One St John's Wood
One St John's Wood: ICG-Longbow has financed the development (Source: Regal London)

Since 2014, London’s prime residential property market has experienced a slump, compounded by Brexit uncertainty and an increase in stamp duty tax. However, ICG-Longbow, a real estate lender with a track record in financing residential developments across the UK, has decided to write a £100 million-plus (€117 million-plus) loan in the sector, Real Estate Capital has learned.

The lender, the real estate arm of asset manager Intermediate Capital Group, has provided a senior construction loan to Regal London, a private developer which specialises in residential-led schemes in the UK capital. The loan will fund the construction of One St John’s Wood – an apartment scheme alongside retirement homes in the affluent north London enclave of St John’s Wood. The scheme will be located opposite the world-famous Lord’s cricket ground.

Regal London has already developed a residential building on an adjacent site, known as The Compton, which contains 49 flats. According to the developer’s website, the last remaining unit, located on the eighth of the building’s nine floors, is available for £3.95 million.

The developer is due to begin construction of One St John’s Wood in the early part of this year, with completion expected in late 2022. In November 2018, Regal London was awarded a £55 million contract by not-for-profit care home provider Central and Cecil Housing Trust to deliver new retirement homes on the site of an existing care home. The developer also acquired part of the site for private apartments. In total, ICG-Longbow’s loan will finance the delivery of 112 private apartments for sale and 170 social and affordable retirement units, which Central and Cecil will operate.

Kevin Cooper, co-head of ICG-Longbow, acknowledges the slump in London’s prime housing market, but argues the firm’s decision to lend into the sector was well-considered.

“There were three main reasons behind us writing this loan,” explained Cooper. “First, pipeline supply in the central London residential market has become increasingly constrained, due to developers being cautious due to the market decline we have seen in recent years. Second, residential real estate development is a local market-centric business, and there is an absolute scarcity of competing new build supply in the St John’s Wood market. Third, the sponsor has a track record of successful delivery and sales in the local market, having recently built and sold out of the scheme on a neighbouring site.”

Target sale prices for the private flats in One St John’s Wood have not been made public. Consultancy Knight Frank considers St John’s Wood as a prime central London district for the purpose of its residential market data. In mid-2019, it reported the median price for existing and new-build homes in the area’s £10 million-plus residential market at £1,988 per square foot (€21,390 per square metre) as of April 2019. Another property consultancy, Savills, reported in October that prime residential property in St John’s Wood averaged £1,500 per square foot (€16,140 per square metre), following a modest fall in the previous three months.

The slowdown in the London residential market in recent years has been most acute at the high end of the scale, with new-build, high-end apartment schemes, including in the Nine Elms district of the city, struggling to attract buyers. Cooper argues that One Nine Elms is a different type of scheme and that its location, in a wealthy residential area of the city, means it will appeal to local buyers.

“This will not be a Mayfair scheme with the lights out in most apartments four days of the week,” he insists. “Pricing is in line with the established local market and the predominant use of this scheme will be as a main residence.”

Some residential property specialists expect to see improved conditions in London’s prime residential space in the coming year. Knight Frank, in its Prime London Sales Index report from December 2019, forecast an 18 percent increase in prime central London housing and a 13 percent increase in prime outer London housing over the next five years.

Cooper points out that central London residential pricing is 38 percent below the 2015 peak, in US dollar terms, but says he expects to see higher sales volume this year, following the recent general election.

While One St John’s Wood is ICG-Longbow’s first loan in the prime central London residential market, the company has previously financed new-build apartments in what Knight Frank refers to as prime outer London. In January 2017, it wrote a £135 million loan to developer LBS Properties for The Madison apartment tower in London’s Canary Wharf, within which flats are generally priced above £1,000 per square foot, according to the scheme’s website.

Cooper, however, insists ICG-Longbow will remain selective when it comes to the prime London residential development market. “We get to assess value across lots of residential schemes across the UK, and this one stacks up for us,” Cooper said. “Central London prime residential developments have not stacked up for over five years, so we didn’t do any of it. Now we are far more open minded.”