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Equity is not in short supply in the UK build-to-rent residential sector. But debt is far less plentiful. With that in mind, Goldman Sachs' significant move into build-to-rent lending will be seen as a boost for the asset class.
The U.S. investment banking giant last week completed a loan to fund the development of 212-223 Broad St. in Birmingham, which at 42 storeys will be Birmingham’s tallest residential building.
The building is being developed by joint venture between Moda Living and Apache Capital, with equity funding provided by U.S. investor Harrison Street and UK pension fund National Farmers Union Mutual.
It will have 481 apartments and 31K SF of amenity space, including coworking areas, communal lounges and dining facilities, with a heavy focus on health and wellbeing. A three-storey podium with a rooftop running track, the first in a UK residential development, will also house an additional 35K SF of retail and commercial space.
Goldman is providing a £118M loan for a scheme with a total estimated gross development value of £184M. That puts the loan to value ratio at about 64%.
The loan is a four-and-a-half-year facility and includes a 12-month extension option. Goldman said it is part of its “originate-to-hold strategy” meaning it will not be syndicated to other lenders.
Goldman and the developers did not give any detail on the interest rate margin of the loan, but it won’t have been cheap. Goldman lends via its own balance sheet and through debt funds it manages, under the Broad Street Real Estate Credit Partners banner. With both, it looks to provide big loans that other lenders might not be willing to undertake, in return for getting a better return.
The Moda/Apache JV has been good at attracting development finance in what is a small pool of lenders. It brought in LaSalle Investment Management to fund its Liverpool project, The Lexington, through a four-year £58.5M senior debt facility, and pbb Deutsche Pfandbriefbank provided an £85M loan for Angel Gardens in Manchester.
“Our platform with Harrison Street and NFU Mutual has shown that there is significant institutional interest in residential property and in spite of Brexit, demand for defensive, long-term income streams continues to thrive,” Apache Managing Director and co-founder Richard Jackson said.
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