LIM’S DEBT INVESTING STRATEGY
Dutch investor backs LIM’s £238m student and London housing debt fund, writes Jane Roberts
LaSalle Investment Management’s debt originating business expanded recently when it began investing £238m of capital raised with APG for residential development. Called LaSalle Residential Finance 1, the APG fund makes whole loans to student housing developments nationally and London residential projects. The LaSalle European debt investments team lined up a £100m cornerstone investment by LRF1’s May launch (see below) and is set to close another two deals, rapidly taking it to 60% invested.
Roland Mangelmans, APG Asset Management’s senior portfolio manager, says the new fund contributes to our real estate debt portfolio and provided further diversification”. The Dutch giant already invests in junior European debt via manager Pramerica; at around the same time in May, APG showed its enthusiasm for property debt by committing up to a further €520m to Pramerica Real Estate Capital III. “Junior real estate lending provides compelling risk-adjusted returns, with a high level of paid coupon, compared with core real estate equity,” Mangelmans says.
Majority returns earned via a paid coupon will also be a priority for the LaSalle fund, says its manager, Michael Zerda. LRF 1 offers schemes with planning consent or pre-planning conversions up to 75% of costs and 65% of gross development value. It also offers 75%-of-cost construction loans on student housing schemes.
“In London we look at prime and zone 2 and 3 developments,” says Zerda. About one third of the potential deal pipeline consists of conversions from commercial to housing. The pace of investment has already led to talks with APG on a second capital tranche, says Amy Aznar, LaSalle’s head of debt investments. The subtext is that this strategy has the potential to be big, perhaps £1bn.
LaSalle has previously invested in residential development debt via the £100m LaSalle Special Situations UK Real Estate Fund 1, which mainly provided debt but also some equity, and the £300m Junior Loan Programme (see table). Both were launched in 2011 and are fully invested.
The firm has been raising follow-on capital and LaSalle Real Estate Debt Strategies II is believed to have had a first closing earlier this year. For this fund, Aznar’s team has “quite a lot of available capital to invest in the UK and Germany, in mezzanine and whole loans”. Aznar and Zerda are supported on German investments by Axel Brinkmann and Norbert Stangelmayer.
Including the deals for LRF, her team will have invested £500m in 15 deals since late 2011, giving the lie to those who suggest debt funds are having little impact in the property markets. Zerda expects to do more discounted payoff deals with borrowers refinancing legacy loans to sell assets, on the back of the rise in bank loan sales (see pp 15-17, 18-19, 20, 21, 22 & 23). “Those bank loan trades are an impetus for action,” Aznar agrees.
Westminster student project makes the grade for LRF 1
A £100m whole loan to fund student housing specialist Urbanest’s York House development at 199 Westminster Bridge Road SE1 (pictured) “was a perfect first deal for us for LRF 1” says LaSalle’s Amy Aznar.
The four-year term will be typical in that it extends beyond development to stabilisation of the asset. Less typical is its size: Aznar’s team plans to make five to seven whole loans of between £15m and £60m each.
It is about to close two more deals for LRF: a London development and a second student accommodation scheme.
Two residential loans LaSalle has closed this year, for Greenwich Square and Riverside Walk, were not for this fund.
As well as 1,100 student beds, the Urbanest scheme includes a private school to be operated by Delancey-managed Alpha Plus Group. Delancey had owned the site with Scottish Widows and originally planned to develop it as offices for Ogilvy & Mather.