In this interview, we talk to Graeme Cullens, founder of Pegasus Capital and a seasoned City financier with four decades’ experience across acquisition finance, loan syndications, structured credit and capital markets advisory. Graeme discusses how his background led him into the property sector, the work Pegasus does for its clients, the current challenges facing real estate, and the market trends set to shape the industry’s future.
What is your background and experience in the property industry?
First experience in the property sector was in the mid 1980’s when working for Barclays Bank and lending to pub portfolios (Belhaven Breweries) through to a shopping centre development for Grand Metropolitan in Dorchester. It wasn’t until the late 1990’s when at Barclays Capital that I once again became involved with property but at that stage it was through the securitisation of non-conforming residential mortgages, and the 1st pan European CMBS transaction Europa 1. In addition, one of our colleagues was responsible post 2008 for managing the restructuring and sale of the Barclays Capital €8bn European CMBS portfolio across the capital stack. Fast forward to the 2010’s when we set up Pegasus Capital that once again, we became involved with the property sector and our inaugural deal with a care home chain.
Can you tell us a bit about your business and what you do?
Our business is primarily transactional but built on relationships and recommendations. We provide our clients with 40 years of experience across the capital markets and focus on assisting them with any interest rate, inflation or cross currency hedging that they need to fulfil the requirements of their specific borrowings or across their portfolio. We are by necessity a FCA Regulated Firm and all that entails so in these days of onboarding/KYC and regulatory reporting we do the heavy lifting, working with our connections across the markets to deliver timely structuring, pricing and execution services. Last but not least, we do not undertake any debt raising/advisory services so we are not conflicted, nor are we owned by Private Equity.
Who are your typical clients and how do you market your service?
Bricks and mortar would be the all-encompassing description, from international hotel chains to hospitals to carbon capture storage facilities, wherever the purchase of a property or project requires certainty of income streams or to protect against rapidly rising/falling rates.
Having started our business 15 years ago with 1 client, marketing our services has in truth been erratic! We have tried everything from speaking at property conferences to arranging untold meetings with debt advisors, lawyers and accountants but it has been the service we provide that has done the talking and built our reputation.
How did you first cross paths with Newmanor Law?
We first met James and Karen in their previous firm in 2012 so were delighted to see them branch out on their own to create Newmanor and to watch them go from strength to strength.
What are the key challenges currently facing the real estate sector and how are you addressing them?
For us, with a markets background, the challenges we see are usually non sector specific and centre around how much can be borrowed and how much does that cost! With interest rates confidently expected to decline to a 3% to 3.5% range, or even into the two’s, there is a growing appetite to leave borrowings unhedged. Last time around, thinking 2009 to 2021, borrowers piled on debt and so many got burnt when rates shot up however, we also saw in the immediate aftermath of the GFC that a rapid reduction in rates also caused a lot of financial pain on a marked to market basis. We therefore believe that Boards should take hedging advice to inform a regular risk assessment to identify what pain can be borne without impacting the business, rather than let hedging be decided by the lenders, where only the debt funds seem to be sticking to the “must hedge” edict.
What trends do you foresee shaping the real estate industry in the coming years?
Quite apart from the interest rate, inflation, and currency fluctuations that we work to mitigate, we see the industry facing new risks from unexpected directions whether it be secure energy supplies when faced with the predicted consumption from AI datacentres through to how the current buildings are prepared for stringent EPC and “zero carbon” aspirations and legislation. The current trend of appealing to Gen Z with ever more on-site facilities is unlikely to last, just like every other fad we have seen over the last 40+years!