Sygnus Real Estate Finance — using flexible capital to unlock value in real estateWednesday, April 07, 2021
With the construction sector remaining the most buoyant space in Jamaica during the novel coronavirus pandemic, Sygnus Real Estate Finance Limited (SRF) is looking to change the dynamic of the market by providing innovative solutions.
The St Lucian international business company has set its goals high as its pipeline of projects grow in the multi-billion-dollar industry.
Since its first US$16.2-million (J$2.3-billion) funding round in August 2019, the company has established itself well among the players in the space with even new prospects from the region coming to them.
SRF operates in a unique niche which focuses on providing capital along the value-added spectrum of the real estate asset value chain. This strategy allows the investment company to be more creative in combining capital with the underlying value of real estate.
“SRF is here to provide flexible capital financing to unlock value and monetise real estate projects. What do we mean by flexible capital? Well, we mean that we will look at both equity, as well as debt-based solutions, such as mezzanine, profit sharing, bridge financing, preference shares, senior notes, among others, to work with our clients to successfully execute projects. These solutions are available across all segments of the market, to include residential, commercial, industrial and hospitality. We are changing the game by providing a range of real estate financing solutions that prior to this, were not available to the sector from institutions.” stated David Cummings, vice-president, Real Estate & Project Finance, at Sygnus Group, in an exclusive interview with the Jamaica Observer.
One example of alternative financing Cummings provided was in the case of a $100-million project.
“If a developer has $10 million and the bank is only willing to lend $70 million, SRF would provide the $20-million difference as mezzanine debt so that the project becomes feasible and the bank financing can be accessed,” Cummings explained.
One of its most publicly known investments is the Ocean's Edge Country Club which saw SRF invest US$4.2 million (US$609 million) in the 16-townhouse luxury oceanfront property in Discovery Bay, St Ann. Even with the project still under construction, 15 units have already been sold with the expected completion date set for October 2021. The townhouse units were sold at a starting price of US$485,000 (J$70.3 million) each based on Coldwell Banker marketing.
When asked about the company's ability to exit investments along with the velocity of funds, Cummings gave an outline as to how SRF executes on these stipulated objectives.
“SRF strategy is to focus on projects and opportunities through which it can create value for its investors within a three-to-five-year investment horizon, rather than a 10-year or long-term holding period strategy.
“The exit for us is always important when going into a project. We want to exit within a certain horizon. If we go and stay in, it means that the funds aren't going to turn fast enough for us to invest in more projects and optimise returns for our investors. Once we do the financial modelling for the project, if it's not meeting a certain hurdle, we simply walk away. Our solution might not be the best for that project. We look at projects at various stages. We will go into a greenfield development, joint ventures and to a lesser extent opportunistic asset once we can create the value, it fits our strategy, we clearly understand the risk, and it meets a certain hurdle rate,” Cummings said.
A major part of the capital in SRF is from pension funds that are long-term conservative investors. “Consequently, while our job is to generate risk-adjusted returns for these investors using flexible capital, we also have to underpin our activities by prudency, expertise and robust risk management on a project-by-project basis. A real estate as an asset class is in strong demand by pensions funds and other similar funds. Once we create the value in the asset and de-risk it of the construction and development risk, it's easier for these funds to take these real estate assets on their books and enjoy the long-term steady returns that real estate generally provides.”
SRF also does its own direct development and/or JV developments. One of the most exciting own-development that the company is bringing to the market is its One Belmont joint venture project, which is set to break ground shortly.
The 79,000-square foot property will feature nine floors, four levels of parking and several distinguishing features, [and] which is set to make it one of Kingston's most iconic properties. Apart from being a well-needed addition to the commercial property market, One Belmont will be mainly touchless and feature forward-looking infrared cameras, an efficient HVAC (heating, ventilation, and air conditioning) system and floor-to-ceiling windows of appropriate design to mitigate against hurricane risk.
“One Belmont is a daring response to an evolving world and reimagines the standards of Kingston's commercial spaces. LED strips around the building,” stated Cummings on the commercial real estate project. The project is slated to be completed in 24 months, but we are already seeing strong interest from corporates and investors in the project despite the current environment.
“The building will have LED strips around it. This means that when you have significant national events, then you can reflect that in the colours. The LEDs can become pink for Breast Cancer Month and on Independence Day can be adorned with our national colours. This can become an iconic landmark building on the New Kingston landscape as the LEDs change to meet the national mood.”
SRF's other upcoming projects include the residential development, Norbrook Wasser (Water in German), located in Norbrook, St Andrew, and the Lakes Pen Industrial Park, in Lakes Pen, St Catherine.
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