Starwood Capital imminently to close £270m Heron Tower refinancing

Heron International group and the Middle Eastern investors which own The Heron Tower in the City of London are expected to imminently close the £270m refinancing of the skyscraper with Starwood Capital, CoStar News has learned. 

Starwood CapitalStarwood’s £270m five-year senior loan, alongside a circa £100m fresh equity injection by the joint venture trio, will recapitalise and refinance the 462,000 sq ft tower, bringing an end to the impasse which threatened – at worst – to force Heron Tower into receivership. 

The refinancing could close as soon as later this afternoon, CoStar News understands.

Gerald Ronson, chief executive of Heron International, is understood to have ended the dispute with the two Middle Eastern investors to whom he syndicated the equity in Heron Tower to in early 2007 – Saudi Arabia’s Prince Abdul Aziz bin Fahd and State General Reserve Fund (SGRF), the Oman sovereign wealth fund.

The widely-reported “shareholder row” centred on two issues: consensus over how and when the investors can exit their equity stake in Heron Tower, and the on-going leasing and management of the City office tower.

Prior to which, agreement over the division of the circa £100m equity injection as part of the recapitalisation deal had already been reached.

Heron International owns around one-third of the tower’s equity, Prince Abdul Aziz bin Fahd owns around 25%, while SGRF owns the balance.

Starwood’s £270m senior loan, plus the £100m equity injected by the Heron and Middle Eastern consortium implies the recapitalisation of Heron Tower at around 73% loan-to-value (LTV).

However, when fully let, Heron Tower is expected to deliver annual rental income of around £30m, or £900 per sq ft, which would increase the value Heron Tower to just over £400m and prompt the LTV fall to below 65%, CoStar News understands.

Ronson, the property developer who conceived of the Heron Tower and steered the ambitious skyscraper through the global financial crisis, originally secured a £370m development facility from Eurohypo and Helaba Landesbank Hessen-Thüringen in early 2007, split 50:50, although only £300m was ever drawn down.

Starwood Capital fended off competition from Citigroup five months ago to provisionally win the refinancing mandate for Heron Tower, and again in recent weeks.

The second time was from Wells Fargo, the US bank which acquired the 50% split of the legacy Eurohypo development loan, as part of its acquisition of the former Commerzbank’s £2.7bn UK property loan book in July.

With the legacy Eurohypo loans now subsumed within Wells’ organisation, the US lending giant was keen to provide the entire refinancing for Heron Tower, but those efforts ended last week, with the consortium retaining Starwood, who, of course, was the underbidder on the purchase of Eurohypo UK property loan book alongside JPMorgan.

Starwood will divide the circa £260m loan between Starwood European Real Estate Finance, the UK-listed real estate debt fund with around £155m left to deploy by year end, and Starwood Property Trust, the US mortgage REIT.

CoStar News understands that the margin on the Starwood senior loan is around 450 basis points over three-month LIBOR.

The pace of leasing up Heron Tower since the completion of the skyscraper has been doggedly slow and the office tower remains below 60% occupied, notwithstanding the letting of Powa Technologies, the e-commerce company, according to yesterday’s Sunday Times.

The circa 40%-plus vacant space has reduced the skyscraper’s annual rent roll from an estimated £30m at full occupancy, to below £18m which, in addition to landlord’s payment of service charge on vacant space, had put strain on servicing interest payments on the legacy development loan.

All parties declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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