Investment opportunities differ in their appeal to investors dependent upon the rationale for investment. Some investors are simply very risk averse whilst others will determine the degree of risk they are prepared to take, often according to the overall investment returns they are seeking to achieve. Many investors will sell an asset as it becomes higher risk and/ or more dependent on active asset management to maintain or enhance income and capital value. Some investors will be selling their asset as a result of an immediate or imminent difficulty they feel unable to resolve, or perhaps do not have the time or inclination to tackle. There can, of course, be many issues that relate directly to the asset and the profile of the asset owner that results in a disposal. The asset in need of active asset management is one of the types of investment opportunity that Moorfield looks for.

The terms “stress” and “distress” refer to an asset’s financial state and are often used interchangeably in the market place. However, Moorfield distinguishes between these two areas of investment opportunity and the approach to sourcing from them.  Stress will often be a precursor to distress and arises as a result of catalysts such as a loan maturity, an enforced debt reduction or the need to fund essential capital expenditure requirements that can’t be met from surplus cash flows or additional debt. In some of these situations the asset might be being managed appropriately and there are opportunities to partner with the existing borrower, particularly where an injection of funding is required alongside the adoption of a refreshed Business Plan. Moorfield created the ‘White Knight Partnership’ to attract these types of opportunities enabling it to use its skills of partnership and delivering structured financial solutions to reach a mutually acceptable conclusion. The alternative outcome may be that the stress, limited management capability and/or lack of capital provokes a sale in which case Moorfield would take full control of the asset before it reaches the distressed stage.  Distressed opportunities invariably arise when the bank has determined to take control and administrators have been appointed to sell the asset. This typically implies that the asset has been neglected in some material form (financial or asset management) and that it therefore requires intensive asset and/or financial management to stop value decline prior to value creation being achieved.

Given that the banks need to reduce their exposure to real estate as soon as possible, they are increasingly evaluating the benefits of undertaking real estate loan sales. This may also present opportunities where it is possible to underwrite the underlying assets and obtain the appropriate asset control. Moorfield will purchase asset related debt or work with the bank and borrower to find a mutually acceptable financial solution. Moorfield will remain selective in its asset exposure even if purchasing or gaining the asset exposure through a debt or a related instrument. The assumption here is that ownership of the debt/financial instrument might result in ownership of the underlying asset.  Moorfield may also invest in a real estate asset class through supporting a management team. This support will come in the form of an equity or loan investment together with material control over the asset, financial, strategic and corporate business planning. Investment in asset and corporate debt or equity enables Moorfield to gain exposure directly or indirectly to assets that would not ordinarily be available to it at an acceptable cost or time.

Since the mid-nineties, many organisations have come under considerable pressure to enhance shareholder value through corporate restructuring and by returning the business focus to stated core activities. One of the fall-outs of this activity has been the disposal of real estate held as fixed assets. These assets can offer significant investment appeal from a number of perspectives, ranging from leasebacks to refurbishment/redevelopment.  A second fallout from changing business practice and corporate reorganisation has been the shorter more flexible leases demanded by the occupier and the opportunity is to embrace this change where appropriate. Company take-overs, privatisations, insolvencies and refinancings can also result in investment opportunities arising, particularly if it is in the real estate sector or involves asset rich businesses. In addition, substantial portfolio acquisitions in need of an asset ‘sell-down’ and leveraged real estate funds reaching maturity are also a source of interesting investments.

Emerging real estate markets can also offer opportunistic fund returns. A great deal of research and caution is required prior to making an investment, with the intent of not being ‘first to market’ but instead being ‘early to market’. First to market will test demand and normally highlight errors that can be seen and later avoided. Examples of this early to market activity where Moorfield has strategically and actively participated are; student and key-worker accommodation (Domain), Build to Rent (The Keel), limited service hotels (Kew Green Hotels), retirement villages (Audley) and hostels (Safestay).