Madeleine McDougall has taken over Lloyds’ commercial real estate business from John Feeney. Daniel Cunningham talks to them about the handover.
One of the biggest jobs in UK property finance changed hands in August, when Madeleine McDougall officially became head of Lloyds Bank Commercial Banking’s real estate division, assuming the mantle from John Feeney, himself promoted within the bank.
McDougall became a property banker in 2003, after working as an investment strategist within the industry. She joined Lloyds from pbb Deutsche Pfandbriefbank in 2014 to manage the bank’s growing relationships with an array of institutional clients. Just three years later, McDougall is in the top job at one of the UK’s largest real estate lenders.
The promotion happened alongside that of her predecessor, Feeney, who has become Lloyds’ global head of corporates, a role he took on from the departing Clare Francis.
Discussing the transition into the new job, McDougall notes that Feeney remains on hand for advice. “It helps that John’s still on the same floor, so I can pick his brains,” she says. “To be fair,” chimes in Feeney, “you haven’t really needed to”.
The appointment of McDougall saw one of Feeney’s closest lieutenants within the business take over his responsibilities. In 2015, Feeney split the commercial real estate unit into six component teams, each led by a senior banker and focused on an individual client group; as well as McDougall’s institutional clients team, the set-up included listed clients, major private groups, developers, international clients and private real estate corporates.
“Now, I’m simply handling a wider client base,” explains McDougall. “The underlying real estate fundamentals are the same across client types; it’s still investment or development lending. It’s still offices, retail, logistics, alternatives. The advantage is that, despite having most recently headed institutional clients, I have experience across varied clients sets at different banks.”
Previously managing a team of seven, McDougall is now in charge of 65, including front-line bankers and support staff. Her challenge is to continue the resurgence of Lloyds’ real estate business, which Feeney set in train four years ago when he joined the bank from what was then Henderson Global Investors and is now TH Real Estate. In 2013, Lloyds was busy offloading the toxic real estate loans that had contributed to the bank’s need for a state bail-out. Feeney’s job was to rebuild a ‘good’ book, repair the bank’s reputation as a property lender and generally reboot the business.
“They’ve stuck to what they said they would do,” comments one market player, “taking on bigger tickets, doing full underwrites.” Lloyds is viewed by property market participants as having staged an impressive recovery since the crisis. The bail-out of the bank and the tighter regulatory environment mean that its lending is within stricter parameters than historically, but it is also seen to be broadening its lending capabilities.
While Richard Dakin, now head of CBRE Capital Advisors, was responsible for deleveraging the bank’s legacy real estate positions, the credit for rebuilding the real estate team belongs to Feeney. McDougall played a role in that and is a popular and well-known figure in London property finance circles.
“Madeleine came in three years ago and immediately had an impact in developing our institutional franchise in terms of building relationships with private equity clients, interacting with sovereign wealth funds and traditional money managers, and she brought a great energy and dynamism to that. It was clear to me we had the person we needed inside the team,” Feeney says.
McDougall’s recent deals have included arranging two loans totalling £409 million (€453 million) for privately owned firm Lazari Investments in January, allowing it to refinance six of its key central London assets. She also played a key role in the bank’s 2016 financing of London’s O2 arena, with a £185 million facility, of which 50 percent was subsequently syndicated to Industrial and Commercial Bank of China.
“Ever more foreign capital, whether it is Asian insurance money or US private equity, is coming into the market, so one of the evolutions at Lloyds has been an expansion beyond a very British franchise to serving clients active in the UK but from every corner of the world,” comments Feeney. “It’s an area Madeleine has been particularly active in and will need to continue to be, because the market is shifting and we need to keep our franchise moving with it.”
McDougall takes the reins at a time when the UK clearers are perceived by many in the market to have become more risk-averse due to the uncertainty following the UK’s Brexit vote. But the business is in growth mode, she argues.
“In the last three years we have sensibly increased our client base and so we want to support our existing clients but also continue to create new relationships. We lent £8.6 billion last year, and although it was down from £9 billion in 2015, that was in the context of a reduction of investment volumes, so we’ve grown our market share,” McDougall says.
