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RBS & NatWest name head of real estate finance

By James Buckley - Friday, February 09, 2018 9:30

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Phil Hooper has been appointed head of real estate finance for NatWest and Royal Bank of Scotland. In an exclusive interview with CoStar News, the man presiding over a £26bn loan book across the UK, Ireland and Western Europe, discusses lessons learned from the global financial crisis and how the bank plans to fund through the cycle in an increasingly crowded market.

Hooper, previously head of UK Housing, is no stranger to real estate finance. He has three decades of banking experience under his belt, including 12 years in property, all with RBS and NatWest.

Like all major banks, NatWest’s real estate business employs fewer people than the heady pre-crisis days of 2007. But do not confuse this with inactivity. With a team of 300 real estate specialists in over 20 offices across the UK servicing around 6,000 customers, the bank lends around £7bn every year.  

As part of the bank’s ‘bank of brands’ strategy, it will go by the names of its predominate customer facing brands in their home markets – NatWest in England & Wales, Ulster Bank in Northern Ireland and the Republic and the Royal Bank of Scotland in Scotland.  

“There is no pressure to increase our loan book,” says Hooper, who has replaced Paul Coates, following his departure to CBRE, announced last November.

“We deliver between £6-8bn of lending into the commercial property market every year. If you look at some of the major corporates’ approach to leverage, many have reduced the level of gearing within their businesses, or have taken longer dated capital markets financing which frees up capital for us to redeploy.”

With its senior real estate finance team largely unchanged, with Stuart Heslop as MD for the North and Scotland; Paul Eyre as MD for Midlands and the South; Tom Sharman as head of research and strategy; and Charlie Foster as the team’s new head of large corporates and sectors after joining NatWest from Santander at the end of last year, the bank has found itself on the end of some significant financing deals of late.

Last month, NatWest undertook the role as lead arranger and co-ordinator for a £108.9m development facility, along with the Greater Manchester Pension Fund and a syndicate of senior lenders, to fund Select Property Group’s £247m Affinity Living Build to Rent scheme in Manchester.

Separately, the bank was one of the joint backers of a £500m unsecured loan facility to student accommodation provider Unite to help with its growth strategy.

It was also the coordinator and lead arranger on a £210m revolving credit facility for Telford Homes to support its expansion in the market and provided a £19m facility to support Regional REIT’s acquisition of three office properties across the UK, totalling more than 197,000 sq ft, including the 39,314 sq ft Vantage Point development in Edinburgh Park.

“Fundamentally, we’re not going to change the way we operate. It’s very much a continuation of the journey we’ve been on for the last five to ten years. We’re definitely open for business. We’re looking at how we continue to support the delivery of projects in the mainstream commercial real estate markets. 

“Having worked here through the downturn we understand the cyclical nature of the real estate industry and will not forget the lessons learned. However, we’re in good shape and must look forward in a positive fashion, while recognising the potential economic and political uncertainties.”

The bank’s loan book is nothing if not varied, funding SME housebuilders through to the largest FTSE REITS with commitments ranging from £50k to £500m. Even the in vogue co-working market is not off limits for the bank.

“The serviced office sector has undergone rapid growth in recent years and it is clear that there is strong demand from occupiers for the flexibility offered. The co-working model is relatively new, but we are open-minded with regards financing such assets. As with all serviced office operators we would look to clearly understand the business model in order to get a feel for the level of rent that could be sustained through the cycle”.

At the end of H1 2017, the bank’s commercial real estate loan book stood at just under £26bn across the UK, Ireland and Western Europe, with £23-24bn committed to the UK. In 2017 alone it originated around £7bn in new funding to the UK market.

“We have capital to deploy but we’re always going to be led by our customers in what they are trying to do and how we can support them from across our franchise to deliver for them.

“There are no sectors or regions across the country that we won’t lend into. But two areas where we’ve lent less into over the past 12 to 24 months, and will probably continue to do so, are central London offices and higher value residential. London pricing is pretty full at this stage of the cycle and SDLT has slowed demand for prime London residential. While capital flows into London remain fluid, they have reduced.

“On the flip side we are seeing a lot of regeneration opportunities in some of the regional markets, particularly the major cities, such as Manchester, Edinburgh, Birmingham and Bristol where we see good value and our clients do as well. There’s an opportunity for us to do a bit more in these areas as clients increasingly look for more yield. We’ve been focussed on deploying capital into the Build to Rent sector over the last two years and it’s interesting to watch the emergence of co-living and what opportunity this creates.”

Working largely in conjunction with NatWest Markets, the bank has been active in the debt capital markets, distributing senior debt on collateral spanning offices, retail, student housing and retail to UK and non-UK banks, debt funds and insurers. In the last year, it was the lead arranger on a £580m revolving credit facility for Grainger; was the joint agent on a £200m private placement for Workspace Group; and the sole agent of £50m of senior debt for Red Kite Community Housing.

“We are all about understanding our customers’ strategies, having a consistency of approach to market, utilising our broad capability which means that when our clients come to us with financing requirements we are able to support them with those.”

Across the residential sector, NatWest remains committed to supporting the Government’s housing agenda, helping to deliver c.30,000 homes per year in the UK, each one creating on average four jobs.

In the burgeoning Build to Rent sector, the bank has already committed £1bn to finance the development of new homes and so far funded around 2,500 new homes across the UK. This is on top of the £2bn it provides annually to support the development of homes for sale.

Hooper, who was the bank’s head of UK housing since 2014, where he was responsible for leading the bank’s strategic approach to housing delivering across all tenors, also has one eye on the ever increasing competition, where private equity funds, alternative lenders, institutional investors and even traditional developers are looking to gain exposure to real estate debt.

“There is an increased level of liquidity in the market now with peer to peer lenders, debt funds and mezzanine providers, so there is now a real choice for sponsors which wasn’t the case a few years ago. We want to operate in a stable and consistent way so we can fund through the cycle. The client has broader choice about leverage and pricing but we will only lend sensibly – which will mean we won’t win every deal – but it means we will continue to lend if and when the markets turn.

“It’s the certainty of funding which clients enjoy when they come to us. As a role of a mainstay bank in this sector we should be consistent in our sector support, remembering the lessons of the past and that we are here for the long term.”

jbuckley@costar.co.uk

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