When James Spencer-Jones started as head of real estate debt at the investment management business of Legal & General on 1 June, he had one overriding objective: expand the UK insurer’s real estate loan book and suite of product offerings internationally.
He told Real Estate Capital that branching out into Europe will be a key part of meeting this objective, and that a first fund launch from his part of Legal & General’s real estate business since he took over from predecessor Lorna Brown is in the offing.
Real Estate Capital: What can we expect from LGIM’s lending activity under your leadership?
James Spencer-Jones: My strategy is to build the L&G real estate debt business in the UK and Europe with our loan book, and to broaden our product offering with a new fund launch. Whilst we have loans in the UK, we made our first real estate debt investment in Europe earlier this year by contributing to the €723.9 million club loan for the Brussels Finance Tower.
We are actively reviewing financing opportunities across the broader western European jurisdictions, including Ireland, Belgium, Luxembourg, the Netherlands, Germany, Austria and Spain. We will also be looking towards the Nordics in due course.
We will be launching a low-risk fund in the coming months, which will combine real estate debt, infrastructure debt and corporate debt. Within the real estate piece, we will initially be targeting loans from £20 million to £100 million (€21.7 million to €108.6 million). Over time, we will build this business targeting larger investment loans. Over time, we will also look to further diversify our offer, and development finance could present interesting opportunities further down the line.
As well as senior, low-risk debt, will you look to underwrite shorter-dated loans?
A lot of our borrowers are seeking longer-term finance to lock in the historically low interest rates, and so we will continue to offer medium- to long-term fixed rate loans. These are good for pension money to match liabilities. We are looking to provide borrowers with a more flexible offering, which includes shorter terms and floating rates. We can also provide shorter loan terms and we have written three-, five-, seven- and 10-plus-year loans.
You joined L&G during this pandemic-caused lockdown, when many UK office workers started working from home. How has covid-19 impacted the way you do business?
It has been a challenge not to see borrowers in person. But I can see that opening up in the coming months, certainly from September onward. I am speaking to borrowers that have already headed back into the office, albeit only for a few days a week. Another challenge is the time of execution, not from a financing transactional side, but from the property side of execution sometimes taking longer. Working from start to finish, some property transactions are taking longer to exchange than they previously would.
Where do you see the current opportunities for investors?
In the real estate debt business, we have no exposure to retail shopping centres, but strong-performing retailers like the retail grocery sector can still present an attractive proposition. The majority of our borrowers, which cover a cross-section of property companies, private equity, funds and overseas investors, are currently mostly seeking new financing for offices, light industrial/distribution and logistics.
On the back of covid-19, we have seen only a small outward movement in margin pricing for prime deals, but naturally a greater movement for more secondary transactions and for the more troubled sectors of the market. Also, loan to values have come down slightly for certain transactions, albeit this has varied, depending upon the nature and quality of the asset or portfolio being funded.
What advantages do insurance companies have over lending banks in today’s climate?
Insurers are in a very good position right now. We are well placed to compete with UK, European and German banks with the finance products we provide. We are better placed to write longer-term loans and fixed loans at the low rates we’re seeing where banks generally have less appetite. It will be interesting to see over the next six months where UK rates go and whether they go negative. We’re well placed if they do get into negative territory because how the benefits get passed onto borrowers can be a little blurred in banks.
Do you have any plans to grow the team further?
We have no immediate plans to build the team this year. But looking towards next year, we have ambitions to grow the team further, bringing on an additional origination lead and asset management support.