The global credit business of US investment giant Carlyle has formed a residential-focused development lending partnership with London-based specialist lending platform Précis Capital Partners, affiliate Real Estate Capital Europe can reveal.
Through the partnership, Carlyle and Précis will each contribute capital towards UK residential construction loans, with other parties to be brought in on a deal-by-deal basis. The JV has already closed two deals, each in partnership with US investor Apollo Global Management, including a £251 million ($399 million; €299 million) loan to developer Moda Living this month, to fund Embassy Boulevard – a new private rented sector scheme in London’s Nine Elms district.
The JV enables Carlyle’s credit business to grow its exposure to the UK’s residential market, which is characterized by long-term housing supply shortages. In a statement, Taj Sidhu, head of Carlyle’s European credit opportunities advisory team, said: “Leveraging our extensive global and regional insights, and investing experience of Carlyle’s global credit platform, we look forward to identifying further opportunities in the growing UK residential development financing market together with Précis Capital.”
Randeesh Sandhu, chief executive of Précis, said the partnership allows the firm to tap into Carlyle’s global credit team’s experience in residential housing, which has funded more than $1 billion in 15 different new residential developments since 2019.
“We have been speaking to Carlyle about partnering for some time as they were interested in doing more in residential financing in the UK, [and] development is something Carlyle know and understand very well and they have a similar strategy to this in the US, so it made sense to form a partnership,” he told REC Europe.
The partnership will focus on providing development loans in the UK’s residential market – spanning purpose build student accommodation, build to rent, senior housing and multifamily developments. Its first two loans have a cumulative value of more than £330 million.
In the Embassy Boulevard deal, the two companies are senior lenders, alongside Apollo, in a £251 million five-year whole-loan facility to Moda Living, to finance the development of a 467-home build-to-rent scheme, including 30 discounted market rent homes and 103 affordable rent homes to be managed by Paragon Asra Housing. The scheme is located close to the US Embassy and forms part of the regeneration of the 14-acre former Royal Mail delivery office site. The scheme is scheduled to be delivered in Q2 2025.
In October 2021, Carlyle and Précis, also alongside Apollo, provided a £76 million, three-year whole loan to CHR London, a joint venture between Great Marlborough Estates and Tophill Development, for the redevelopment of 408-430 Chiswick High Road in London into 137 for-sale residential units.
“In terms of our own investment thesis, this year and last year especially, it has been an exceptional time for the residential sector,” Précis chief operating officer Daljit Sandhu said. “It has proven to be pandemic resilient, there were strong transaction levels and price appreciation, and increasingly we’re seeing an operationalization of the asset class. There are lots of platforms emerging that are being built around not only renter but also students, which is a more mature market, as well as senior living, which is more of an emerging market,” she added. “These professional, scalable operational platforms are attractive to both private debt and equity investors.”
Randeesh Sandhu explained there is no upper limit to the capital that can be deployed through the partnership. “We will keep assessing dealflow and market [movements].”
The Sandhus launched Précis in March 2021, with the backing of London and New York-based private equity firm TowerBrook Capital Partners. Randeesh Sandhu said the firm has the capacity to do more than £1 billion of lending. He added: “The intention is to keep allocating more capital to this partnership [with Carlyle].”
He explained the loans will be provided by the partnership on a bespoke basis. “We could do whole loans right up to 85 percent loan-to-cost, but we price differently depending on where the risk is, and one big function of risk is leverage. There are many other functions of risk – the asset, the developer, the market, the location – so some loans might be at 65 percent, others might be at 70 percent, 75 percent, and we price them accordingly.”
Daljit Sandhu noted growing institutional interest in the market. “The conversations we are having with Carlyle and lots of people in the market is that they are very interested in UK residential, and covid-19 has attracted a lot more additional capital in the space,” she said.
Randeesh Sandhu argued there is a strong outlook. “Fundamentally, there is more confidence now that we are nearing the end of the pandemic and we are able to see the statistics about market resilience in residential real estate, people returning to work, particularly in city centers, and other market fundamentals,” he said. “The market uncertainty is hopefully dissipating, so borrowers and investors can make more confident investment decisions.
“A major thematic continuation from last year is also ESG, in terms of improving the sustainability performance of both new and existing residential buildings.”