GE Capital Real Estate is financing Ares Real Estate Group’s £115m acquisition of 10 Fleet Place in the City of London with a five-year circa £72.5m senior loan, CoStar News can reveal.
Ares Real Estate Group, a subsidiary of Ares Management which closed the acquisition of AREA Property Partners on 1 July, paid cash for the 183,102 sq ft grade A office near St. Paul’s around 10 days ago to vendor, private equity real estate firm CIT, which itself acquired the property eight years ago for £106.77m from British Land.
GE Capital is expected to fund the five-year senior loan – which reflects a 63% LTV – by early next week, after fending off competitions from a host of lenders, including strong competition from Lloyds Banking Group.
CoStar News understands that the margin on the senior loan is around the 200 basis point-mark over three-month, reflecting a further tightening of margins by senior lenders on prime stock in central London.
The shallow margin is also notable given the lease re-gearing which Ares will need to undertake over the life of the GE Capital senior loan.
The weighted average unexpired lease term across 10 Fleet Place is just 3.7 years, and with two-thirds of the property is occupied by the five largest tenants, Ares’ business plan likely includes securing lease renewals, or alternative tenants, and at higher rents that the current £39.31 per sq ft average to drive value.
The five largest tenants are: Level 3 Communications, which has 33,000 sq ft, Mott MacDonald, which has 30,000 sq ft, while CNBC Europe, Dow Jones and Kelway each have 19,000 sq ft. The passing rent is £7.2m per annum.
Separately, CoStar News understands that Ares Management is a finalist, along with Citigroup and JPMorgan, in bidding for Deutsche Postbank’s €1.9bn predominantly UK commercial property loan book, in a sales process known as Project Tower.
For GE Capital, the deal will be the UK real estate debt team’s second major senior loan in the last three weeks after providing a five-year £95m facility to refinance Access Self Storage’s 23-strong Enddora self-storage portfolio, which pays a margin of 460 bps over three-month LIBOR, CoStar News understands.
GE Capital Real Estate’s European business plan reverted back to senior lending last August, and at the same time suspended all further direct property investment, with ambitions to build a considerable presence particularly in the UK senior lending market.
Initially this was to compete for higher margin lending, but this has since evolved with GE Capital now seeking to build a more diversified UK loan portfolio and is therefore competing across a much wider cross section of the property market as the General Electric subsidiary looks to cement an organically built foothold in UK senior lending.
All parties declined to comment.