Oxford Properties and Brockton Capital are close to sourcing development finance to fund their revamp of the former Royal Mail Sorting Office site in London’s Midtown area, Real Estate Capital has learned.
The joint venture partners are in advanced talks with BNP Paribas and pbb Deutsche Pfandbriefbank to provide finance for The Post Building, the 320,000 square foot redevelopment of a prominent island site located on New Oxford Street which has stood vacant for two decades.
The deal is yet to be finalised, although the banks are expected to provide a loan in excess of £200 million.
Lenders are providing development finance on increasingly competitive terms. Margins for empty London buildings were in the region of 400 basis points almost two years ago, whereas they had come in to around 250bps by this summer. Over the same period, loan-to-cost ratios moved from sub-50 percent to close to 60 percent. The facility for The Post Building is expected to be tightly priced to reflect the core location of the property, near to the new Crossrail Tottenham Court Road interchange.
Oxford and Brockton announced the creation of a 50/50 joint venture to redevelop the site back in May. The Post Building is designed by architect Alford Hall Monaghan Morris (AHMM) and will provide offices, shops and restaurants, an element of affordable housing and public roof space to create an investment with an estimated value of £500 million. The triangular site is bounded by New Oxford Street, High Holborn and Museum Street.
The original building was developed in the 1960s and due to its history as a sorting office has floor-to-ceiling heights of up to six metres in places. Camden Council gave planning consent in March and the development is expected to be completed in 2017/2018.
Developers are increasingly seeking finance for core London schemes as lenders indicate their willingness to provide speculative development loans. Investor-developer Almacantar is currently seeking as much as £390 million to finance its proposed residential and office buildings at Marble Arch Tower in London’s West End.
In October, Lloyds Bank Commercial Banking and Investec Structured Property Finance provided a £190 million three-year development loan to Cain Hoy and Sagar Group for the £400 million Islington Square scheme in North London. Like The Post Building, the 500,000 square foot retail, leisure and residential scheme is also being built on a former Royal Mail site.
All parties declined to comment.