Royal Bank of Scotland has financed Moorfield Group and Oaktree Capital Management’s joint venture £41.2m acquisition of 100 Barbirolli Square in Manchester City centre with a £28m five-year whole loan.
The initial leverage reflects a 68% loan-to-cost on the purchase price, and is structured to allow Moorfield and Oaktree to drawdown a further £5m, upon meeting agreed asset management targets, and repatriate equity out of the transaction.
RBS has sliced the initial £28m whole loan between a senior and stretched senior facility, with the £5m agreed top-up likely to similarly be tranched relative to the determined usage when drawn down.
Based on the 68% whole loan leverage point for a fully leased Manchester prime asset, the likely senior cut-off would be just below 60% LTV, implying a circa £24m senior loan and a £4m stretched senior or mezzanine tranche.
CoStar News understands that the senior margin, and any future drawn senior from the £5m top-up facility, is priced at around 300 basis points over three-month LIBOR, while market pricing for the circa £4m stretched senior loan is thought to be around 750 bps.
The stretched senior, or mezzanine, tranche is priced on a margin basis, rather than as an internal rate of return.
RBS is thought to have won the financing mandate due to its willingness to provide a flexible structure to accommodate Moorfield and Oaktree’s asset management plan.
Deutsche Pfandbriefbank and Santander were among the competitive underbidders.
Suzanne Avery, managing director, real estate finance, London, said: “We are delighted to continue our support for Oaktree and enter into a new relationship with Moorfield.
“We have continued appetite for well located assets throughout the UK in the hands of quality sponsors – including those new to bank – with well thought out asset management plans.”
Moorfield, which acquired its stake of 140,000 sq ft ‘grade A’ office through Moorfield Real Estate Fund III, will be the asset manager, under the terms of its first-ever joint venture with Oaktree.
The joint venture partners completed the acquisition of 100 Barbirolli Square in July from Scottish Widows Investment Partnership. It forms part of the wider Barbirolli Square estate in Manchester City centre.
Barbirolli Square, built in 1997, comprises 135,000 sq ft office space across eight storeys, let to three tenants: Addleshaw Goddard has 62,000 sq ft, Ernst & Young has 47,250 sq ft and DLA Piper has 20,250 sq ft.
Moorfield and Oaktree’s business plan is, first and foremost, to seek to secure all three existing tenants on new leases, up to current market rents, and they have set aside a capex budget to meet expected refurbishment costs.
If any of the three tenants chose to move, the asset will be positioned to secure tenants of equal standing in terms of covenant strength.
In addition, there is a 5,200 sq ft restaurant at the lower ground floor and secure basement parking for 141 cars.
At the time of the acquisition, Marc Gilbard from Moorfield said: “The purchase of this high quality office scheme in the heart of Manchester boosts our regional workspace portfolio.
“100 Barbirolli Square provides us with an opportunity to engage with high quality tenants, improve income profiles and enhance value by proactive asset management.”
Similarly, at the time of closing the initial all-cash purchase, David Snelgrove from Oaktree Capital Management said: “We are excited to have made our first direct real estate investment in Manchester, which is consistent with our UK real estate strategy of acquiring real estate assets that offer opportunities to add value through proactive asset management, acquiring non-performing loans collateralised by commercial real estate and working with real estate owners to recapitalise over-levered capital structures.
“100 Barbirolli Square is a landmark asset in Manchester’s City Centre and should benefit from ongoing re-generation of the immediate vicinity. We look forward to working with Moorfield to implement the business plan.”