Barclays takes on Versace Tower debt challenge

Barclays has been appointed by the developer of the high-profile residential ‘Versace Tower’ in London to source over £200 million (€261 million; $292 million) of senior debt finance.

Damac Properties says it has a high level of pre-sales for the 50-storey AYKON Nine Elms luxury tower which has interior designs by the Italian fashion house, and sources say the Middle Eastern developer is now trying to put a debt package together to back its construction.

Finding development finance for prime central London residential has become much more difficult because the market has softened and lenders are being more cautious.

In addition, parts of London, including Nine Elms in Battersea where AYKON Nine Elms is located, have high levels of committed or potential development coming on stream, raising fears of oversupply.

One bank approached to join the AYKON club said that it had declined as it was “avoiding schemes in Nine Elms, not because there aren’t some good schemes down there, but there is a lot of noise about a glut and shrinking demand.”

It is thought that Damac has appointed Barclays to arrange and structure the debt but that the bank has only made a commitment to provide a small part – less than £50 million – of the total senior requirement. Barclays declined to comment.

The loan is likely to require a club of at least three or four banks for the senior. Damac is also considering adding mezzanine, and Urban Exposure, the specialist residential debt fund manager, is believed to be advising and lending. Urban Exposure declined to comment.

Borrowers and lenders say liquidity is drying up for London residential developments for sale aimed at buyers paying over £1,000 per square foot. One borrower said: “The financing market has liquidity at £1,000 per square foot and below; above that it has been ebbing for at least a year.”

UK clearers, some German and French banks and Middle Eastern banks are still considering new development financings but they are being very selective about which sponsors they back.

Pricing for senior debt for development finance has gone up this year by at least 50 basis points to margins of over 300 bps, plus fees. AYKON Nine Elms was unveiled last July by Damac’s Dico UK Property subsidiary and is due to start on site this year.

The 360-unit tower’s lobby, amenities and apartments are designed and will be fitted out by Versace Homes. The services include a pool, gym, cinema, spa and roof garden and the residential mix includes penthouses, three-, two- and one-bed flats.

At the time, Damac said London continued to be “one of the most sustainable real estate markets in the world, with solid year-on-year price growth of circa 6 percent, according to JLL. Analysts expect house price inflation in the region of 5-7 percent in the coming years”.

Since then JLL, which is advising on the tower, has predicted that prices for new-build flats in central London will fall 3 percent in 2016 and not rise until 2018. Last month, Savills said central London residential land values had fallen for the first time since 2011.

Damac is an experienced developer in its Dubai home market. In March, chairman Hussain Sajwani told the Financial Times that it had sold 40 percent of the AYKON Nine Elms apartments and that it has a network of buyers for its developments in 120 countries.