Duo in £500m London Dolphin Square refinance

Westbrook Partners has refinanced its high-profile Dolphin Square residential estate in Westminster, London with two financiers, Real Estate Capital can reveal.

M&G Investments and MetLife have equally provided a loan of close to £500m secured against the 1,229 apartments. The ten-year finance is believed to reflect a loan-to-value in the region of 65%, which would value the famous 1930’s complex at £769m.

The hedged, floating-rate loan from the two insurance company lenders is thought to have a margin of around 200bps.  Westbrook is also understood to have considered an offer from a group of banks for shorter-term finance before opting to go with the two insurers.

The refinancing is a rare chance for lenders to gain exposure to the private rented sector on a large-scale in a single loan in the UK. Its prime location in Westminster, near the Houses of Parliament, also makes it a desirable and unusual opportunity.

Wells Fargo was the previous lender on the scheme, agreeing a loan with Westbrook in 2012, prior to the bank’s purchase of the Eurohypo UK loan book the following year.

The initial acquisition of Dolphin Square, which was said to have once been the home of more than 70 MPs, 10 Lords, security agency personnel and The Princess Royal, was a subject of controversy.

The head lease of Dolphin Square was bought by Westbrook in 2005 for £190m. The US private equity firm then sought to buy the freeholds of the flats, via freehold  enfranchisement reforms that allowed owners of leases of more than 21-years to buy their freeholds, subject to no single leaseholder owning more than two flats.

As a result Westbrook created 612 Jersey-listed companies and sold each of them one or two flats on 26-year leases. In 2007 Westbrook served notice to enfranchise the building, which was withdrawn during the downturn.

A renewed claim was made in 2010 and freeholder Friends Life challenged Westbrook’s entitlement to enfranchise. Westbrook lost the initial case but this was overturned on appeal in July last year. It paid a further £176m to secure the freehold, massively increasing the value of its investment.

The flats are currently understood to be “low-yielding”, according to other lenders that considered the opportunity, but now Westbrook has greater control over the estate it can look to increase rents and drive income.

MetLife and M&G Investments declined to comment.