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© Real Estate Credit Investments Limited, First Floor, Dorey Court, Admiral Park, St Peter Port, Guernsey GY1 6HJ - Email  mail@recreditinvest.com          Disclaimer

Investment profile

Real Estate Credit Investments seeks to ensure that its investment portfolio is geographically diverse and backed by a broad range of financial assets. The Company focuses primarily on secured residential and commercial debt in the UK and Western Europe by exploiting opportunities in publically traded securities and real estate loans. In making these investments RECI uses the expertise and knowledge of its Investment Manger, Cheyne Capital Management. RECI has adopted a long term strategic approach to investing and focuses on identifying value.

Cheyne's real estate team has an established and documented process to source, underwrite, approve, execute, monitor and exit positions:

  • Sourcing: The team has long standing relationships with leading banks and brokers and frequently benefits from being able to view opportunities on a “first look” basis. The initial investment filter analyses the underlying credit and structural features to form a view on credit risk versus expected returns.
  • Underwriting: If an investment passes the initial risk versus return test, the team progresses to conduct an in-depth credit due diligence. The Company’s approach focuses on the three layers of analysis:

  • Asset Level Analysis: assessing the collateral value including cash flows and recovery, rigorously stress-testing by applying worst case yields and assumptions on factors such as macroeconomic variables, vacancies, rents, defaults and repossessions
  • For residential mortgages, the Company also benefits from exclusive access to mortgage pool tapes and in-depth modelling tools which allows for proprietary loan level data to support analysis at a very granular level.
  • Loan Level Analysis: understanding key loan terms including covenants and triggers, enforcement mechanisms and foreclosure process, timing and costs. In the present distressed environment, it is vital to understand the mechanics and timing to recovery on any given loan.
  • We also perform an analysis of the motivations, rights and likely actions of the other parties to a transaction – such as the loan servicers, mezzanine lenders, controlling parties and other large investors in any part of the capital structure.
  • Bond Level Analysis: understanding the key terms of the bond structure including: triggers that change the cashflow waterfall; hedging characteristics and modelling of unhedged interest rate risk

  • Approval: Any investment requires approval from both the portfolio managers. This rigorous internal process is documented and then supplemented with the Investment Manager’s internal controls, including firm-level oversight from a Conflicts Committee that meets at least quarterly, and regular review by the Risk department.
  • Execution: The Investment Manager has the market reach and relationships, established over the last 7 years, to achieve the best pricing including often a “first and last look”. The team is disciplined in its approach to pricing by independently establishing a price during the underwriting phase and requiring prior Investment Committee approval.
  • Monitoring: On an ongoing basis, the main focus is on underlying asset and loan performance, with no reliance on rating agencies. The team engages with the Servicer on each deal and takes an active role, including when possible acting as class representative or Operating Advisor, in order to take an active role in potential restructurings and gain insight and additional information on the position's performance.
  • Exit: Either through loan repayment from amortization/refinancing or secondary sale. In addition, since many bonds are opportunistically purchased due to technical selling from stressed sellers (e.g., following a rating downgrade) there are also opportunities for early sale in the secondary market as pricing recovers due to technical factors or improvement in the collateral fundamentals (e.g. post-restructuring).


USP

  • Unique Approach to Underwriting: The team applies a rigorous, fundamental analysis of all aspects of each position, including the "Asset-Loan-Bond" level analysis as outlined. In contrast to more passive managers or opportunistic traders, Cheyne underwrites each position on a hold-to-maturity basis, while continuously monitoring the market for potential early exits through secondary sales. The team models out the cash-flows in detail, stress-tests assumptions and maps out the decision-trees of likely outcomes in various scenarios. The team does not rely on rating agencies, but rather goes to the source to get additional colour on the transaction e.g., engaging with servicer, property and loan-level data, site-visits to assets, internet searches/database searches of assets, analysis of sponsor motivations and refinancing capabilities etc.
  • Team of Investment Professionals with Broad Experience: The Cheyne Real Estate Debt Team comprises of seventeen dedicated professionals. The teams experience includes notably:

  • Direct Investing: hands-on experience in direct investing in real estate loans and bonds secured against real estate in Europe
  • Structuring: several team members previously worked in investment banks structuring securitizations and trading whole loans
  • Restructuring: the team has been actively involved in several restructurings of commercial real estate B-loans of securitizations and junior tranches.
  • Trading: continuous market presence of Cheyne traders in the European MBS market

  • Established Trading Presence: Unlike new funds recently set up to take advantage of the European real estate debt opportunity, the team has established market reach and relationships, having been active continuously in the market for last five years. The team knows all the participants and has the relationships to get the best prices and information to source trades. The managers continuously monitor the universe including tracking names with upcoming pricing events to purchase at a discount.
  • Full Transparency and Customized Reporting: Cheyne believes in full transparency to investors. The Fund provides detailed monthly reporting to investors. On request, Cheyne makes available detailed outputs from its portfolio management systems and also provides direct access to portfolio managers for calls or face-to-face meetings.
  • Robust Organizational Structure: Cheyne has 3 independent layers of monitoring and verification by internal and external functions to ensure appropriate operational support and risk mitigation: 1) Cheyne Operations: (Middle Office, Finance, and IT), 2) Cheyne Risk Management: (Compliance, Legal Risk, and Pricing Committee), and 3) External Verification: (External Administration, Audit by the "big 4" firms, FSA Inspection, Founding Member of the Hedge Fund Working Group, and Independent Directors).