Updated: Jan 25, 2021
Just a day after my previous deal analysis, Rendity has published a totally different type of deal.
It's a refinance deal of a current rented multi-office (industrial?) building, currently located to a mix of tenants, with an anchor tenant of good quality (a waste management company renting from 30 years): it seems that the current owner arrange a new finance structure funded by a bank a senior mortgage and the crowdfunding loan as subordinated, giving as guarantee the value of the building. That's how a traditional refinancing works, you can "extract" equity from an increased valuation of the asset (reached thanks to a increase in NOI or a cap rate compression).
But looking at the documents i noticed that some transaction costs need to be added to the transaction (some 400.000 on 6.5 mln purchase price, a pretty high 6.1%, probably brokerage fee). So i'm wondering what they mean for "partially redeem the equity invested"? When? Initially or later in the future?
However, we have some data: net (of what, opex and?) NOI of 378.000 and a buying price of 6.5mln. It's easy to calculate a cap rate of 5.75%. Is it fair? I guess so but we're missing many other data to value the deal. What's totally missing is the rent roll of the tenants: who are the tenants, what's the size split, what are they paying, what are the contract maturities, etc.
All is in the air, no transparency at all.. we only know that there's a large tenants... but what if next yeat his contract expire and they don't renew? Or someone other does this?
Is there any indication of WALE??
Let's take a look to the leverage structure:
Also here a lot of leverage, with only 7% of equity and 83% debt, splitted in 74% senior and 19% sub loan (the crowdinvesting). A lot of risk also in this case, but somehow different from a development case, at least in terms of potential recovery value.
Yes because it's fundamental to evaluate in worst case scenario how much and if it's possible to recover something.
In a deal like this it's fundamental to calculate how much the current income can cover the financial expenses. The building is fully occupied, so it's yet expressing its full potential; 378000 euro are our best scenario (it could improve in case of rent increase but there's no hint about it, also if the current 3.89 rent/sqm seems low).
On the other side we are sure about our financial costs (assuming a fixed bank rate): 314000 euro.
The DSCR (debt service coverage ratio) is so 1.2, on the low range to be accepted but it's really difficult to calculate a sensitivity analysis with some many inputs missing.
All good.. but what is the exit strategy after 24 months??? A reversion, an improvemento to refinance at better terms and valuation?? No idea...
Is this deal on paper better compared to Colerusgasse 21? Probably yes, it's a lower risk real estate deal, notwhitstanding the position in the capital stack for the crowdinvestor is the same and also the guarantee seems a little better. And how it's priced? 6.25%.
So Rendity is pricing this deal at 55 bps lower than a construction sub loan. It's seems wrong to me, not because this is not correctly priced but because the other one is badly priced!
If you want to have a cleaner picture of the current borrowing costs, this article could help.