UK developer Essential Living has raised £60 million of development finance from Royal Bank of Scotland and HSBC for its Creekside Wharf residential scheme in London, Real Estate Capital can reveal.
The loan kickstarts the developer’s innovative modular-construction, private rented scheme at Deptford in Greenwich which will provide 249 homes.
One of the unusual features for the lenders to underwrite was Essential Living, rather than a contractor, managing construction for the 23-storey project, which will provide one, two and three bedroom homes.
The banks are providing the debt finance in a club on a 50:50 basis, in a four-year facility which converts to an investment loan.
Essential Living is backed by M3 Capital Partners which manages substantial equity capital for US endowment fund, Washington State Investment Board, via the Evergreen Real Estate Partners fund. M3 committed £150m of equity funding to Essential Living’s PRS strategy, which is to develop a 5,000-unit portfolio of London assets which will be retained for the foreseeable future.
Creekside is Essential Living’s fourth scheme but the first modular construction project and it is believed to be the first PRS investment constructed this way in the UK. RBS and HSBC are underwriting the perceived risk of the developer rather than a contractor managing the construction and directly engaging with subcontractors and component suppliers.
Essential Living is using off-site components supplied by Telford-based Element Europe and, with the debt finance now secured, expects to start on site in Q1 2017 for completion in Q3 2018. It will also let and manage the completed investment.
RBS backed the company on its first three PRS schemes, lending £52 million alongside the Homes and Communities Agency. The first of this trio to complete is Vantage Point, a 1960s office tower conversion in Archway, north London, which started letting in September and is said to be over 50 percent occupied. The others are in Maidenhead and Bethnal Green.
HSBC has also shown itself willing to back build-to-rent; last week the bank made a large, circa £150 million commitment to relationship client Dandara for that group’s 2,000-unit regional PRS pipeline.
Creekside is also one of the first London PRS projects to agree a proportion of flats to be let at so-called ‘discounted market rent’ – rents set at London Living Rent defined as a third of the local income – in lieu of an affordable housing contribution to the local authority.
This approach has been adopted in the new London Supplementary Planning Guidance, issued by London mayor Sadiq Khan last week.