Royal Bank of Scotland has provided one of the largest speculative development loans this cycle in the UK, Real Estate Capital can reveal.
The £100m ticket will be used to build 170,000 sq ft Four Pancras Square at the King’s Cross Central scheme in London. The debt reflects around 55% of the construction cost, which will be in the region of £180m. It is “the first of what is hoped will be a series of financing solutions from RBS” said the borrower, the King’s Cross Central Limited Partnership.
Whilst the UK real estate financing market has become dramatically more competitive in the past two years, development financing and speculative finance in particular has remained scarce.
King’s Cross Central is being developed by the King’s Cross Central Limited Partnership, which includes asset manager Argent, DHL and London & Continental Railways.
The new building will consist of ten-storeys of offices and ground floor retail. It has been granted planning consent by Camden Council and is due to complete in summer 2017. Four Pancras Square is designed by Eric Parry Architects and will stand between the new headquarters of Camden Council and Havas.
It will form part of Argent’s broader 67-acre development which is also the future London home of Google.
Phil Sullivan, project director at Argent, said: “Construction can now begin on Four Pancras Square. The building will be an exciting and final part of a 2m sq ft cluster of eight office buildings south of Regent’s Canal, with views over Granary Square and Pancras Square.”
Jason Presence, director in the RBS real estate finance team, added: “[King’s Cross Central is] one of the largest and most exciting developments in London at present, particularly as it is such an important area of regeneration.”
Additionally Argent is searching for an equity partner to take a stake in the broader King’s Cross Central development. A stake of around 20% is likely to be sold for in the region of £200m but it is thought the partners may look to bring in as much as £400m. A deal is expected to be finalised towards the end of this month. GM Real Estate and Rothschild are advising the owners.
The development partnership has always preferred to undertake a speculative development programme for the scheme where possible as it steadily establishes a new London hub. In January 2013 it agreed a £250m funding agreement with Barclays, Deutsche Postbank, HSBC and Hypothekenbank Frankfurt (formerly Eurohypo).
The Hypothekenbank Frankfurt element was a £71.5m speculative loan for the financing of two office buildings totaling 200,000 sq ft and was the last agreed by the bank before it withdrew from the UK market and sold its book to Wells Fargo.