Lloyds, Wells Fargo finance Lone Star development

Lloyds Bank Commercial Banking and Wells Fargo have provided a £133 million development loan to US private equity firm Lone Star to back a London residential and commercial scheme.

The loan will finance the development of the Two Fifty One scheme in the Elephant & Castle area of South London.

The terms of the deal were not disclosed, although the banks are understood to have provided the loan at around 60 percent loan-to-cost, priced in the region of 300 basis points. The three and a half year facility is understood to have an option to be extended by a further six months.

Two Fifty One is Lone Star’s first investment in direct development in London. Oakmayne Properties is partnering the US private equity firm on the development, which comprises a 41-storey residential tower with 335 units and a six-storey office building. The scheme is expected to complete in late 2017.

“Elephant & Castle is an area with enormous, yet untapped potential and we feel that Two Fifty One will help to unlock some of that. This transformative scheme will act as a catalyst for major regeneration,” said Madeleine McDougall, head of institutional clients for Lloyds Bank Commercial Real Estate.

“Lone Star is a long standing, core client of Wells Fargo and we are excited to support their first investment in direct development in London,” added Robert Maddox, senior vice president of Wells Fargo UK Commercial Real Estate.

Lone Star obtained control of the Two Fifty One site last year. In recent years, the Dallas-based investor has predominantly invested in the European market through non-performing loan transactions, although it has also gained exposure to the UK residential development sector. The firm is behind a large residential scheme in Corby, Northamptonshire, and bought developer Quintain for £745 million in September, giving it control of a residential-led development close to London’s Wembley Stadium with consent for 5,500 homes.

Lloyds has become increasingly active in the UK development finance market. In November, the bank provided senior development finance to Rocket Investments for the Atlas residential and office scheme on London’s City Road. ICBC and Bank of East Asia partnered Lloyds on the senior finance, with Highbridge, Urban Exposure and Related Companies providing mezzanine debt in the £240 million deal.

In October, Lloyds and Investec provided a £190m development facility to Cain Hoy and Sager Group for their £400 million Islington Square joint venture in London.