Osprey forward funds Terrace Hill supermarket with £20m HSBC debt and £15m equity

Osprey Equity Partners, the real estate equity and debt raiser, has closed the £35m forward funding of an almost 100,000 sq ft Sainsbury’s supermarket in Sunderland, with £15m in equity and a five-year £20m HSBC senior loan.

Terrace Hill, the AIM-listed UK property developer which brought the deal to Osprey, paid around £0.5m in costs to get planning approval for the Tyne and Wear supermarket as well as costs incurred in securing the pre-let to Sainsbury’s on a 25-year lease.

Following the forward equity and debt funding, Terrace Hill has already been repaid £2.5m, and stands to increase its profit considerably further on the transaction by the time the supermarket opens in March next year.

Terrace Hill’s typical profit margin on developments is between 15 and 20% of gross development value. Based on the agreed £35m value of the completed supermarket, at the top end of Terrace Hill’s typical profit margin range of 20%, it would suggest a gross return of £7m which, less £0.5m in initial costs, suggests its profit could be as high as £6.5m.

Terrace Hill said the project reflects the developer’s strategic decision to focus further on the supermarket development sector and has several similar developments within the Terrace Hill pipeline.

Philip Leech, chief executive of Terrace Hill, said: “The securing of forward funding is a significant step for the project, and underlines Terrace Hill’s ability to source financing for our developments, in spite of the challenging funding environment.

“We continue to see potential for further growth in the foodstore sector, and believe that our activities in this market will generate good returns on behalf of our shareholders as we progress this and our pipeline of opportunities.”

The acquisition and development of the supermarket has been forward funded by Osprey Supermarket Income and Growth 1, with £15m in equity provided by UK high net worth individuals – both directly and through personal pension funds – and the five-year £20m HSBC senior loan.

During the nine-month construction period, there is a premium of the HSBC senior debt facility, thereafter, the loan reverts to a traditional investment pricing. While the pricing was not disclosed, current senior debt margins range between 275 basis points and 350 bps over three-month LIBOR, depending on covenant strength, lease length, asset quality and location.

The 97,729 sq ft Sainsbury’s supermarket will include a six pump petrol filling station and 517 parking spaces.

Osprey Supermarket Income and Growth 1 is the first of a series of private investor funds launched by Osprey Equity Partners, designed to achieve attractive income and growth returns underpinned by secure, well-let, direct commercial property assets.

John White, director and head of property at Osprey Equity Partners, said: “We are delighted to be working with Terrace Hill and HSBC on this project.

“The fund was oversubscribed and reflects the appeal of secure, income producing property assets amongst private investors and SIPPs, especially against a backdrop of continuing volatility in equity markets and with historically low returns on cash deposits.”


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