Not a single deal was pulled after the Brexit vote, Feeney is quick to add: “Of course we adjust pricing in line with market norms, but our commitment is enduring,” he says.
Risk, continues McDougall, will be closely monitored: “Sixty five percent loan-to-value is less regular than two, three years ago, but we are in an uncertain environment and we want to make sure we lend through the cycle. Our average LTV is in the 50s. There is a juxtaposition in the market in that rental values, especially in the office market, are tailing off, and yet capital values continue to grow; that can’t last much longer.”
The most recent De Montfort University report highlighted UK banks’ role in the market. Although volumes from that group fell by 28 percent from the second half of 2016 to the first half of this year, they collectively provided more than £8 billion to the market in H1.
“We’re one of the best capitalised banks out there,” says McDougall. “The challenge is about changing the market perception, looking after the existing client base and growing it. A key strength of the business,” she adds, “is having the support to be able to innovate. We had a very strong franchise in terms of our balance sheet. I came in to accentuate the larger-ticket underwrites and grow the originate-to-distribute model.”
Dealogic figures show that Lloyds was the UK’s largest distribution bank in 2016, syndicating the equivalent of €1.5 billion.
“We’ve made it very clear we want to increase our capacity to do the larger underwrites and more complex transactions. At the same time, we remain a significant balance-sheet lender,” says McDougall. “Very few players out there see the amount of data we see, so I want us to become more sophisticated in how we use that data, innovate new products and be at the forefront of the industry. Last year, there were market volumes of around £50 billion and we looked at around £30 billion of that.”
An innovation McDougall wants to build on is the collaboration with the group’s insurance firm, Scottish Widows, which has enabled the CRE team to arrange longer-term financings. McDougall envisages larger tickets, as well as bringing other insurers’ balance sheets into such deals, alongside Scottish Widows.
The development of the bank’s £1 billion green lending agenda is also being considered. “We set ourselves ambitious targets and we are exceeding them. It sets the agenda for a lot of conversations with our clients, and in turn their occupiers, who are generally in the process of becoming green, but may require capital in order to do so. Lloyds has already helped make 4 million square feet of real estate to become energy efficient and there is much more to come – it’s exciting to see that we can make such a big difference to our country’s green agenda.”
Residential is another area McDougall is determined to focus on. “There’s a housing shortage and 60 percent of our development book is in residential. We want to back the right space, not high-end residential, but the types of homes people in London and the rest of the UK can afford to live in.”
Private-rented-sector schemes will play an important role, she says. In May, the bank provided its first standalone PRS loan to Aprirose for a scheme in Birmingham. “We need to make sure land that would be otherwise undeveloped is developed. PRS can bridge the housing gap, but it doesn’t mean building less affordable for-sale housing,” she says.
McDougall’s views on the real estate lending market have been shaped by her early years working in the sector. From 2003 she witnessed the peak of the last cycle, and continued to do business through the lean years when few banks were active in the space.
“Not just Lloyds, but every bank out there has gone through a difficult period and, as an industry, we are very keen that doesn’t happen again,” says McDougall. “We need to innovate and grow our products but keep a clear view on what our risk parameters are. We need to keep in mind short-term volatility, but also how the market is changing over the long term, with factors such as sustainability and technology.”
While McDougall gets to grips with her new job, Feeney explains that he also has a lot to learn. His new role sees him take charge of Lloyds’ global corporates business, overseeing the bank’s relationships with corporate clients across a range of sectors, which will involve a continued oversight of real estate, but also comprise sectors as diverse as energy, consumer markets and healthcare.
Having a real estate man in such a position within the banking world can only be a benefit to the industry, one source says.
“Getting my head around very complex industries spread around the world means that I am very much placing all my confidence in Madeleine to run CRE,” Feeney says.
During his tenure as the top-ranking property specialist at the bank, Feeney made himself a visible figure, be that through sharing his views on panels at industry events or through his involvement in industry associations. McDougall plans to continue that. Her roles include sitting on the British Property Federation’s policy committee and the Bank of England’s commercial property forum. She is also a former CREFC Europe chair and Association of Property Lenders board member.
