British Land is funding a £90m retail development in Hereford for Stanhope at a yield on cost of 6.75-7%. Stanhope said it was “the first forward funding deal of its kind to be signed in more than five years” – a sign of the ongoing shortage of finance for UK development.
UK banks are said to be charging 10-12% for residential development finance, for example. Stanhope secured the capital after preletting more than half of the 310,000 sq ft Old Market scheme to tenants including Debenhams, Waitrose and Odeon cinemas.
The property analyst team at Execution Noble pointed out that British Land is funding its purchase at a marginal cost of debt of less than 2%.
Assuming revaluation of the development to a 5.75% yield on completion, that would imply a 20% profit on cost for British Land.
“The transaction shows off the ability of larger UK REITs to use their scale and funding efficiencies to secure substantially de-risked development returns,” Execution Noble said.