, pension funds and smaller banks as well as wealthy private individuals.

A yield of 5 to 10 % for the provision of subordinated debt capital, still 3 to 4.5 % for a senior tranche - the figures presented by David Neuhoff, founder and CEO of Linus Capital in an interview with the Börsen-Zeitung, make it clear why his investors include insurers, pension funds and smaller banks as well as wealthy private individuals.

Since its foundation in 2016, the investment platform has provided 32 projects in the real estate financing sector with slightly more than 500 million euros in debt capital. "Currently we still have 19 projects with a financing volume of 320 million euros on our books," says Neuhoff. Half of these are residential and half commercial properties located in Germany, mainly offices and a small number of hotels.

In 2020 Linus Capital wanted to invest 600 million euros. "So far, the investment has amounted to 200 million euros. However, we have suspended hotel investments for the time being during the Corona crisis. If we do not see any interesting investment targets, we would reduce our investment target without further ado," says Neuhoff. His focus is on residential, office and logistics. "We assess hotel and retail projects much more restrictively than before Corona," he adds.

Neuhoff claims to have always valued projects conservatively: "We have never speculated on rising prices. At the moment, he gives the current market valuations of rents and purchase prices a discount in the form of a lower loan-to-value ratio, because there is uncertainty in the market. However, reservations and notarisations for Berlin housing projects, for example, are continuing as normal: "Prices have not collapsed. On the other hand, some commercial properties were difficult to sell because they could not be viewed.

In principle, the shareholders of Linus Capital and a fund set up by the company first provide capital and then offer institutional and professional private investors and family offices to participate as co-investors. In the first step, the loan is granted in full and then parts are syndicated to partners, says Neuhoff. The individual tickets range from 5 million to 100 million euros. "Our biggest deal was 85 million euros." In a large senior financing, institutional investors can participate in the senior tranche with 50 to 70 % of the loan amount, while private investors can participate in a subordinated tranche with a maximum of 50 %, and in larger tranches often only 25 %. "In the case of a senior loan of 25 million euros, a German insurer may participate with 15 or 17 million euros, while a mezzanine loan involves various private investors with a total of 3 to 5 million euros". The minimum participation for private investors is 200,000 euros.

The level of return on the mezzanine or junior tranches depends on the risk class of the project. "In the case of a portfolio financing of a fully let property that generates monthly rents, it's more in the direction of 5%. In the case of a classic project development of an empty property on which, for example, condominiums are to be built, the returns tend to be in the direction of 8 % and more". Institutional investors can achieve 3 to 4.5 % with the senior tranche.

During the Corona crisis, many banks put their new business in real estate financing on hold altogether, Neuhoff observed. Some continued to make new business, but took considerably longer to release or only accepted much lower loan-to-value ratios. "This liquidity hole is an opportunity for alternative financiers like us because we can now enforce higher interest rates and generate lower-risk business in terms of loan-to-value ratios.

At Linus, four co-investment projects with private investors, insurance companies and banks for a total of EUR 40 million have been completed since the lockdown. "With the two who have invested with us repeatedly, everything went smoothly. With the third, a new client, the processes took longer. This is normal with new partners and has nothing to do with Corona. Nevertheless, private investors are increasingly asking how Corona's impact on the project is assessed. Overall, Neuhoff observes a certain reluctance among investors, but no investment stop.

Article by Thomas List, Börsen-Zeitung, 18.06.2020

Media contact Linus Capital
Jens Secker
BrunoMedia GmbH
E-Mail: secker@brunomedia.de
Phone: +49 6131 930 28 33

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