Intermediate Capital Group (ICG), the specialist asset manager, has acquired the remaining 49% of Longbow Real Estate Capital LLP (ICG-Longbow) which it did not already own for an initial £13m with an estimated £24m to follow in separate tranches over the next two years.
The aggregate estimated £37m purchase price – comprised of an initial £13m upon completion in October and a further estimated £24m spread over multiple tranches to follow during 2016 based on performance – will be paid to ICG-Longbow’s eight equity partners reflects the considerable growth of the senior and mezzanine lender amid an environment of considerable recovery for traditional lenders.
ICG-Longbow equity partners – comprising joint managing partners Kevin Cooper and Martin Wheeler, as well as Ralph Charlwood, Trevor Homes, Phillip Archer, Julian Naylor, Graeme Troll and Matthew Main – have all been locked into long term retention packages up to and beyond 2020.
ICG acquired the initial 51% stake in Longbow Real Estate Capital, which subsequently rebranded Longbow Real Estate Capital, in December 2010 for £4.3m.
The majority of this stake was acquired from Longbow’s original venture capital backers to finance the start-up of the partnership back in July 2007 – the exact inflexion point for the UK commercial property market.
ICG’s original acquisition was in the context of retreating bank finance, in the immediate aftermath of the global financial crisis which left a critical under supply of senior and mezzanine finance, which supported attractive margins for those capital providers with higher costs of capital.
In the three-and-a-half years since ICG’s 51% stake acquisition closed, in March 2011, liquidity has returned in abundance within UK lending markets, particularly in the last two years, resulting in downward margin pressure.
Martin Wheeler, ICG-Longbow’s joint managing partner, told CoStar News that the obvious change over the period has been in the firm’s cost of capital.
“We have continued to adapt to the market return expectations, but what has always remained the same over period has been the quality of property sponsors we back, with good investment track records, sound business plans and typically with value creation upside from asset management plans.”
“If you add up all the capital available for senior and mezzanine debt in UK commercial property, there is probably now far more capital than opportunities. But we are still seeing a polarisation within lending markets, with the majority of capital targeting prime, big ticket assets in London which is where the greatest pressure on pricing has been visible.”
The oversupply of capital largely exists in the pats of the lending market which ICG-Longbow is not seeking to complete in. By comparison, ICG-Longbow targets small to medium-sized deals in the regions as well as Greater London.
Wheeler added: “We still have the same pension fund dominated group of investors, with the same strategy following the same borrowers, so we haven’t had to re-invent ourselves much at all. It is just our cost of capital has changed.”
Since December 2010, ICG-Longbow’s equity capital under management has soared from £150m to £1bn invested across its four funds and has in excess of £200m of transactions in closing.
ICG-Longbow’s four funds comprise the £242m Longbow UK Real Estate Debt Investments II and the £700m ICG-Longbow UK Real Estate Debt Investments III, both of which adopt similar whole loan and mezzanine strategies.
In addition, ICG-Longbow manages the listed UK senior debt fund, the fully invested £105m ICG-Longbow Senior Secured UK Property Debt Investments Limited, and a £400m UK senior debt programme which co-invests alongside four pension fund and insurance company investors, including the BBC Pension Fund.
ICG-Longbow confirmed this morning its intention to raise a successor whole loan and mezzanine fund to ICG-Longbow UK Real Estate Debt Investments III within the next six months. No capital raising target was given beyond that it would be in the hundreds of millions.
In a prepared statement this morning Christophe Evain, chief executive officer of ICG said: “ICG’s business model is underpinned by launching and developing new strategies that utilise the best of our investment expertise, specialist local knowledge and relationships. The 51% acquisition of ICG-Longbow in 2011 initiated the acceleration of this strategy.
“I am delighted to be completing the acquisition of the balance of ICG-Longbow now, as the potential of the business is even greater today than it was in 2011. I am sure that the ambitions, depth of specialist knowledge and expertise of the committed and incentivised ICG-Longbow team will allow this potential to be fully realised.”
In the statement, Kevin Cooper, joint managing partner of ICG-Longbow, added: “ The acquisition validates the strength of the business that has been built, the depth of talent in the team and the scale of the opportunity going forward. We remain excited by the market opportunity and the potential for ICG-Longbow to continue to grow its reputation, amongst investors and sponsors, as a leading provider of real estate capital in the Europe.”
Martin Wheeler, Joint Managing Partner of ICG-Longbow added: “The partnership’s success has been underpinned by a meeting of minds in terms of investment philosophy and approach, whilst ICG’s support has allowed the ICG-Longbow team to concentrate on investing and managing existing funds, in addition to developing new complementary strategies.
“We look forward to continuing and strengthening our existing close working relationship with ICG and its team over the coming years.”
The business will continue to trade as ICG-Longbow.