Osprey swoops on Aldi-anchored schemes
10 July 2015
Osprey Equity Partners, the private equity investment manager backed by LJ Group, has acquired a £25m portfolio of three Aldi-anchored retail schemes, extending to about 110,000 sq ft.
The properties are located in Tunstall Road, Leeds; Howard Road, St Neots in Cambridgeshire; and Anlaby Road in Hull. They have all been acquired as forward-funding deals, with Osprey purchasing the land and providing development funding for developer Quora. Aldi, which is the majority tenant in each scheme, has agreed to enter into unbroken 20-year leases with RPI-linked rent reviews. B&M Retail, Home Bargains and Pets at Home have taken the remainder of the space on 15-year leases.
Osprey has forward funded some £275m of long-income assets in the past three years, in addition to more than £175m of residential development assets.
“We have acquired these assets for our high-net-worth investor platform,” said John White, co-founder of Osprey. “We were attracted by the long, index-linked income and the success story of the discount retail sector in general and Aldi in particular.”
Osprey to fund £80m east London aparthotel
6 April 2016
Osprey Equity Partners has struck a deal to forward fund the £80m development of an aparthotel in east London.
The 178-unit scheme is being developed by Reef Estates and the Sharma family.
Osprey, backed by LJ Partnership, has bought the site at 27 Commercial Road and will fund the development on behalf of clients including Qatari investment bank QInvest.
Planning permission has been secured. Once completed, the 21-storey property will be operated under a hotel management agreement by serviced apartment specialist Go Native.
Simon Lee, co-founder of Osprey, said: “27 Commercial Road provides exposure to the London aparthotel sector which remains materially under supplied relative to other gateway cities and significantly undervalued in comparison to the student and PRS sectors.”
Craig Cowie, head of real estate at QInvest, said: “We believe that the high margin/low cost operating model and early mover advantage in the embryonic London aparthotel sector should generate attractive income and capital returns, underpinned by an excellent City-fringe location.”
Prime Retail acted for Osprey. CBRE acted for Reef Estates.
Osprey sells Brick Lane Premier Inn
September 05, 2014 13:12 | By Paul Norman
Osprey Equity Partners, the private equity investment manager, has sold its 189 bedroom Hub by Premier Inn hotel on Brick Lane in east London to an undisclosed UK institutional fund for £34.7m.
The price reflects a net initial yield of circa 4.25%.
The sale will complete on practical completion of the building works next year. The property has been pre-let to Whitbread on a 30-year, index-linked lease, to be operated as Whitbread’s new high-tech ‘Hub’ hotel brand.
Osprey bought the property as a forward funding for its high net worth investor fund Osprey Income & Growth 4 LP. Endurance Land is the developer.
Simon Lee, co-founder of Osprey, said: “We acquired the Hub as a secure income and growth investment. As a result of the forward funding structure and yield compression in the current market, our equity investors will receive an annualised return materially in excess of original expectations. Endurance Land has been a great JV partner and has generated real value.”
Osprey specialises in forward funding real estate developments for family office and high net worth investors and has funded some £250m of long-dated assets in the last 24 months.
Osprey is part of LJ Group, a privately-owned multi-family office and merchant bank, which also backs Queensgate Investments, Whitebridge Hospitality and Hadley Property Group.
Prime Retail acted for Osprey.
Osprey agrees £48.2m North East deal
September 25, 2014 15:58 | By Joanna Bourke
Osprey Equity Partners has agreed to forward fund a £48.2m deal to develop a supermarket-led scheme in the North East.
The private investment company, which is backed by the LJ Group, will fund the
125,000 sq ft Sainsbury's shop, petrol filling station and 3,650 sq ft KFC restaurant
It will be developed by Terrace Hill, part of Urban & Civic plc. The project equity has been funded by Osprey's family office investors and debt finance has been provided by Royal Bank of Scotland.
John White, co-founder of Osprey said: "The Sainsbury's provides secure, long-dated RPI income for our family office investors."
Knight Frank advised Terrace Hill; Osprey was not represented.
Supermarket operators rethinking their property portfolios
March 10, 2014 | By Andrea Felsted
When Loblaw, the Canadian supermarket chain, spun off its property assets into a separate company last July, it underlined the potential of supermarket assets to property investors. The sector has undergone fundamental changes in developed markets, with Walmart in the US, Tesco in the UK and Carrefour and Metro in continental Europe among operators under pressure from a combination of factors.
