Legal & General Property is expanding the debt facilities for two of its existing funds and looking for debt for a third vehicle, to raise £260m for further acquisitions, asset management and to cut borrowing costs, Real Estate Capital can reveal.
LGP is adding £100m of leverage to the £1.4bn Industrial Property Investment Fund, taking IPIF’s total facility size to £450m. The finance team, led by Andy Banks, is negotiating with the fund’s existing lenders – Royal Bank of Scotland, Wells Fargo and L&G Commercial Lending Limited (CLL) – for the new debt.
The fund manager will also extend the loan to its UK Property Income Fund II by £60m, taking the total leverage to £210m. The fund’s lenders are Santander and Wells Fargo, and the all-in cost under negotiation for the larger facility is below 3%.
LGP is also looking to add leverage for the first time to its £375m central London office fund, a joint venture with Dutch pension fund manager PGGM, seeking a £100m facility. The JV seeks major refurbishment and partly speculative opportunities and currently has two assets including 72 Broadwick Street in Soho which it bought for £67m. It is in talks with a new group of lenders for this facility.
The new financings come as LGP seeks to take advantage of cheaper debt costs, bring new investment and debt partners into its business, and offer clients a wider range of products.
“It’s a very buoyant debt market with [borrowing] margins over the past six-to-nine months dropping 40-50bps, maybe a touch more,” said Andy Banks, finance director at L&G Property.
“On the lending side, we’ve seen a big increase in number of potential lenders. Certainly all the UK banks are in the frame as they try to get back up the lending curve.”
“Some of our funds, which have life and pension clients, have a low appetite for gearing hence the types of facilities we’ve provided have been fairly vanilla,” said Banks. “But increasingly, as we expand our product range, we’ve taken on more appetite for risk so we’re looking [to deploy] more capital expenditure and development loans.”
One of these projects is Arndale shopping centre in Eastbourne, which is undergoing significant extension works, and where Wells Fargo has just agreed to extend an existing loan by another £58m.
Banks’ team has also completed over £300m of refinancings in the last few months which have lowered debt costs. In September, it closed a £150m facility from CLL and RBS to primarily refinance its £421m Leisure Fund. A proportion of the financing will be allocated to the development of the fund’s £50m Bournemouth leisure park. That refinancing brought the fund’s cost of borrowing under 2.7%.
Also recently completed was a £152m, five-year facility from Santander and Wells Fargo for L&G’s £370m Bishopsgate Unit Trust joint venture, also with PGGM and, like the London office fund, also set up at the start of the year.
Secured at a margin of 160bps and all-in cost of 2.5%, it replaced a £142m mezzanine facility from CLL, deployed in January at a margin of 115bps and all-in cost of just under 3%, reflecting a cost saving of 45bps.