Resolution Property has agreed a refinancing deal for its under-pressure shopping centre Ocean Terminal in Leith, Edinburgh.
The fund manager has secured a funding package with debt fund manager ICG-Longbow of around £45m for the 420,000 sq ft mall.
The finance reflects a loan-to-value ratio of close to 80% and also includes a preferred equity or profit share-style agreement.
Shane Scott, partner at Resolution, said: “With this new funding package we are implementing some exciting changes and have agreed a business plan which allows us to invest capital in the asset. Plans include enhancing the entrance experience, shop fronts, signage and wayfinding, and targeting new fashion retail and leisure occupiers to complement the already strong offering. We will also be working to ensure the centre’s existing occupiers benefit from this renewed investment.”
The centre, which saw footfall increase by 8% last year, is home to tenants including Vue Cinemas, Debenhams, H&M, Superdry, French Connection and Gap.
Resolution initially tried to sell the centre in April 2016 for £85m but has come up against severe headwinds in the secondary shopping centre market owing to a wave of occupier insolvencies and CVAs.
Lloyds funded Resolution’s initial circa £90m purchase of the centre at the start of 2012 with a £48m loan. As the investment market has worsened in recent years, the LTV of the debt has increased and Resolution agreed to inject more equity into the deal.
The ability for banks such as Lloyds to refinance loans at relatively high LTVs has decreased since the introduction of “slotting” regulations in 2013. These stipulate that banks must put to one side large amounts of capital for potential losses for loans which are categorised as higher risk. Such regulations do not apply for debt fund managers such as Longbow, giving them a relative advantage.
Longbow, which has £3bn of capital under management, has used cash from its ICG Longbow IV fund. The fund has now invested more than £700m since its first close in the first quarter of 2015. It issues debt up to around 85% LTV and often takes on preferred equity. Typically both the senior and mezzanine portions of the higher LTV debt are retained but Longbow reserves the right to syndicate portions opportunistically.
Ocean Terminal’s turbulent journey
January 2012 – Forth Ports sells Ocean Terminal to Resolution Properties for £90m – a 7.5% yield. Acquisition is funded with a £48m loan from Lloyds Banking Group. Resolution subsequently secures consent to extend the scheme to the waterfront and create a quayside extension.
April 2016 – Resolution instructs CBRE to sell Ocean Terminal for £85m – a 6.75% yield.
June 2016 – BHS collapses, creating a 26,000 sq ft void in Ocean Terminal, leaving the scheme only 85% let and the centre is withdrawn from the market.
September 2016 – Ocean Terminal is put back up for sale. Starwood and Catalyst Capital come close to a £61m deal but no agreement is reached
February 2017 – Resolution gains provisional planning consent for a 230-bedroom hotel on the site
March 2017 – Ocean Terminal is relaunched with a £56m asking price – an 8% yield. BHS unit still vacant.
April 2017 – Edinburgh House and Hark Group, in partnership with Baupost Group, show interest but no deal is agreed.
May 2017 – Northern Irish investment group Wirefox places Ocean Terminal under offer for £57m but the deal does not complete.
January 2018 – ICG Longbow refinances Lloyds’ debt and agrees new circa £45m funding package.
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