Inside the deal: Macquarie takes on refinancing of Cain’s The Stage

The Australian firm was sole provider of a £188m loan for the residential part of the London scheme.

At a time when relatively few lenders are willing to solely provide big-ticket real estate loans, the £188 million (€220 million) refinancing of the residential part of The Stage mixed-use scheme in London stands out.

Last week, private real estate firm Cain International announced it had sourced the refinancing from a single debt provider – Macquarie Capital Principal Finance, the financing and principal investing arm of Australian manager Macquarie Capital.

The loan, which closed towards the end of December and was provided entirely on Macquarie’s balance sheet, refinanced a 37-storey tower containing 412 apartments. The scheme, located in the Shoreditch area of the UK capital, also includes offices, retail and leisure space.

Claudio Sgobba, senior director in property consultant JLL’s debt and structured finance team, advised Cain in the deal. According to him, a range of lenders expressed interest in the financing mandate, including banks, sovereign investors, insurers and debt fund managers – with the latter representing insurance sector investor mandates. However, he explained, a limited number of lenders could take on the deal singlehandedly.

Claudio Sgobba, JLL
Sgobba: few lenders can take on £150 milion-plus financing deals alone

“Currently, the most liquid and competitive part of the debt market is between £70 million and £150 million, with a £100 million sweet spot. Here, the investment banks, life insurers, and commercial banks compete, and can execute on a bilateral basis,” explained Sgobba.

“Generally, once a facility is above £150 million, lenders will look to club, or use syndication. Lenders’ criteria change based on market sentiment and internal policy, so it’s important to speak to lenders on a daily basis. Around 15 percent of the 300 lenders in the market can underwrite in the region of £200 million in a single trade and keep it on their books.”

The decision to refinance the residential element with a single party was made to simplify the capital structure, according to Sgobba. “It’s easier to manage and communicate with one lender and reduces friction costs.”

Macquarie Capital’s principal finance unit makes investments from the group’s balance sheet across primary and secondary markets, for corporate and commercial real estate clients. The Stage deal was led by Alexi Antolovich, global co-head of real estate, at Macquarie Capital Principal Finance, Baptiste Boye-Møller, a managing director in the business, and Sam Harvey, an associate at the firm.

Macquarie was selected for numerous reasons, Sgobba explained. “Reliability of execution, an extremely strong and nimble team, and they are one of the few lenders that could take down the loan with their own balance sheet. They have done deals in the UK and Continental Europe, which they were able to highlight to us.”

Sgobba added there was competition between lenders on pricing and loan structuring, meaning the personnel in the lending team was real a consideration. “This is a people business, so you need to feel comfortable with the lending team during the loan deal and for post-loan management.”

Living sector

The fact the asset is a high-quality example of so-called ‘living sector’ stock helped attract lenders, Sgobba said. “[The living sector] is driving liquidity in the market. In this deal, the collateral is exactly what lenders want exposure to. No financing deals in today’s market are easy to execute, but this deal had a tier one sponsor and quality security.”

The Stage’s theatrical name comes from its location on the site of the Curtain Theatre, an Elizabethan playhouse which opened in 1577 and which staged plays by William Shakespeare. The theatre’s remains were discovered in 2012.

The residential tower which forms part of the scheme includes a sky terrace, an underground amusement arcade and other amenities. Last year, Cain announced the appointment of creative studio Bompas and Parr to deliver the Museum of Shoreditch on the site, in collaboration with the Museum of London Archaeology and Historic England.

The commercial element of the scheme includes two office buildings and more than 60,000 square feet of retail and leisure space. In November, CoStar News reported retailer Amazon was under offer to lease 180,000 square feet of office space at The Stage, which was previously due to be occupied by beleaguered flexible office company WeWork.

The sponsors’ decision to refinance the residential element of The Stage separately from the commercial element was well considered, explained Sgobba. “The office element is going through a unique business plan, and we thought it best to split the loans so the lender can digest smaller loan sizes. Three years ago, it was easier to go to market with a £500 million loan and place it with one lender. The market has changed for now.”

Cain owns the Shoreditch scheme alongside developer McCourt Partners, residential company Galliard Homes, property investor Vanke and banking group Investec. In April 2018, the owners sourced a £390 million development loan for the scheme.

Arranged by Lloyds Bank Commercial Banking, which provided £97.5 million of the debt, the loan included £97.5 million of funding from UK and South Africa-headquartered bank Investec Structured Property Finance and £97.5 million from Harel, the third largest insurance group in Israel. The remainder was provided by Bank of East Asia and the London branch of Chinese lender Bank of Communications. The three-year loan had a loan-to-value thought to be in the range of 50-55 percent.

That loan refinanced a debt facility originally provided by Investec when the site was acquired and funded construction activity until the project’s completion. In 2005, Investec provided around £85 million for the acquisition of the site for £170 million. The debt was a four-year facility reflecting a LTV of 50 percent at around 2.2 percent interest.

Macquarie’s loan addresses the refinancing needs of a major part of The Stage. The owners’ attention is now likely to turn to the commercial side of the project.