Despite the slowdown in the real estate lending market as a result of the covid crisis, and the debate over the post-pandemic future of offices, Mayfair Capital this month sourced finance for its largest acquisition yet – a London office building.
The UK real estate investment manager, a subsidiary of Swiss Life Asset Managers, sourced the £56.25 million (€62.19 million) four-year loan from DekaBank, a German lender known for financing prime property in core locations.
The loan, secured against the Bonhill Building in Shoreditch in the east of the UK capital, will fund Mayfair’s asset management programme for the property. Mayfair bought the building for £112.5 million in August 2019 from Legal & General. The 112,865 square foot property, in London’s ‘Tech City’ cluster, is fully let to six tenants. Mayfair said it had purchased the building at a net initial yield of approximately 5 percent and that it had long-term rental growth potential.
“Deka know the location of the asset well,” Giles King, fund manager at Mayfair, told Real Estate Capital. “They bought into our business plan for the building and saw the loan as relatively low risk, with a 50 percent LTV.”
Mayfair Capital began sourcing finance for the building before the pandemic, and agreed heads of terms with Deka in January. “We sent teasers to circa 10 banks, a mix of European banks, of which about half were interested” said King. “Deka have a good understanding of the underlying real estate, having lent on similar offices in similar locations, and were able to offer us the most attractive terms.”
King said the transaction became delayed due to covid. However, he added: “Once the financial markets stabilised, we were able to renegotiate the terms to the satisfaction of both parties. It is a huge testament to the hard work of our team and the team at Deka that we were able to agree terms under such circumstances.”
According to King, sourcing finance for this type of asset will become increasingly difficult because occupational markets will inevitably weaken as corporates reassess their real estate requirements in light of the pandemic.
Despite the big questions raised about the future of office demand amid changing working patterns, some lenders remain keen to finance the sector.
Chris Bennett, head of the London branch of Deka, told Real Estate Capital that the bank will continue to look at lending opportunities in the central London office market, as long as their characteristics make them occupationally relevant and, therefore, solid investment prospects.
“At the start of the year, we had a list of criteria that we think drives occupational relevance,” he said. “It included sustainability/environmental credentials; its micro/macro location; access to transport infrastructure; and broad and deep latent tenant base.”
Bennett added that employee experience, with a specific focus on safety, and floorplate flexibility should be added to the list to reflect some of the issues that have resulted from the pandemic.
He also argued that the London office market benefits from several positive attributes including its scale, transparency, and reasonably compelling supply-and-demand dynamics: “I would imagine that these factors should continue to be attractive to lenders. The capital in the market, both equity and debt, is in general long-term, patient and steady, and should minimise the potential for short-term value dislocation.”
King was also confident about the future of the central London office market: “Despite concerns around the reconfiguration of workspaces, London is a global city which will continue to attract people and businesses due to its location, time zone, language, workforce, infrastructure and culture.”