Lionheart partners with Schroder to funnel $250M into distressed deals

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Fisher Brothers affiliate Lionheart Strategic Management has
entered into a loan acquisition agreement with Schroder Investment Management
North America Inc. to target $250 million in transitional and distressed real
estate credit investments.

The venture will co-originate transactions and source and
service loan opportunities through Lionheart Real Estate Credit Strategies LLC.

“We’re seeing incredible opportunities in the market as a result of the pandemic and its impacts on commercial real estate markets,” said Winston Fisher, Chairman of Lionheart Strategic Management LLC.

WINSTON FISHER

“Now more than ever the need for a capable capital partner
is paramount and we are well-positioned in that regard. Our value-add as a
lender is providing senior lenders with comfort knowing that the mezzanine
position is backed by a full-service real estate firm that can provide
operational knowledge to complex construction projects. We continue to see
high-quality investment opportunities backed by strong borrowers in
fundamentally sound markets with significant downside protection given our
targeted leverage points, locations and property types. We are long-term
bullish on the prospects for economic recovery but are well positioned should
that recovery take longer to materialize.”

The COVID-19 pandemic has caused default rates on CMBS loans
to reach Great Recession levels and created a need for capital to provide
liquidity to the marketplace. According to Fitch Ratings, default rate for
fixed-rate CMBS increased to 16.5% as of the first-half of 2020 and is nearing
the prior peak of 16.8% recorded in 2013.

 Fitch has previously
predicted cumulative defaults will reach 19% by the end of year. Many of the
nearly $700 billion of construction loans that were originated in 2018 and 2019
will experience delays due to supply chain and labor issues causing these deals
to fall out of balance and allowing for opportunities to provide rescue capital
to undercapitalized sponsors.

 Upon completion or
maturity, assets will face drastically different operating fundamentals and a
restricted market for financings of transitional assets.

Michelle Russell-Dowe, Head of Securitized Credit for
Schroders said, “We are excited to partner with Lionheart to expand our
sourcing and servicing network. We believe they are well positioned to help us
allocate to opportunistic investments. Our loan acquisition agreement with
Lionheart allows Schroders to continue to deploy capital through partnerships
with real estate experts with shared credit discipline and patience.”

Christopher Peck, Peter Rotchford, Andrew Scandalios, David
Giancola and JLL Global Capital teams advised on behalf of Lionheart in
procuring capital for this strategy. Paul Hastings LLP acted as legal counsel
on behalf of Lionheart and Ropes & Gray LLP represented Schroders.

Lionheart Strategic Management, LLC is an asset management
firm that was formed in 2017 as an affiliate of Fisher Brothers to manage
investments for individuals of the firm and on behalf of third party investors
seeking exposure to real estate strategies with a primary focus on top urban
markets within the United States.

Schroder is a global investment manager for a range of
institutions and individuals.

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