Partners seeking up to £150m spec debt for City scheme

Partners Group will look for up to £150m of speculative development financing for its 80 Fenchurch Street project in the City of London, Real Estate Capital can reveal.

The Swiss-headquartered investment manager said it would seek debt in the range of 45%-75% of loan-to-value for its £200m scheme.

Claude Angéloz, partner and co-head of private real estate at Partners, said the full financing of a wholly speculative development was one of the funding options presented to prospective lenders.

“I was quite positively surprised to see that there were banks willing to provide us with financing for that option, all the way through from now to the end delivery, stabilisation, and then selling to a core buyer,” he said.

Another option was for the financing to be injected in two phases – phase A, pre-construction, and phase B, construction – with a significant pre-let secured before building started.

“We believe we can get better terms by phasing it into phase A and phase B,” said Angéloz. “It’s obvious from a risk perspective that a bank will give you better terms when they know who the tenant is, what are the terms and how much preleasing is left, as it de-risks their own position.” Knight Frank and Jones Lang LaSalle have been appointed leasing agents.

Partners completed its £50m purchase of the site this week and will build a TP Bennett-designed Grade A office building with its joint venture  partner Marick Real Estate. Demolition of the vacant office building there begins next month with construction of the 14-storey scheme to start next year and finish in 2018.

Angéloz said the combination of an improving economy, affordable financing, low vacancy rates for Grade A space and more occupiers looking to pre-let two or three years ahead allowed Partners to develop 80 Fenchurch Street speculatively.

While the UK real estate financing market has become more competitive in the past two years, development and in particular, speculative finance, has remained scarce.

In a rare example, in February Royal Bank of Scotland provided one of the largest speculative loans this cycle, a £100m facility to King’s Cross Central Limited Partnership to build Four Pancras Square.