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Grainmarket refis 10-strong office-dominated portfolio with £52m TH Real Estate whole loan

Grainmarket Properties, the property developer and investor with a 700,000 sq ft London and the South of England real estate portfolio, has refinanced a 10-strong predominantly office-led portfolio with a six-year £52m whole loan from TIAA Henderson Real Estate (TH Real Estate).

TH Real Estate is refinancing a legacy HSBC Private Bank loan, which is seeking to migrate real estate lending into the commercial bank, and is expected to split the whole loan into an approximate £40m floating-rate senior loan and £12m fixed-rate junior loan. The final A-B whole loan split is still to be finalised.

Grainmarket’s office portfolio is valued at circa £70m, implying a 74.3% whole loan LTV. Based on an annual portfolio income of circa £4m, the net initial yield is circa 5.5%.

TH Real Estate is expected to begin the syndication of the senior loan and retain the junior loan. While loan pricing was not disclosed, assuming the senior loan is finalised at £40m, this would imply a senior LTV of around 57%.

The De Montfort Commercial Property Lending Report, published last Friday, reported that the average margin for loans secured by prime offices declined by 34.2 basis points – from 252.9bps to 218.7bps at the year-end 2014. For loans secured by secondary offices, continued the report, average interest rate margins declined more steeply by 42.8bps from 306.9bps year-on-year to 264.1bps at year-end 2014.

However, margins have continued to compress in the subsequent five months of 2015, and this is likely to be reflected in TH Real Estate’s margin for the Grainmarket whole loan, which is secured by a mix of good secondary and near prime UK assets.

Almost three-quarters, or 73% of the portfolio by value (circa £51m) is located in central London, with the remaining assets in strong regional towns in the South East.

The 10-strong largely office portfolio includes: the 7,390 sq ft 21 Ironmonger Lane and the 23,121 sq ft Bridewell Gate, both in the City of London; the 47,187 sq ft 120 Leman Street in Aldgate; the 6,737 sq ft 2 Duke Street on the corner of Grosvenor Square in Mayfair; and the 27,781 sq ft Colston Avenue in Bristol.

The circa 206,000 sq ft portfolio, which is over 90% let, has a diversified tenant line-up with a strongly reversionary lease profile, with most of the leases in the Grainmarket portfolio signed between 2009 and 2011. Grainmarket is therefore likely to benefit from central London’s strong demand for office space as well as improving demand in the regions.

The whole loan was originated by TH Real Estate’s UK Enhanced Debt Fund, which launched in December 2014 with a first close of £138m. The capital was committed by TIAA-CREF, TH Real Estate and Aviva Investors Real Estate Multi Manager. The Fund, which is targeting a final close of £500m, is seeking a 6-7% internal rate of return (IRR) with a 6% distribution yield.

Separately, TH Real Estate manages a separate account mandate for TIAA-CREF which targets investment grade quality assets on seven years and above, to match long-dated liabilities, offering both senior debt and mezzanine more selectively.

Mark Crader, director of Grainmarket Market Properties, said: “This refinancing consolidates our financing structure. Meanwhile, the financing terms and flexibility provided by TH Real Estate, are well matched with our objectives on our underlying real estate portfolio, to actively asset manage our portfolio and increase rents over the next five years.”

Christian Janssen, head of debt at TH Real Estate, said: “Working with experienced operators and sponsors like Grainmarket Properties is one of the key focuses of our lending platform. We were delighted to leverage TH Real Estate’s research and property underwriting expertise, to tailor a financing solution that met the needs of Grainmarket Properties.”

Shawn Kaufman, director of debt strategies, responsible for origination and loan syndication at TH Real Estate, added: “The Grainmarket transaction is representative of how our syndication strategy enables us to deliver an attractively priced whole loan financing solution, up to 75% LTV, to our borrowers, while, by retaining the junior portion of the capital structure, delivering an enhanced return to our fund investors.”

Two months ago, TH Real Estate closed a hat-trick of loans:

  • a seven-year, fixed rate £85m fully retained senior loan secured by a three-strong central London prime office and retail £135m-valued portfolio, reflecting a 63% LTV.
  • a five-year 74% LTV, partially fixed/floating rate facility to refinance a modern student accommodation and retail property in West London. TH Real Estate retained the fixed rate mezzanine loan and syndicated the 55% LTV floating rate, senior portion of the loan.
  • a £100m, 20-year, fixed rate, facility secured on a regionally dominant retail and business park in the northern part of the UK.

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