Mandate for £200m-300m to back £1bn scheme in heart of the Square Mile could be largest development financing ticket since financial crisis
Henderson Global Investors is to start talks with lenders next month about raising £200m-300m of development finance for its proposed 910,000 sq ft scheme on the Leadenhall Triangle site, EC3. Henderson made a planning application last month to develop the building at 40 Leadenhall Street in the heart of the City’s insurance district.
The development financing mandate will be one of the largest to hit the market since the financial crisis. The completed scheme could be worth £1bn. Nick Deacon, Henderson director of property, central London offices, said: “We had fantastic interest from banks when we unveiled the plans. It was very revealing.”
The interest reflects a revival in confidence and greater competition in the UK financing market. Another very large London financing is for More London, near London Bridge, where Rothschild is seeking a bank to refinance the 1.34m sq ft estate. Deutsche Bank and Goldman Sachs are tipped as front-runners to underwrite around £900m of new debt, which is then very likely to be securitised.
Rothschild is advising More London’s owner, the Armenian Izmirlian family’s London Bridge Holdings, on refinancing the single loan that comprises around £640m of outstanding CMBS, set to mature next July; a junior loan of around £97m; and an outstanding out-of-the-money swap.
Four or five banks able to underwrite the entire refinancing with a view to distributing in the capital markets are believed to have submitted term sheets. They included Bank of America Merrill Lynch and HSBC, as well as DB and Goldman.
The Leadenhall Triangle buildings, bought for £190m in 2011, are owned by a joint venture between Henderson’s Central London Office Funds 1 and 2, and Canadian pension fund Alberta Investment Management Corporation (AIMCo).
Deacon said there will be “evolution” in the equity ownership as the asset is brought forward for development. Central London Office Fund 1 investors will vote next month on whether or not to extend the fund by six to eight years after 2015.
Henderson Global Investors is to merge with giant US investor TIAA-CREF in Q1 2014. Part of the rationale for the merger is that the new TIAA Henderson Real Estate will be able to be a significant co-investor in deals.
Architectural firm Make designed 40 Leadenhall, which varies between seven and 34 office storeys that would be built in one go, rather than phased.
Initial guidance is thought to suggest a margin in the low 300 basis points for the development finance, at around a 50% loan to cost, subject to an element of pre-letting and sponsor guarantees.
By contrast, the Heron Tower, refinanced earlier this month with £100m of equity and £288m of debt arranged by Starwood, had a blended 400bps margin – showing how fast debt pricing is falling.