“We have a moral obligation to having a healthy sector; it’s about helping to create that as much as it is about the systemic risk of one organisation,” says McDougall. “In order to have a stable business we need to ensure that the whole market is functioning properly and want to be at the forefront of guaranteeing that happens.”
The appointment of McDougall, says Feeney, is a positive for the sector: “It’s been a swift rise, but that reflects Madeleine’s talents and achievements and I think it’s great that we have fresh talent coming through the industry.
“In terms of real estate finance market personnel, frankly not a lot has changed since the financial crisis,” he adds, “a lot of the same people are in the same institutions. So, it is fantastic to have a new leader come through.”
McDougall’s route to the top job
Madeleine McDougall’s first job in the City, and her introduction to the real estate industry, was as an investment strategist for property outsourcing firm Trillium. “It involved number crunching on the portfolios, running financial models, and very late nights,” she remembers.
“It was really interesting and I learned a lot about real estate. We weren’t looking at trophy assets. It was things like job centres in places like Preston,” recalls McDougall, herself a Lancastrian. “You had to get up to scratch pretty quickly about local-market demand, possible alternative uses, etc.”
Having studied geophysics at Oxford University – and with no desire to become a geophysicist – McDougall had considered a career in management consultancy before a close friend working in real estate suggested the industry to her. “My friend described it as an engaging industry, focused on relationships and full of interesting personalities,” she says.
McDougall’s transition to real estate lending came after handling a debt financing deal for Trillium. Although the firm typically used parent company Land Securities’ balance sheet to finance its property, doing a rare debt deal with Eurohypo led to a job offer from the bank to join its origination team.
“I spent the mid-2000s, probably the most interesting time in real estate finance that we’ve seen for a while, working in both UK and continental European origination. There were a wide range of products at first – acquisition loans, bridge facilities, CMBS – so I got broad experience.”
In 2008, McDougall joined WestImmo, working for Peter Denton, now at the Hyde Group. “They had a small loan book at the time and not many legacy issues, so we could hit the ground running and do high-level deals as there was very little liquidity in the market.”
As WestImmo was earmarked to be sold, origination was put on hold and McDougall joined pbb Deutsche Pfandbriefbank in 2011 as head of international clients in the UK. This role introduced her to the client set she worked with at Lloyds, including private equity firms, sovereign wealth funds and pension funds.
“In the 2000s, every year worked in the property lending industry felt like two because there were such long hours, such a variety of deals and clients. Throughout my career I’ve always ensured that I’ve been in the active part of the market. There hasn’t been a period where a lending team I’ve been part of has been idle.”
Feeney’s real estate legacy at Lloyds
Between 2013 and 2017, during John Feeney’s tenure as head of Lloyds’ real estate unit, the business’s priorities changed considerably.
“The business I inherited in 2013 was still in part a function of the financial crisis we were coming out of,” explains Feeney. “We were selling down our non-core portfolios and clearly real estate had been a large part of the problems the group experienced through the crisis, so the challenge was to rebuild and get the business back to a position where it was contributing actively to the group’s performance.”
Feeney faced the challenge of ramping up property lending within tight risk parameters at the part-nationalised bank. “The challenge of recent years was to find the right business model to continue to be a strong presence in the market, but at the right risk-participation level,” he says.
“I see it as a journey from it being a business that was still recovering from the legacy of the financial crisis, to restoring pride and direction and then figuring out how we could use both our balance-sheet strength and our expertise in the capital markets to create a business that worked for our return on capital.”
That has been achieved through establishing a lending partnership with group insurer Scottish Widows, building up distribution capability to allow the bank to execute large underwrites, and embarking on development lending.
“We brought a sense of purpose to the business by doing things like the green lending initiative; realising we could have an impact and not just be observers,” adds Feeney.
From starting his financial career in structured products such as residential mortgages and consumer debt, through to bond markets including CMBS, Feeney’s career has been weighted towards real estate. His new role encompasses a broader set of clients: “I’m out meeting the likes of Rolls-Royce, Siemens, GE; some of the greatest companies in the world from across many sectors.”