“There are a lot of changes in the supermarket sector generally. But the constant is the investor appetite,” says Michael Rodda, head of European retail investment at property consultancy Cushman & Wakefield.
Across developed markets, cash-strapped shoppers have been moving away from the traditional big weekly shop. According to J Sainsbury, the UK supermarket chain, consumers for the past couple of years have been buying one less thing in their weekly shop, then picking it up on a top-up shop during the week. This is prompting supermarket chains that traditionally have been associated with large superstores to open smaller outlets.
Meanwhile, other alternatives to big stores are springing up in developed markets. Aldi and Lidl, the German so-called “hard discounters”, are expanding around the world, as their no-frills offerings gain favour among more affluent consumers.
At the same time, online grocery shopping is gathering pace across the developed world. The UK has the most advanced online grocery market in the world, accounting for about 5 per cent of total grocery sales, according to OC&C, the consultancy. In the US, the figure is about 1 per cent, but retailers there are doing their best to catch up, with online giant Amazon expanding its AmazonFresh grocery business. At the other end of the spectrum a plethora of speciality food sites are springing up in the US, such as Goldbely and Mouth.com.
Against this backdrop, supermarket assets remain attractive to investors on both sides of the Atlantic. The main reason is that despite the turbulence since the economic crisis, people still need to buy food.
“It is not a controversial sector to be investing in,” says John White, a director of Osprey Equity Partners, the investment company.
“Whatever else happens, people have to eat. More importantly, food retailers have been very adept at adapting to changing customer habits and have been quick to roll out multichannel formats.”
Osprey, which invests in supermarket assets on behalf of private investors, also notes that in the UK, supermarkets are typically let on 25-year leases, commonly linked to the retail price index. In continental Europe, leases tend to be much shorter, often as a result of less restrictive planning regimes. And despite the challenges in the global grocery market, supermarket operators still have very strong balance sheets and profitability. The stable cash flows generated by supermarket leases are well suited to institutional investors seeking income to meet pension liabilities, property experts say.
The size of new supermarkets being built is shrinking, reflecting the changing dynamics of the market. But Simon Lee, a director at Osprey, notes that even for bigger stores, for the right location, the big supermarket chains are still prepared to take space.
“Although there has been a lot of press about big food stores being out of favour, we still see – for the right locations – supermarket operators taking good-sized stores,” he says.
“Partly this is because operator profit margins are often higher at traditional-format stores than from convenience stores and online home deliveries. But it is also due to the fact that the physical stores form a large part of the online platform – both as a point from which goods are delivered to the home and also as ‘click-and-collect’ sites from which online orders are collected by customers.
“Large car parks and prominent locations make food stores natural click-and-collect destinations. In addition, where retailers do not have representation in existing stores, special click-and-collect points are emerging.”
Rodda says appetite among investors for supermarket assets across continental Europe remains strong, as long as leases are reasonably long and the supermarkets taking the leases have solid balance sheets.
“There is appetite across the board, from central Europe to Iberia,” he says. “There is appetite for both single-let supermarkets, which will be sold to a single high-net-worth individual, and large portfolios being sold to big insurance companies and specialist sale-and-leaseback investors.”
The one area of concern, Rodda says, is in big hypermarkets in continental Europe where up to one-third of the store is devoted to non-food items, such as clothing and hardware. These have been hit hard by the economic downturn and by the rise of online retailers.
But Lee says the changing shape of the supermarket sector may create further opportunities for investors. So-called “dark stores”, in effect stores without customers from which online grocery orders are fulfilled, could make attractive investments, as could convenience shops, if they were parcelled up into portfolios of stores.
“Dark stores should have many of the same characteristics as traditional food stores: long leases, let to companies with strong balance sheets and a high land value at the end of their life,” he says. “The small individual lot sizes of convenience stores provide additional granularity and liquidity to a wider portfolio. We are certainly exploring these assets at the moment.”
As the market develops, one of the attractions of Loblaw’s property assets is that the group operates across a range of store formats. In December 2012, the grocer, which is controlled by the Weston family, announced plans to hive off the majority of its property assets into a real estate investment trust. Loblaw then floated a 20 per cent stake last July, retaining the controlling 80 per cent. Such Reits are popular in the US, providing private investors with a tax-efficient way to buy and sell properties.
Supermarkets typically make money through their property assets through sale-and-leaseback deals, whereby they sell off property to an investor, usually an institution, and then rent it back.
