Citigroup will today fund a five-year £390m senior loan to finance Greystar Real Estate Partners’ £600m acquisition of Nido London, a three-strong high-end student accommodation portfolio.
Pricing on new Citigroup term loan is around 185 basis points over three months LIBOR, less than half the 450 bps margin which M&G Investments priced its £266m senior to finance the Round Hill Capital-led consortium’s £424m Nido London acquisition from Blackstone three years ago.
Citigroup is expected to hold one third – £130m – and syndicate two-thirds of the new senior loan – £260m.
M&G’s £266m senior loan, which is repaid today, was arguably the zenith in senior credit spreads in UK commercial real estate in post-recovery market cycle and is a stark illustration of how senior credit spreads have tightened – by almost 60% in exactly three years.
The LTVs are broadly similar, Citigroup’s 65% compared to M&G’s 62.7%, while yield compression at the property level has been such that the new loan is close to the size of the purchase price three years ago.
Of course, M&G’s punchy 450 bps loan was a function of circumstances at the time. AIG was originally lined up to provide £200m senior loan, pricing a much lower 47% LTV senior loan at 325 bps, but the Round Hill-led consortium switched to M&G Investments for speed of execution and higher leverage. Coral Student Portfolio was also an investor in Nido London.
An £80m mezzanine loan by Och-Ziff, priced at mid-teens IRR, is also repaid today.
Nido London comprises three premium student housing assets in London’s King’s Cross, Notting Hill and Spitalfields with a total of 2,375 beds, containing a mixture of cluster flats and large studio apartments.
At the time confirmed sale to Greystar in March, Michael Bickford, founder and CEO of Round Hill Capital, said in a statement that Round Hill correctly identified student housing as an institutional investment grade opportunity “well before other investors in the market”.
The statement continued: “London and the UK continue to be one of the most popular student destinations in the world. Demand for English language higher education is set to continue to rise, as student global mobility continues to increase – with the number of students globally predicted to double by 2025.
“This coupled with the industry’s continuing supply constraints and the sector’s growing and stable cash flows, leads us to believe that the student accommodation market still provides a compelling investment opportunity both within the UK and Europe.”
Brett Lashley, Greystar’s UK Managing Director, added in the statement: “Our purchase of Nido Spitalfields, Nido Kings Cross and Nido Notting Hill align perfectly with Greystar’s strategy and philosophy of owning and operating assets that set a new standard of service and resident experience in the student accommodation industry.”