UK debt market participants unfazed by uncertainty

Although Brexit and the crisis in retail dampened investment, debt providers did brisk business in the UK in 2019.

The UK’s real estate sector endured a relatively testing 2019. The Brexit debate dominated the national psyche and the prospect of a general election hung in the air throughout the year. For real estate investors, it was difficult to justify making risky decisions.

Data provider Real Capital Analytics recorded £49.3 billion (€58.7 billion) of investment transactions during the year, a 16 percent decline from 2018. A fall-off in activity in the retail sector contributed to the relative decline in volumes.

Lending volumes held up, however. At the time of writing, the most recent data on UK lending volumes, for the first half of 2019, show an uptick despite the slowing of the investment market. City, University of London’s Cass Business School, in its H1 2019 UK commercial property lending market report, put lending volumes for the period at £23 billion, up 4 percent on the first half of 2018. In the absence of investment deals, refinancing kept several lenders in business as sponsors sought new finance for assets, rather than sell into an uncertain market.

Although refinancing activity favoured incumbent banks, including the country’s main clearing banks, the UK real estate debt space remained Europe’s most diverse in 2019. A wide variety of lenders, including banks, debt funds, insurers and private property companies provided loans throughout the year, despite the backdrop of uncertainty.

In the banking part of the sector, Germany’s DekaBank spent the latter part of the year writing significant loans in the UK market. This warranted its inclusion in our shortlist for Bank Lender of the Year: UK, which it went on to win. In November 2019, it provided £76.5 million to Supermarket Income REIT for the acquisition of a supermarket in Essex. In the same month, it provided £81.5 million to Ashby Capital for the Colmore Building office property in Birmingham. In London, in September, the bank partnered with investment manager Nuveen Real Estate for a £285 million loan to King’s Cross Central Limited Partnership for an eight-year financing of two office buildings in King’s Cross.

3 and 4 Pancras Square
3 and 4 Pancras Square: DekaBank and Nuveen financed the buildings at London’s King’s Cross. Picture: Argent

Debt fund manager DRC Capital was voted Alternative Lender of the Year: UK. The London-based debt fund manager, which is part-owned by Savills Investment Management, spent 2019 investing a £700 million UK whole loan fund, which closed in October 2018, with capital mainly raised from UK pension funds. By November, 72 percent of the capital had been deployed across 18 investments.

The UK was also the scene of significant change in the real estate space, including growth in the burgeoning co-working market. It was a financing deal in that segment that was voted Financing Deal of the Year: UK. In August, Nuveen Real Estate provided a £280 million loan to property investor Brockton Capital to refinance 10 central London offices properties, in one of the largest London office portfolio deals of 2019. The properties are operated as co-working spaces, under the Fora brand, making the loan a prime example of a large financing in the emerging sector.

In the advisory space, London-based Brookland Partners was voted Debt Advisor of the Year: UK. The variety of mandates it took on illustrates real estate investors’ diverse requirements in the debt market: from a £550 million high-yield bond issuance against Pinewood Studios; the sale of a £450 million debt portfolio secured on operating assets; and loan-on-loan financing facilities for lending platforms.