London and Johannesburg-headquartered bank Investec said it kept its UK real estate loan book growth on track in 2020, despite the market disruption caused by the coronavirus pandemic. By lending £400 million (€456 million) across the private and corporate real estate market in the nine months to the end of December 2020, the group has grown its property loan book to £2.1 billion.
The bank grew its lending exposure in the residential, offices, logistics and purpose-built student accommodation sectors – the lender has committed over £820 million since 2015 to the latter by funding both domestic and international developers.
Investec is now looking to replicate its purpose-built student accommodation funding success in the build-to-rent residential and logistics sectors, Mark Bladon, the group’s recently appointed head of real estate told Real Estate Capital. Formerly responsible for leading the bank’s corporate real estate lending business, Bladon’s promotion was announced by Investec on 28 January.
“We hope to further establish our credentials in the living sector, especially growing our build-to-rent exposure, a sector which has displayed its resilience over the past 12 months,” Bladon said.
Investec has provided finance for BTR schemes before now, although it has limited exposure to the sector. The lack of investment transaction data in the relatively nascent sub-sector, was a deterrent, Bladon explained. Now, the number of completed and pipeline BTR projects has grown, said Bladon, increasing the sector’s attractiveness. “The stock that is now available is useful to test the market,” he said. “You can see what is being rented and what is being traded and at what pricing.”
The sector’s appeal to institutional investors is a key incentive for the lender. “Institutions are looking to buy stable and mature BTR portfolios,” Bladon said. “As lenders, that gives us confidence because, as long as it can be built it and let, there is a huge demand for the finished product.”
Bladon added that the favourable capital treatment of residential investments for banks supports the sector’s appeal.
On the logistics front, Investec has been providing development finance for five years. Now, Bladon explained, the bank wants to scale its loan book exposure to the sector. Also viewed as a defensive property type by institutional investors, the sector is benefiting from the global e-commerce boom, which has accelerated during the pandemic and will continue. These dynamics, said Bladon, make it an attractive financing proposition.
In addition to the sectoral strategy, 2021 will also see Investec expand its distribution capabilities under Bladon’s leadership. This will involve the bank – which has focused much of its activity on development lending – broadening the investment side of its loan book. According to Bladon, the lender has historically been less exposed to investment lending “due to it being a lower risk area, that therefore offers lower margins”.
The ability to syndicate debt will be crucial to enable Investec to finance larger-ticket loans. “We would be looking at doing, for instance, some large ticket investment lending in PBSA and BTR, or logistics, typically in the £80 miilion-£100 million range, where we would either underwrite the whole amount or put together a club where we would hold 33-50 percent of it,” Bladon said.
“We have been looking for partners that have appetite for lower risk-margin appetite, whether that’s international banks, or institutional investors looking to invest at the debt level, but that do not have the appetite or expertise to set up a platform like ours, which can originate, structure, price and manage this kind of lending opportunity,” he added.