Investment banks’ activity in debt distribution ramping up with increase in loan underwriting syndications agreed on hotels, retail and London offices
The UK senior debt distribution market is picking up, with at least four loan syndications arranged in recent weeks.
In another sign of the gradual increase in debt sources for property, investment banks Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley have recognised the opportunity. They have been underwriting loans in order to generate fees through distributing the debt, while recycling capital for new financings.
BoAML has syndicated more than £100m of its £200m senior loan, which is secured against the Maybourne hotels portfolio in Mayfair, the Connaught, Berkeley and Claridges. The US bank was one of a club of three that lent a total of £400m in January. Pbb Deutsche Pfandbriefbank has taken the largest participation, thought to be between £50m and £75m. The other buyers are Insight Investments and GE Capital Real Estate.
BoAML has also syndicated most of its share of a £350m, three-bank senior ticket for Intu Properties which, along with a bond issue, refinanced Lakeside Thurrock and the company’s Braehead, Nottingham and Watford shopping centres in March. The bank is thought to have been required to keep £50m; debt has been sold down to investors including Insight and hedge fund Aalto Invest.
Insight has a loan fund, which is not real estate-specific, that both originates and buys debt. The Bank of New York Mellon subsidiary also has some segregated accounts which can invest in property loans. Aalto was set up two years ago by professionals from Morgan Stanley and Cheyne Capital. Based in London and Switzerland, it has a debt fund that focuses on dislocated credit markets in Europe.
Insight and Aalto have also taken participations in the £190m senior loan that Morgan Stanley made to Blackstone in February to buy the Adelphi office building near London’s Strand, WC2. Aalto is thought to have taken between £10m and £15m, while Insight took slightly more. According to CoStar, US insurer AIG took about £80m, German bank BAWAG about £45m while Morgan Stanley is keeping £25m-£30m.
Citigroup, meanwhile, is expected to syndicate the £200m loan it provided for Starwood’s purchase of the Principal Hayley hotel chain in February, while Deutsche Bank has just closed the syndication of a £400m loan secured against 61 Holiday Inn hotels – with GE Capital said to be one of the parties that has bought into the deal.
GE is ramping up its senior debt programme in the UK – it has moved Ellen Brunsberg to become UK managing director and hired originator John Bigley from WestImmo. GIC Real Estate, the main owner of the Holiday Inn portfolio, funded £150m of mezzanine. The refinancing repays bondholders in the £444.78m Tahiti Finance CMBS and the junior lenders in full.
The syndication market has been thin, said the head of distribution at one bank, “because traditional lenders who were underwriting loans don’t have confidence yet in the liquidity of the market, so deals with any scale that they do – like Lloyds’ £320m refinancing for Value Retail (see more) are done as clubs”.