But Loblaw’s approach offers an alternative to the traditional sale-and-leaseback route, which some investors believe delivers insufficient value to shareholders. They suggest the company’s model offers interesting lessons for grocers around the world.
Loblaw’s strategy is prompting some activist investors to question whether the model could be applied elsewhere, particularly in the UK, where Tesco, Sainsbury and Wm Morrison have large property portfolios.
But not everyone is in favour of such an approach. Jaime Vazquez, an analyst at JPMorgan Cazenove, notes that Carrefour, the French supermarket group, abandoned plans to spin off part of its property division three years ago.
As the debate continues about how the world’s leading grocers divide their property assets and operating companies, the next test of investor appetite for supermarket assets will come when Morrison announces a review of its property portfolio in March. Institutional investors are expected to show keen interest in any stores that are sold off as part of a sale-and-leaseback deal, although Morrison is expected to remain overwhelmingly freehold.
Chris Keen, a director in the retail team at property consultancy CBRE, says Tesco and Sainsbury have been selling and then leasing back properties, which means institutional investors already have plenty of these in their portfolios. “There is a bit of scarcity value [to Morrison]. If Morrison does a sale-and-leaseback there will be huge demand,” he says.
Osprey spotted in Sainsbury’s and Whitbread hotel
13 December 2013
Osprey Equity Partners has exchanged contracts on £70m of forward-funding deals.
The investment company, which is backed by the multi-family office and merchant bank LJ Group, has agreed to forward fund a £40m Sainsbury’s supermarket in Hinckley that is being developed by Tin Hat, a joint venture between Ashcroft and Wilson Bowden. The 105,000 sq ft store has been prelet for 27 years.
It has also bought a 189-bedroom “hub by Premier Inn” hotel in London’s Spitalfields being developed by Endurance Land, which has been prelet to Whitbread on a 30-year lease. The hotel was bought with debt from the Royal Bank of Scotland and will be operated as Whitbread’s new affordable boutique concept.
Osprey has now forward funded £175m of long-income assets over the last 18 months. John White, co-founder at Osprey, said: “Both follow our current focus on accessing secure assets with very long, inflation-linked income streams from blue-chip covenants through the forward-funding structure. These assets offer strong risk-adjusted returns, underpinned by institutional quality properties.”
Knight Frank and Whitebridge Hospitality acted for Osprey; Strutt & Parker acted for Tin Hat.
Investor appetite returns for UK retail
October 16, 2013 | By Andrea Felsted
Investor appetite for retail property – and the prices they are willing to pay – has
diverged in recent years between prime and secondary assets.
“We are still seeing the trend towards core and prime assets,” says Jeffrey Lefleur, managing director of WP Carey, the real estate investment trust. “I do not want to keep calling it a flight to safety . . . [but] I think there is still a level of comfort among institutional investors that core assets are a safe harbour.”
But with the prices of core assets rising, investors have started to look further afield for opportunities.
In the UK, capital has over the past few years tended to flow towards trophy assets in London and the South East. However, investors have of late snapped up shopping centres in regional locations outside the capital.
Among recent deals, Canada Pension Plan Investment Board bought a stake in Birmingham’s Bullring shopping centre, Intu, a UK-based real estate investment trust, acquired a mall in Milton Keynes for £250m and Norway’s sovereign wealth fund bought half of Sheffield’s Meadowhall shopping centre.
According to Charlie Barke, head of shopping centre investment at Cushman & Wakefield, the property consultancy, the increased demand has driven yields for regional shopping centres down from 5.5 per cent to 5 per cent.
David Lockhart, chief executive of NewRiver Retail, the real estate investment trust, says the difference in yields between primary and secondary shopping centres has been about 6 percentage points until recently. “Historically, it has never been that high,” Mr Lockhart notes. “[But] there is a perception now that there’s good value in the [UK] regions. Investors are realising that the [regional] retail sector, despite a lot of negative comments, is still very much alive and kicking.”
Simon Lee, co-founder and director of Osprey Equity Partners, a fund that invests in retail property assets on behalf of private investors, agrees there are opportunities in out-of-town shopping centres and retail parks if they are well placed and have a solid tenant base.
“If you find something that is in a good location, with good covenants, and you do your homework on it, you may see that the asset has been mispriced,” Mr Lee says.
