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Grosvenor, the Duke of Westminster’s property company, is launching a £900 million lending business focused on residential development, as property investors opt for debt investments over the risk of buying assets at unstable valuations.
The group, which owns areas of Mayfair and Belgravia in London, wants to expand its investments in different types of residential property across the country, including homes for sale and to rent, student accommodation and retirement accommodation.
Grosvenor said funds for the lending business will come from “organic growth” and “strategic sales around the periphery of the country”. [London] property”.
The company’s push into lending comes at a time when many real estate investors find debt to be a more attractive way to invest money in real estate, than buying assets outright or developing oneself.
Some investors have been reluctant to buy assets for fear that their prices will fall further as higher interest rates decimate property values. These higher debt costs have made lending more profitable.
However, Grosvenor’s foray into the lending sector carries significant risks. Many lenders eschew development financing in favor of debt secured on existing buildings, which can be sold to recover money in the event of default. Loans to support construction carry a higher risk.
Rachel Dickie, executive director of investments at Grosvenor, said there was “no lack of equity or debt in the finished product” in the residential property sector. “I think it’s the development part that makes people nervous,” she added.
Dickie said that because Grosvenor was already a commercial developer, construction financing was “already within our risk appetite” and the company could more easily “make a decision on the assessment of that risk”. It would also be in a better position to take over construction sites in the event of default, he added.
Grosvenor started the debt game a year ago with an initial investment of £120 million, and has now expanded the commitment to £900 million over the next decade. So far, his loans have financed 1,800 homes.
It has financed projects including 316 homes for rent in Bath and a joint loan with insurance group Generali for 65 homes for sale in Canary Wharf.
The decision to add lending to Grosvenor’s sprawling interests – which include rural property, farming and overseas property – is part of a strategy to diversify beyond the vast London estate and boost the group’s income. The group’s North American division already has an established debt business.
The aristocratic Grosvenor family have owned properties in London for more than 300 years. Dickie said the company aims to allocate 15% of its capital outside the London estate – up from 7% currently – but to generate a quarter of its income from such investments.
Although prestigious and highly regarded, the best London properties produce less income than riskier ventures and businesses. Grosvenor has also increased its investments in international real estate with other asset managers.