Shaftesbury turns to insurer over ‘short-termist’ banks for property JV

The chief executive at UK REIT Shaftesbury has described bank lenders as short-termist and uncompetitive for long-term investors, as insurance company Aviva agreed to lend £120m (€145.4m) to a joint venture between Shaftesbury and an umbrella group of charitable trusts according to IP Real Estate.

Brian Bickell told IP Real Estate that bank lenders “understand our assets but are unable to provide, or are uncompetitive for, long-term lending”.

He said: “Insurance companies – via bonds or mortgages – are the main players in long-term debt at present. We’re investors in assets we intend to hold for the long term for income and capital growth.

“Banks generally will not provide facilities for longer than five years, [whereas] insurance companies lend long to match their liabilities.”

A recent CBRE report claimed insurers could eventually make up 15-20% of lenders, compared with financial institutions’ 17% share.

But, so far, only the largest insurers – Aviva, AXA, Prudential and, more recently, Legal & General – have been active in the European market.

The 15-year finance facility announced today carries an interest rate of 4.43%, secured against joint venture Longmartin’s assets.

Aviva director of commercial finance Kevin Sale said banks’ withdrawal created specific opportunities in a “more or less competitive” debt market.

“You have to have a long-term outlook if you’re doing long-term loans,” he said. “The risk/reward ratio looks attractive at the moment – at the quality end, anyway.”

Bickell said the fact Longmartin’s prime West End assets carried a low risk of obsolescence provided additional reassurance for the lender.

But Sale did not rule out lending against secondary properties, despite reluctance on the part of insurance companies to date to lend against non-prime assets.

“When lending gets more competitive, of course things get softer,” he said, pointing to a current LTV of 60% compared with 75% at the market peak.

“Spreads move in and out. Now we’re in a good position to take advantage of the opportunities that exist.”

Aviva in November forecast that the moribund European market for secondary assets would pick up in 2012 and outperform by 2014.

Sale said today the insurer was also looking to lend to private finance initiative (PFI) projects where borrowers had been let down by banks.

“Before, it was hard to break through into that market unless you’d already provided debt for a PFI a project,” he said. “Now that’s changed.”

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