JPMorgan has emerged as the original majority provider of the £288m five-year senior loan which refinanced the Heron Tower in the City of London, CoStar News has learned.
Starwood Property Trust, the US mortgage REIT, provided a £270m five-year loan as reported by CoStar News almost three weeks ago, of which, £210m was provided by JPMorgan in a LIBOR-based collateralised term financing facility, reflecting Starwood’s first non-dollar based and non-US based property funding facility.
In addition, Starwood European Real Estate Finance (SWEF) extended an additional £18m, taking the aggregate to £288m. Starwood Property Trust has retained a £60m junior investment.
JPMorgan effectively provided a corporate funding line for the Starwood’s financing of the 46-story tower located at 110 Bishopsgate, reflecting a 77.7% of the principal £270m financing loan, which finally funded on 1 October.
The loan was sourced based on a long-term relationship with the sponsor and was structured and closed by Starwood Capital Group’s European debt team, led by president and senior managing director, Jeff Dishner, and head of European debt, Peter Denton, according to a press statement.
CoStar News understands JPMorgan funding backing was lined up back in May, when Starwood piped Citigroup to win the financing mandate from Citigroup, in a seemingly 11th hour change of plan by the skycraper’s owners, Heron International, Saudi Arabia’s Prince Abdul Aziz bin Fahd and the State General Reserve Fund (SGRF), the Oman sovereign wealth fund.
The financing by JPMorgan reflects a broadening appetite for commercial real estate-related lending by one of the world’s largest investment bank, which has predominantly been a buyer of securitised paper.
JPMorgan and Starwood have substantial pedigree as joint venture partners in the US and have established one already in Europe, with their most significant previous joint venture bid as the underbidder on the £4bn Eurohypo UK commercial property loan book.
Citigroup was the original underbidder back in May, which submitted a term sheet to provide close to £300m to refinance the then maturing loan of equal size, provided by Eurohypo and Helaba Landesbank Hessen-Thüringen in early 2007.
Eurohypo and Helaba’s original 50:50 split financing was a development facility with a capacity of £370m, with only £300m ever drawn.
In recent weeks, 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 subsidiary’s £2.7bn UK performing property loan book in July, attempted to refinance the skyscraper itself.
Wells’ relatively last-minute effort ultimately came to no avail, as commitments with Starwood Capital were too rooted for a second change of plan to emerge, notwithstanding the much-trailed “shareholder row” between the three equity owners.
The competition for the financing is significant in that the asset is far from stabilised, with an estimated 35% of Heron Tower still to let, assuming the imminent signing of lease Powa Technologies, the e-commerce company.
JPMorgan and Starwood’s pricing for the loans are expected to motivate the owners to complete their leasing business plan, with a likely lower margin when Heron Tower is fully stabilised.
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 of Heron Tower to just over £400m which would put the LTV in the low 70s.
Heron Tower is the vision and ambition of veteran property developer and Heron International chief executive, Gerald Ronson, who steered the project through the global financial crisis.
All parties declined to comment.