Grosvenor: more institutional investors eye alt construction financing vehicles  

The global manager offers residential investors equity-like capital, lending around $40m per project.

Grosvenor Property is seeing a new wave of institutional investor interest in its North American Structured Development Finance business, an investment program through which it offers liquidity to developers by capitalizing residential-led developments.

“We are starting to see more institutional-class development groups coming to us that have a deep bench [of] personnel and technical experience,” Ashleigh Simpson, senior vice-president of co-investment, at the London-based investment manager told Real Estate Capital USA. “The groups we work with have balance sheets that support their developments, and despite some of the stresses [seen in today’s lending market, such as] higher interest rates, they are able to put more capital into a deal.”

Simpson, who was appointed to oversee the SDF business line in July 2022, believes the firm’s investment criteria focuses on risk mitigation. Other considerations include design, construction pricing, and timelines.

“In this current environment, it’s really all about the developer having a clear sight line to a start date; on your project cost, and also a clear sight line on whether or not the sponsor has had material discussions with lenders that provide construction financing,” said Simpson.

The SDF program complements Grosvenor’s residential build-to-core development and value-add investment activities in the US and Canada, investing around $40 million per project. In recent years, it has expanded from Grosvenor’s core North American markets including Vancouver, Washington DC and San Francisco into Toronto, Austin, Boston and Denver. This is a result of the team following migration trends into these locations. Urban infill locations are the primary targets, with Simpson noting the firm is now working with groups across the US and Canada.

“The product itself lends to greater flexibility for the sponsor,” said Simpson. “Our offering is distinct from a traditional joint venture in that we provide capital and rely heavily on the sponsor to execute its development strategy.”

The current financing environment can be difficult for developers, Simpson said, with most deals done on a project-by-project basis.

“Our sponsors are relying on long-term relationships but may still be not receive that favoured nation status in terms of financing levels [of] above 60 percent,” he said. “The SDF product can help them resolve the capital stack and proceed to build.”