Finance boutique helps property company land non-bank-market debt
Aviva Commercial Finance has made its largest new loan for several years, providing £205m to Peel Group. The financing is the first senior debt placing arranged by boutique finance firm Bell Capital Partners.
The 20-year senior debt from the insurance company is secured on 53 assets – mainly in Manchester and Liverpool, with some in Scotland – and including office, retail, industrial and logistics properties.
The coupon on the loan is thought to be around 6.5%, reflecting a margin of around 2% over the 20-year gilt. Bell Capital Partners was appointed by Peel to replace a maturing shorter-term facility that had been provided by several British and European commercial banks.
Bell’s senior partner, Robert Palache, said: “Peel see themselves as long-term investors, as reflected by the fact that about 60% of their financings had been done for the long-term, through debentures.”
Palache’s finance firm puts deals to an informal club of insurance companies that are prepared to lend on property, given the right transactions. “When Peel approached us for ideas about this portfolio we said: ‘Why don’t we borrow from one of our insurance company investors?’” said Palache.
He added that Aviva was the only investor that was prepared to finance the whole loan amount. “We did approach some others and had offers that were also at tight spreads, but they were all for smaller amounts.”
Like most other insurance companies that act as lenders, Aviva’s interest is in taking assets on its balance sheet that will match its long-term annuity liabilities. Kevin Sale, commercial finance director at Aviva, said: “We are interested in borrowers that have a long-term outlook like ours.
“Peel has a lot of long-term holdings. It has built up this portfolio over time and there is flexibility in this loan to allow substitution, so the properties [used as security] won’t necessarily stay the same. “For them there was also the attraction of doing the deal with one lender. Banks are not offering anything of any size and this loan would have had to be clubbed.”
Sale added that other property companies that relied on the banking markets in the recent past are reconsidering their lending strategies. Such companies would like to fix their borrowing costs for the long-term, “though it won’t be for everyone”.
Aviva has built up a property loan book valued at about £10bn, or £13bn including its loans to primary healthcare operators, spread among 500 clients. Sale said Aviva had expected activity to pick up last year, but that net new lending had been “not far off flat”.
The division’s largest commercial property deal in 2010 was a £58.2m, 15-year loan fixed at 6.2% for Development Securities. Most of its other activity was in school PFI project lending. However, with the current higher levels of interest, Aviva could lend up to £1bn this year, he added.
More borrowers look beyond the banks
Robert Bell, a founding partner at Bell Capital Partners, which was set up nearly two years ago and advised Peel, said more borrowers were now willing to consider alternatives to bank lending. “The desire of some borrowers was to cling on to legacy banking relationships, even though they are no longer fruitful, but we’ve been saying the banking crisis is far more serious.”
However, Bell’s senior partner, Robert Palache, said institutional investors would only lend to very experienced property managers, which ruled out many of the over-leveraged borrowers in the CMBS market, where deals need to be refinanced. Institutional investors were also very unlikely to lend to opportunity funds, which have short-term investment horizons.