Moise Safra, the Brazilian banking mogul who acquired Plantation Place last May, has lined up US real estate insurance lenders Pacific Life and Pricoa Mortgage Capital Group to refinance the City of London trophy asset with a combined £280m, CoStar News can reveal.
Pacific Life, the mutual US insurance company, and Pricoa, the commercial mortgage lending business of Prudential Financial, are in talks to provide an expected long-dated, fixed rate senior loan facility to refinance Plantation Place’s CMBS and junior debt, which matures in July.
Pricoa is expected to be the lead on the refinancing ticket, with the duration of the loan at least seven to 10 years and the margin is likely to come inside 250 basis points, priced over gilts, reflecting a margin tightening for London’s emerging super-prime stock.
This marks the maiden UK senior loan for Pacific Life, which has a $8.32bn US commercial mortgage loan book, and has been looking at potential prime and super-prime London club deals financings for the last six months, after shelving its original plans to enter the market in the summer of 2007 as the global financial crisis took hold.
Pacific Life’s previous business relationship with Safra is thought to have been the catalyst for the US mutual insurer’s emergence on the 550,000 sq ft trophy asset financing ticket.
In the US, Pacific Life is known as a nimble and opportunistic lender look at relative value across the spectrum of real estate credit – from CMBS to real estate corporate bonds, REIT term loans and revolving credit facilities as well as senior loans – and conducts all its due diligence and relative value analysis in-house.
For Pricoa, it would be the insurance lender’s second after the £70m 11-year refinancing for O&H Group last June.
MetLife was understood to have been involved at an earlier stage of the process, seeking to provide the entire refinancing.
Based on last May’s circa £485m purchase price – based on Safra paying £40.5m cash to Schroders, Clerical Medical, Starion and Stobart Group and inheriting the outstanding £417.9m CMBS balance and the £25m junior loan – the LTV is just under 58%.
On which basis, there still remains a relative value premium for a 58% LTV fresh senior loan, compared to a similar attachment point for a AAA bonds in European CMBS in the secondary markets, which come inside 200 bps and down to as low as 150 bps for some prime German multi-family deals.
For Safra, an equity injection of around £200m will be required when the deal completes, with no talk yet of additional mezzanine financing. The current mark to market on the interest rate swap is £13.1m, according to the January quarterly investor note.
Wells Fargo, which pays £2.48m per annum in rent at Plantation Place, is expected to leave next year, exercising a break clause. The aggregate tenant income is £27.46m, with Accenture providing £19.43 per annum.
All parties declined to comment.
REC 5: Plantation Place – a truly European CMBS tale
The story of the jointly Rothschild and Merrill Lynch-issued REC 5 CMBS is a colourful tale which saw the birth of “tranche warfare”, two attempted acquisitions by Delancey including an ambitious loan-to-own strategy by blocking a restructuring proposal after acquiring a blocking vote within one of the classes of the waterfall.
But perhaps the most significant hindsight analysis on the tumultuous REC 5 CMBS is that, in the end through the property cycle, all bondholders as well as the junior lender will be repaid in full – which was beyond most analysts’ optimistic expectations in the teeth of the property markets’ collapse four years ago.
From a pre-securitisation market valuation of £560m in June 2006 – 12 months before the peak of the UK commercial property market – Plantation Place’s value plummeted during a two-year period of unbroken capital depreciation to July 2009.
According to IPD’s UK Quarterly Property Index, central London offices fell as much as 50% from their height. Plantation Place’s value tumbled to £360m by 30 March 2009, according to a Knight Frank valuation, before rising in line with the tide of the wider market recovery.
During 2009, bondholders in the senior classes of the CMBS tried to persuade the servicer for a vote on loan enforcement, on the basis of the LTV breach, which would have led to a near fire sale of the trophy asset at a time when Plantation Place’s value was at its lowest, while liquidity and banks’ appetite to lend was at its most scarce.
For European CMBS, this was the first visible indication of conflicts of interest within a securitisation on this side of the Atlantic, with palpable differing economic interests throughout the capital structure.
Had senior bondholders got their way, the sale price would, in all likelihood, have wiped out the £25m junior lender and eaten into the recovery of lower securitisation classes.
Somewhat fortuitously for those more subordinate debt investors, the documentation was poorly drafted and did not allow for enforcement action due to an LTV covenant breach.
And with the passing of time, all debt investors will now be repaid, with the City of London trophy asset now set to become significantly lower leveraged.