On 12 October, M&G Investments’ real estate finance team announced it had provided £353 million (€389 million) for the refinancing of an office building and a supermarket in London, in one of the largest debt deals done by a non-bank lender in the UK property market since the start of the covid-19 crisis.
The five-year whole loan was provided to South African property investor Zeno Capital and real estate investment manager Oxygen Asset Management, which jointly own the two properties: Riverbank House, a 328,924 square feet office building in the City of London, which is fully let to the investment management firm Man Group; and a Sainsbury’s superstore on Purley Way, Croydon, on London’s southern fringes.
Although the deal was closed amid an uncertain outlook for the office sector, Dan Riches, director of real estate finance at M&G, argued the length of the lease, combined with the asset’s core location and transport links, made it an attractive financing prospect. “Man Group has a lease on the whole of Riverbank House that runs until 2035 with no breaks, which will, in our view, be supportive of value sufficient to refinance or repay the debt,” he said.
Riches added that the supermarket is let to Sainsbury’s until 2086. He added that the length of the two properties’ underlying leases were a major incentive for M&G to write such a large loan during a challenging time for the real estate financing market. “These two assets offer us the opportunity to invest in a fantastic office building in the City of London and a locally dominant long-let superstore. The weighted average unexpired lease term across both assets is 23 years, thereby providing our investors with a long-dated income stream.”
In response to the covid-19 crisis, many lenders have focused on financing existing customers. However, M&G confirmed the Zeno and Oxygen JV was a new sponsor relationship. According to Riches, when considering whether to provide finance to a new sponsor, M&G considers its experience and whether it has its own capital invested in the transaction, to ensure greater commitment to the asset throughout the loan term.
Isabelle Brennan, director in the real estate finance team, added that the right sponsor choice can lead to multiple financing opportunities: “We often work with large international sponsors making multiple investments across different markets. If they are raising capital into commingled funds, for example, they will have a series of funds and be investing over a number of years.”
She added that establishing lending relationships can “generate value through a pipeline of projects over the long term”.
Riches said that the ability to hold loans to maturity, even on this scale, provides non-bank lenders with an advantage. “We have the ability to write large-ticket loans on behalf of our investors who would then hold them to maturity, rather than syndicating the loan as an investment bank might do. Holding loans to maturity, rather than selling them on, provides our sponsors with certainty as to who their lender will be, giving them confidence that they know the people they are working with.”