Niche UK lenders still bridging development debt gap

Titlestone Structured Finance and Shawbrook Bank have provided £42.5m across two facilities for a London residential scheme.

The £42.5 million (€47.6 million) financing for a London residential project provided by Titlestone Structured Finance and Shawbrook Bank illustrates that non-traditional UK lenders continue filling the gap for development finance in the country’s market.

The acquisition facility, arranged by debt advisory firm BBS Capital, consists of a £28.5 million development loan with Titlestone and a £14 million debt package from challenger bank Shawbrook.

The facilities will fund the £43 million purchase, by an undisclosed private client, of a 148,000-square-feet office campus comprising three buildings in Uxbridge, West London. All the buildings, acquired from Legal & General, have consent under permitted development for change of use into 237 residential units.

Titlestone’s two-year, 60 percent loan-to-value loan will fund the Bridge House building, on which development will commence immediately. However, the remaining two buildings, Waterside and Riverside, are let to Xerox until 2020, meaning their redevelopment will be delayed until vacant possession can be obtained. Shawbrook’s 70 percent loan-to-value loan, for a term of two years, will be used to bridge the period until redevelopment works can begin.

Because redevelopment works will start at different times, BBS Capital had to structure two facilities to ensure its client could acquire the office campus, but match its two separate business plans for the redevelopment of the buildings.

“We had to be creative to structure this deal,” said Westley Richards of BBS Capital. “Both Titlestone and Shawbrook were able to move quickly and offer the flexibility that we needed on very competitive terms.”

“This was an attractive scheme but required strong focus from all parties to be able to meet the timescale of six weeks from first meeting to completion. This shows that in the current market place, the ability to move quickly as well as provide the required level of gearing is equally important,” said Simon Dekker, relationship director at Titlestone.

Although there has been an uptick in liquidity of development finance in the UK, with 23 percent of £17.6 billion in new origination going to this segment in H1 2017, according to De Montfort University’s latest report, many lenders remain unwilling to take advantage of development lending’s risk-return opportunities.

“There is still aversion in the market. Traditionally, banks have been the most active players but, with slotting regulation and lower leverage points, they find it harder to finance developments, especially if they have not been materially de-risked,” Andrew Antoniades, head of debt investment advisory at CBRE Capital Advisors, told Real Estate Capital in November last year.

Specialist lenders are filling the gap in the market to a degree, Antoniades noted, but they are not set to replace the overall liquidity that banks used to provide, which means there is still a significant need for development finance in the UK market.