Pbb Deutsche Pfandbriefbank is understood to be in the final stages of agreeing to provide around £80 million of development finance for the Angel Gardens residential tower in Manchester, Real Estate Capital has learned.
The German bank’s loan will be one of the first, if not the first large development finance facility for a regional private rented sector (PRS) project outside Greater London.
The deal will mark another step forward for the young UK build-to-rent sector where institutional forward funding rather than debt has been the dominant source of funding capital for developers so far.
Being developed by gulf-backed investment manager Apache Capital Partners and Moda Living, Angel Gardens is a £130 million scheme of 466 rental apartments in a 34-storey tower and low rise building. It will be built on part of the Co-op and Hermes’ 20-acre Noma site bordering Manchester’s Northern Quarter.
Featuring top end amenities, renters will be able to enjoy a rooftop garden, sports court and comprehensive range of concierge services, with about 40,000 sq ft – 50,000 sq ft of the project’s space given over to these facilities.
Apache and Moda have also appointed specialist PRS manager LIV to help let and manage its completed investments, with Angel Gardens the first on site of a pipeline which will create a £1 billion PRS portfolio from scratch.
Apache Capital declined to comment on the financing. At one point, DG Hyp had been in talks to finance the scheme.
The JV is thought to have been working on securing the debt for over a year. Richard Jackson, Apache’s managing director, said: “It has been interesting to see how the debt funding market for PRS has developed over that time”.
He said that more lenders are convinced by the macro fundamentals underpinning the PRS sector but some are still working out how to underwrite what is a completely new asset class in the UK. “They are working back to what leverage they are willing to provide from the levels of net income that will be generated from the asset, as opposed to traditional loans which are more based on valuation covenants. Their understanding of the operational model is critical,” he said.
It is understood that around 30 banks were approached, with half to two-thirds ready to lend and more wanting to do so. They include: UK clearing banks; German banks; international banks from the US, China and the Middle East; insurance companies and a handful of institutional investors.
Pbb has considerable experience of financing residential in the German multifamily sector and of development. It is thought to have been looking for UK PRS projects to back which are sufficiently large and where it believes the rents are affordable.
Apache and Moda have announced sites in Liverpool, called The Lexington which won planning a month ago, and in central Birmingham, on Broad Street. They also have a site secured in Leeds and another in Kingston, south London. It is thought a sixth is lined up, in Glasgow, and there are a total of eight in the pipeline.
They intend to source development finance for Liverpool and Birmingham to be in place in about 12 months’ time.