Cornerstone Enters U.K. with $129M Loan
- Aug 06, 2012
By Scott Baltic, Contributing Editor
Cornerstone Real Estate Advisers, of Hartford, completed a $129.1 million (£83 million) refinancing for Derwent London plc, secured by two prime central London assets valued at $267.6 million (£172 million), Cornerstone announced Friday. The deal is its first real estate lending transaction in the United Kingdom.
Laxfield Capital, of London, originated, negotiated and will manage the credit facility on Cornerstone’s behalf, following its appointment last month to source and manage loans for Cornerstone in the United Kingdom.
The fixed-rate, 12-year loan, at an interest rate of 3.99 percent through 2024, is secured by two high-quality assets in the Fitzrovia submarket near London’s West End: a 147,000-square-foot, six-story office building at 2-8 Fitzroy St., W1, fully leased to international engineering and design group Arup, and a hotel-retail building at Tottenham Court Road, Warren Street and Grafton Way, the 330-room Grafton Hotel, operated under the Radisson Blu brand, with 11 ground-floor retail and restaurant units. The average weighted unexpired lease term is about 23 years.
The deal, according to Cornerstone, is typical of the type of opportunity it’s targeting in the United Kingdom: property-secured senior loans, with a single property target lot size of between £25 million and £75 million ($38.9 million to $116.6 million).
When Cornerstone announced the appointment of Charles Weeks as CEO of its European operations in February, the company noted that one of the European arm’s priorities was to expand into debt origination in the United Kingdom, targeting high-quality, fixed-rate commercial mortgage loans. Its initial goal is to finance at least £300 million worth of assets.
In July, Property Investor Europe magazine called the fixed-rate aspect “a brave move in the current historically low-rate environment.”
Real Capital Analytics Inc.’s mid-year 2012 “Europe Capital Trends” review states, “The flight to safety remained a dominant theme through the first half of 2012, with the vast majority of institutional and crossborder capital concentrated on risk averse and capital preservation strategies.”
The same trend, according to the report, has contributed to steep competition for properties in London and Paris, leaving many players priced out of those markets. Activity in Greater London accounted for 69 percent of all U.K. transaction volume, the highest level yet seen.
In the West End specifically, transactions have fallen for two quarters in a row, the report says, not from lack of investor demand but because of limited availability of offerings.