London-based investment management firm Aprirose, which operates a £2.4 billion (€2.8 billion) UK property portfolio, is exploring an entry into the real estate lending business after hiring former RBS banker Gareth Taylor as head of real estate debt.
Taylor, who joined the company in January, told Real Estate Capital Europe that Aprirose is in the early stages of considering lending and preferred equity strategies for its UK-focused property business by co-investing with established lenders or debt platforms and sponsors.
Taylor joined from investment management firm Excellion Capital, where he held the role of director of real estate. In 2016, Taylor launched real estate lending vehicle fund Ingenious Real Estate, after having worked for UK lender Royal Bank of Scotland for over a decade, including as its director of real estate finance.
Aprirose anticipates providing senior and mezzanine finance to firms in the UK of between three to five years. It plans to target the commercial and residential sectors.
“If we could achieve a 10 percent-plus return on debt, this is attractive relative to the current cash-on-cash returns available on equity income streams,” Taylor said.
Aprirose invests in UK real estate by raising capital from high-net-worth investors and family offices. When expanding into debt and preferred equity, Taylor said the business would replicate this strategy.
The firm’s UK portfolio is spread across office, industrial, hotels, leisure and residential. Taylor, who is also responsible for Aprirose’s internal borrowing, said there is some concern around refinancing due to rising interest rates and discrepancies over valuations, which in turn leads to more equity being requested from the borrower when refinancing occurs.
“Office is probably the most difficult,” he said. “Anything up to [a] 200 to 300 basis points shift in yield can have a very significant impact.
“I had one [an office in Aprirose’s portfolio] recently where it was valued at £13 million (€14.8 million), a regional office with government tenants, 6.5 percent yield, and it was revalued by the lender at £9.5 million, which automatically comes down to 91 percent LTV so that requires quite a significant paydown just to remain compliant,” he added.
Taylor said the London boutique favours alternative lenders when it comes to refinancing secondary assets in its portfolio because it believes the rates they can secure are cheaper than that provided by traditional lenders.
“One [alternative] lender, they were charging 7 percent fixed for five years. Whereas previously, that was really expensive. But the comparison with a more traditional lender is 2.85 percent over base [rates], which is 7.1 percent. So, in certain cases it’s actually cheaper with an alternative lender.
“It is difficult for all alternative lenders to compete on leverage. Even though you could provide 65 percent loan to value with 7 percent plus cost of funds, there isn’t sufficient income to be able to service that debt. So, they’re restricted by income cover as well.”