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Grosvenor, the Duke of Westminster’s property company, is launching a £900mn lending business focused on residential development, as real estate investors opt for debt investments over the risk of buying assets with shaky valuations.
The group, which owns swaths of London’s Mayfair and Belgravia, wants to broaden its investment into different types of residential property across the country, including homes for sale as well as rental, student and retirement housing.
Grosvenor said funds for the lending business would come from “organic growth” and “strategic sales around the periphery of the [London] estate”.
The company’s push into lending comes at a time when many real estate investors are finding debt to be a more attractive way to put money to work in property, compared with buying assets outright or developing themselves.
Some investors have been reluctant to buy assets for fear that their prices have further to fall as higher interest rates decimate property values. Those higher debt costs have made lending more lucrative.
However, Grosvenor’s foray into lending brings significant risks. Many lenders shun development finance in favour of debt secured on existing buildings, which can be sold to recover money in case of default. Lending to support construction is higher risk.
Rachel Dickie, executive director of investment at Grosvenor said that there was “no lack of equity or debt wanting the finished product” in residential property. “I think it’s the development bit that people are nervous about,” she added.
Dickie said that because Grosvenor was already a commercial developer, funding construction was “already within our risk appetite” and the company could more easily “take a view on pricing that risk”. It was also better placed to take over construction sites in case of defaults, she added.
Grosvenor began the debt play a year ago with an initial £120mn, and has now expanded the commitment to £900mn over the next decade. So far, its lending has funded 1,800 homes.
It has financed projects including 316 rental homes 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 estates, agriculture 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 arm already has an established debt business.
The aristocratic Grosvenor family has owned property in London for more than 300 years. Dickie said the company was aiming to allocate 15 per cent of its capital outside the London estate — up from about 7 per cent currently — but to generate a quarter of its income from those investments.
Although prestigious and highly valued, the prime London estate yields less income than riskier ventures and assets. Grosvenor has also boosted its investment into international property with other asset managers.