Legal & General completes first real estate financing deal

The London-based insurer becomes the latest non-bank to lend on real estate investments with a £121m loan to UNITE Group, the UK’s largest developer and manager of student accommodation.

UK insurance company Legal & General has completed its first real estate financing deal with a £121 million (€147.9 million; $196.2 million) loan to UK student housing developer and manager UNITE Group.

The issue of the 10-year loan, announced today, puts L&G into an increasingly varied pool of financial groups aiming to bridge a void left by some of the UK’s banks which had been the staple source of financing for real estate firms in the lead-up to the global financial crisis.

With legacy loan books and impending regulation to contend with, banks are expected to lend less to UK commercial real estate in the immediate future and the loans they do issue are expected to come with tighter terms and conditions. This has precipitated an opening for other groups to enter the marketplace.

The loan to UNITE was arranged by Legal & General Investment Management Commercial Lending, a unit of Legal & General Investment Management, Legal & General’s real estate investment management division and the UK’s third largest institutional property fund manager with £10.6 billion of funds under management as at 31 December.

Ashley Goldblatt, head of commercial lending at Legal & General Investment Management, said: “Having looked at the market in depth over the last year and with an experienced team in place, this first, sizeable, complex transaction answered our objectives in developing this area of our business.  UNITE represents a market leader, with a strong track record, operating in a resilient but non-traditional sector of the real estate market.”

He added that the loan was demonstrative of L&G’s willingness to be more flexible than insurers lending to real estate had previously been. He said: “Traditionally insurance companies have restricted themselves to long term loans, of 15/20 years or more, that match their long dated liabilities, whereas those banks that are still willing or able to lend are only prepared to do so on short terms.  This is a space that we feel comfortable in filling.”

When combined with “headroom in other existing facilities” UNITE said the finance would enable it to pay down loans due in 2013, extending its next “relevant event” until May 2014. Following its issuance, UNITE’s weighted average debt maturity increases to 3.5 years.

The all-in cost of the debt is fixed at 5.05% on the basis of a 60 percent loan-to-value.