CBRE Capital Advisors has been appointed to manage a new £100m Northern Ireland fund, which will provide debt finance for commercial property, regeneration, low carbon and infrastructure projects.
The new fund will be managed on behalf of the Department of Finance and the Northern Ireland Strategic Investment Board.
CBRE has been appointed to manage the fund for 15 years and will oversee a minimum of two full investment cycles.
Andrew Antoniades, head of debt investment advisory at CBRE, said: “It is great to see key regional markets taking charge of development. By instigating capital projects, Northern Ireland will be able to deliver wider socio-economic benefits as well as generating income that can be recycled back into the fund. We are already in discussion with a number of developers to build a successful pipeline.”
Existing local authority-led funds such as the North West Evergreen fund have been instrumental in promoting commercial development in their regions. Evergreen, which started as a £60m fund, has provided debt finance to developments including Allied London’s XYZ building in Manchester and Peel’s MediaCity in Salford.
Hugh Widdis, permanent secretary, Northern Ireland Department of Finance, said: “This fund, agreed by the previous executive, will focus investment in the areas of regeneration, office and low carbon projects to deliver economic growth. It will play a significant role in supporting private sector investment in key areas of local development over the next decade.”
As well as enabling development of traditional real estate asset classes, the fund will also fund low carbon initiatives. QMPF will act as strategic partner to CBRE, advising on low carbon projects.
Why are local authorities increasingly stepping in to fill the development finance gap?
Will Church, senior director, investment advisory, said: “Following the retraction of the banks post 2007, the development debt market outside of prime areas, and particularly those markets associated with speculative commercial development, remains extremely fragile. Coupled with the trend of larger occupiers no longer taking on pre-lets in the way they once did, many regions are facing a perfect storm of potential economic and employment growth but with limited good quality employment space to service this uptick.
“Whilst mainstream banks seem unwilling to enter the arena to provide commercial development debt without the magic pre-let, and pension funds remain focussed on forward funding prime developments, there are opportunistic mezzanine funds that will provide funding on their own, very lucrative terms. However, the total amount of capital is small and the cost of creating these funds in markets where schemes are on the edge of viability (and many markets conform to this description considering accelerating build costs) is prohibitive. It also still leaves a gap in the senior debt position of the funding stack.
“Whilst the small amount of opportunistic and highly priced debt is able to select from a wide range of regional markets to invest in, local authorities are in the region they are in and must change the funding landscape to support economic growth within their fiefdom.
“Illustrated perfectly by the likes of the North West Evergreen Fund and the SRC JESSICA Fund, many regions are now accepting that providing this debt is not only essential to encourage growth in their area but by focusing on the property fundamentals of the area that they inherently know they can also provide a very welcome return margin above their cost of capital. When viewed alongside business rates growth, jobs growth and inward investment, the case is made.”
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