HSBC and UK government back developer’s £400m PRS pipeline

HSBC and the government’s Homes & Communities Agency are providing one of the largest loans this year for PRS development in UK regional cities.

The circa £200 million finance package will be for three projects in Manchester, Birmingham and Leeds by Dandara Group, which together will provide 2,000 flats for rent worth an estimated almost £400 million.

Venn Partners, which manages the £3.5 billion government-backed PRS Guarantee Scheme, is supporting the deal with a letter of comfort on the availability of take out finance for the completed, stabilised investment projects, so the lenders have the assurance that their loans can be refinanced.

Dandara has not revealed the amount of development finance, but the HCA said its contribution would be £45 million from the new Home Building Fund, which makes capital available to help kick-start housebuilding.

Assuming a developer’s profit of 15-20 percent and a loan-to-cost of about 65 percent, the total development finance package is likely to be just shy of £200 million meaning HSBC – one of Dandara’s relationship banks – is providing about £150 million.

George Cotterell, a vice president at Venn Partners, said: “Our letter of comfort on the take-out was required to unlock the bank funding. The key thing is that this is an example where the government PRS programme has supported traditional bank financing to deliver new homes.

“It is another way that helps senior lenders get comfortable with the (new) asset class.”

The largest of Dandara’s three schemes is at Chapel Wharf in Salford, Manchester, where the group has consent for four towers of 13-23 storeys providing 995 flats. The 4-acre site fronts the River Irwell next to the Lowry Hotel.

In Leeds, Dandara will build 744 units at Holbeck Village, while the Birmingham development is 323 flats in the ‘V’ building at Arena Central.

The availability of debt enables the Isle-of-Man-based developer to keep ownership of the completed investments, if it chooses. Dandara had previously instructed Knight Frank to seek a forward funding partner for its PRS pipeline and had reportedly talked to Delancey and Grainger. It forward funded its first PRS scheme, Forbes Place in Aberdeen, with LaSalle Investment Management.

Dandara said its Dandara Living company will manage the letting and ongoing management of the three latest projects. Chairman Dan Tynan said the group was “now in a position to actively work with institutions, and independently, to make a sizeable contribution to this market.”

Victoria Hill, a director at CBRE debt and structured finance, told Real Estate Capital last month that as more lenders committed to PRS, it was opening up options for site owners with PRS schemes. “The market has shifted from being forward-committed only…to forward-commit, forward fund, or debt finance as a recognised option,” she said.

HSBC’s head of housing, Hugh Taylor, said the bank was pleased to be lending to Dandara alongside the HCA “on this multi-site roll out of their PRS programme..It is further evidence of PRS beginning to emerge as a distinct asset class.”

In March, the HCA lent alongside Royal Bank of Scotland and Barclays to Canary Wharf Group, providing £248 million for the development of 60-storey Newfoundland PRS tower at the London Canary Wharf estate.