Commercial real estate lending business debuts with £121m facility for student housing provider
Legal & General has written its first commercial loan, a £121m facility for student housing company UNITE Group. The deal was completed a year after Legal & General set up a commercial real estate lending business to step into the gap left by banks and to diversify from corporate bonds, recruiting Steve Boyle and Graham Rouse from rival insurer Aviva Commercial Finance.
Ashley Goldblatt, head of commercial lending at Legal & General Investment Management, said L&G had looked at over 100 possible deals before agreeing on this first deal, which was introduced by Rothschild. He said new business would be driven by suitable deals available, not by having a fixed allocation to lend.
The UNITE loan is for 10 years, rather than the 15-year-plus terms L&G would like to find to match the liabilities of its annuity book. But Goldblatt said the fixed rate of 5.05% (about 270 basis points over the 10-year swap) made up for it. “Ten years isn’t necessarily tied to where the liabilities of our organisation are, but we have our own value framework and 5.05% gives us the value we want,” he said.
The loan-to-value ratio is 60% and the facility is secured on 10 UNITE buildings, which are direct lets rather than university nomination agreements. “We took a hard look at the sector and the underlying economics meant we felt happy to do direct let,” he said. Joe Lister, UNITE’s finance director, said the properties were all assets the company wanted to hold for the long term.
About half were drawn from 11 assets previously secured by a £100m facility with Bank of Ireland and the rest were from two facilities, with RBS and Nationwide. Together with headroom in existing facilities the new loan will pay down the group’s remaining loans that mature next year, including the Bank of Ireland loan.
That debt was part of a £1.33bn portfolio of loans that a Kennedy Wilson consortium bought late last year from the Irish bank. After paying off the 2013 loans, Lister said there was capacity in the RBS facility to fund UNITE’s next London development, at Stratford in east London. The group incurred £4.7m of swap breakage costs, which will be partly offset by a small reduction in the overall cost of group debt, from 5.7% to 5.6%.
Insurance companies have been active lenders this year, with new and existing insurer lenders stepping into a gap left by banks. M&G and Aviva have both completed significant deals in the past few weeks. Lister said UNITE was keen to introduce new sources of funding alongside its banking partners and had approached “about half a dozen insurance companies” for this facility.