Eastdil supports Crosstree JV to finance O2 shopping

The adviser’s knowledge of global lenders contributed to a speedy solution, finds Jane Roberts

The last three months of 2015 were a busy time for Ryan Craig of Crosstree Real Estate Partners. The opportunistic investor’s finance director was absorbed in the largest debt financing that five-year-old Crosstree had tackled to date.

Ryan Craig
Ryan Craig

The UK firm, part of the Bertorelli family office, had just completed an interesting acquisition, paying cash for a 50 percent stake in the shopping, bars and restaurants in London’s famous O2 Arena, investing alongside the venue’s owner, Los Angeles-based Anschutz Entertainment Group (AEG).

Their joint venture intended as soon as possible to create an outlet shopping destination on unused space next to the existing 370,000 sq ft of bars, restaurants and Cineworld cinema that constitute the ‘entertainment district’ surrounding the music venue in the centre of the giant dome. To do that, they wanted to raise development finance.

“The business plan is to develop a 205,000 sq ft designer outlet village and we looked to source financing that allowed us to leverage the value that’s inherent in the entertainment district as well as giving us the ability to develop the village that we already had planning permission for,” explains Craig.

The large quantum of debt, £183 million, though at relatively modest 55 percent blended leverage, was one reason that the partners decided to use a debt adviser. The others were the asset’s profile and the relative complexity of the transaction. Eastdil Secured was well-known to Craig’s partners at Crosstree, Sean Arnold and Nick Lyle, from their previous real estate roles at Starwood and Blackstone, and Crosstree had also hired Eastdil once before to work on the £100 million development financing package to convert Camden Town Hall Annexe into a Standard Hotel. The O2, Craig says, “seemed like a natural deal to use them on”.

“We have a number of strong relationships across the spectrum,” he continues. “But given the requirements of this one, we felt that being able to leverage off Eastdil’s access to global debt markets and their knowledge of specific lenders’ appetites for this type of facility made it smoother and easier to come up with a long list of potential lenders.”

Targeted approach

Crosstree and Eastdil’s Riaz Azadi and Adam Licari worked alongside an AEG European team that included regional CFO Alex Hill, real estate head Alastair Wood and chief legal officer Sarah McGuigan. Eastdil initially came up with number of financing structures, each appealing to different lenders, and from there, honed a range of options and lenders allowing for a targeted approach. “Eastdil was able to present clearly what our options might be with each,” says Craig. “For example, insurance companies might be interested, but not have the appetite for the development tranche or drawdown process, though they might provide greater proceeds up front (secured against the income produced by the entertainment district).

“We sat down with them with the list and cut it back to 20, both lenders we had a relationship with and others that we didn’t, but whom we were keen to do business with.”

That list was split into two buckets based on structure preference with the initial process continuing with a target group. After receiving indicative terms, 10 were trimmed, “quite quickly” based in part on ability to do a single underwrite, “a huge positive” in meeting Crosstree’s fast timetable, rather than a club.

Lloyds won the mandate, as one of three on the final shortlist intending to underwrite the whole loan – the others were an investment bank and a debt fund. Lloyds’ success was also partly about pricing (the blended margin is believed to be in the early 200 basis points) and also its flexibility. As Craig says: “They took a very commercial view on the asset given the income that it has in place and the fact that we can pay interest current.” Of the £183 million total facility, £142 million is attributable to the income-producing investment at 50 percent LTV, and £41 million at 60 percent to the development component. Lloyds subsequently sold down half the loan to Industrial and Commercial Bank of China.

“It was a complex deal and Eastdil helped greatly in running a smooth process,” says Craig, recalling the four months’ intensive work. “It helps when you get to a point in negotiations where Eastdil can interject and can state with authority that ‘the market standard is this”. It was quite a task, but it got done.

SHARE