Blackstone will decide on the composition of the £200m financing package early next week to fund its £265m acquisition of the Adelphi building just off the Strand, after seeking term sheets for both whole loan lenders and separate senior and mezzanine loans, CoStar News can reveal.
Along the first of two options, returning investment bank to property lending, Morgan Stanley, is understood to be competing with Goldman Sachs to provide a £200m whole loan, which is comprised of £190m to finance the Adelphi acquisition and £10m for a reserve account.
The second option Blackstone has sought term sheets on is for a £160m senior loan and a £30m mezzanine loan, with the mezzanine lenders also providing an additional £10m for the reserve account.
Morgan Stanley and Goldman are understood to have also pitched for the second track, which also includes a raft of senior debt lenders including BNP Paribas, while the mezzanine ticket has received terms sheets from Pramerica, DRC Capital and Starwood Capital, at differing levels of commitment.
At the end of last year, Morgan Stanley sanctioned a return to UK property lending on a selective basis, as revealed by CoStar News last October.
Blackstone’s investment play is a considerable repositioning of the asset as anchor tenant, the Department for Work and Pensions, which currently occupies 164,960 sq ft of the building, or 48.6% of Adelphi’s aggregate rental income, is leaving in the summer.
With a further 31% worth of Adelphi’s aggregate rental income also due for a break clause or maturity within two years, Blackstone is set to undertake a substantial refurbishment of the lower part of the 292,122 sq ft prime West End trophy asset, planning to spend as much as £20m to improve the floorplate specifications.
As a result of the staggered income shortfall from lease maturities, from this summer to mid-2015, Blackstone has asked prospective lenders for £10m to set aside in a reserve account, which will fund debt repayment over the construction period.
Blackstone’s bet on successfully repositioning the asset is similar to the business plan behind its acquisition of Devonshire Square last July for £325m which was financed by a five-year £220m Goldman Sachs senior loan, which was syndicated to AXA Real Estate and AIG.
The financing of Adelphi, therefore, is complex which is likely to be reflected in the pricing agreed. Senior pricing sought is sub 400 basis points, while mezzanine pricing is expected to be between 9% and 11%.
Blackstone is expected to make a decision on which financing combination to use by early next week. Eastdil Secured is arranging the financing mandate.
Istithmar, Dubai’s investment vehicle, paid £325m for the West End trophy in 2007, financed by a £253.9m Barclays Capital whole loan, of which £215.6m was securitised in the bank’s Inuds Eclipse CMBS.
The outstanding senior is £212.3m and the B-note is £35.8m, and is owned by Prudential M&G, CoStar News understands.
Istithmar agreed to a consensual disposal with loan servicer Capita Asset Services after failure to repay the outstanding balance at maturity.
Perella Weinberg lodged an aborted £285m offer in December 2011, backed by a senior-only financing syndicate from Société Générale, which exited property lending in autumn 2011, BNP Paribas and Deutsche Pfandbriefbank.
Blackstone’s purchase price at £265m, is £20m lower than Perella’s £285m aborted bid almost 15 months ago, and if the private equity giant pulls off a speedy sale following a lease sign-up post the planned refurbishment, an internal rate of return of more than 20% is the prize.
Blackstone declined to comment.