One area that has remained resilient through the financial downturn has been food stores. Phil Cann, UK head of retail at CBRE, the property consultancy, points to strong growth in food store rents while noting that these assets have been particularly attractive to investors seeking income to meet pension fund liabilities.
Although the big supermarket chains have of late pulled back from opening very large stores – raising the possibility of fewer of these assets being available in the future – Mr Lee says the pipeline of new supermarket schemes is still there, even if the “sweet spot” for developments has moved to between 30,000 sq ft and 60,000 sq ft, compared with about 100,000 sq ft in the past.
“There is a healthy pipeline of new schemes coming through for pretty much all of the [food] retailers. [But] they are being more selective, and they are going for slightly smaller stores,” he says.
Appetite for new shopping centres, an area hit hard by the financial downturn, has also returned. “A number of schemes that had been mothballed are now being dusted off because there is retailer demand for them,” says Mr Cann.
British Land, the FTSE 100-listed property company, is among those looking at new retail developments.
Richard Wise, the company’s head of UK retail asset management and development, says: “It is wrong to say the retail development market is buoyant – it definitely is not.
“But we think that about now is the right time to start putting more time and effort into a retail development programme, which is what we are doing.”
Osprey in £100m of supermarket deals
28 August 2013 | By Alex Therrien
A private fund managed by Osprey Equity Partners has completed the forward funding acquisition of a £22m Tesco superstore to be built in Chatteris, Cambridgeshire.
The Osprey Income and Growth 3 LP fund has acquired the 46,177 sq ft supermarket, which has been pre-let to Tesco on a 25-year lease with rental uplifts index-linked to RPI.
The deal is being funded through £9.1m of equity provided by high net worth investors and £12.2m of debt secured from Barclays Bank.
Cambridge Property Group will develop the supermarket.
It follows the successful closing of two similar Osprey food store funds: a £37m, 98,000 sq ft Sainsbury’s supermarket in Sunderland, which opened to the public in March 2013, and a £45m 110,000 sq ft Tesco food store in Rotherham, which will reach practical completion in October 2014.
Both formed Osprey Income and Growth 1 LP and 2 LP respectively.
The Chatteris scheme has achieved detailed planning consent and construction is due to begin next month, with practical completion expected in summer 2014.
Morgan Williams acted for CPG and Knight Frank acted for Osprey.
John White, property director at Osprey Equity Partners, said: “Our investors are attracted to the UK foodstore sector by the 25 year plus, inflation-linked income from quality tenants, and the forward funding structure currently offers the rare opportunity to access these institutional quality assets at a discount to investment pricing. The high 5% per annum RPI cap caught our eye on this asset.”
Osprey forward funds £40m Yorkshire
13 March 2013 | By Kat Spybey
The development was bought on behalf of its Income and Growth 2 fund and has been pre-let to Tesco on an unbroken 30-year lease, with rental uplifts index-linked to RPI.
The scheme will comprise a 110,172 sq ft supermarket with a six-pump petrol filling station and 540 car parking spaces. Detailed planning consent is in place and construction is due to start in April.
The project is being funded through £17m of equity provided by high net worth investors, and £23.75m of debt secured from HSBC Bank.
TCN Renaissance will develop the property and the land was bought from Rotherham Metropolitan Borough Council.
John White, director of Osprey Equity Partners, said the deal: “reflects our current focus on the forward funding of UK food superstores.”
“This sector offers our investors unusually long, inflation-linked income from outstanding covenants and the forward funding entry point provides a discount to standing investment values, unused capital allowances and a state of the art building. As a result of the low cost of debt secured from HSBC, we are able to pay investors a coupon of 6% pa.
“This purchase coincides with the practical completion of a large Sainsbury’s foodstore in Sunderland acquired last year from Terrace Hill by another of our high net worth investor funds, Osprey Supermarket Income and Growth 1.”
Nick Short, a partner of Prime Retail which advised Osprey, added: “This is a significant deal in the current market given the continuing mismatch between high demand from investors and occupiers for food stores and limited development finance.”
Osprey forward funds Terrace Hill supermarket
with £20m HSBC debt and £15m equity
05 April 2012 | By James Wallace
Osprey Equity Partners, the real estate equity and debt raiser, has closed the £35m forward funding of an almost 100,000 sq ft Sainsbury’s supermarket in Sunderland, with £15m in equity and a five-year £20m HSBC senior loan.
Terrace Hill, the AIM-listed UK property developer which brought the deal to Osprey, paid around £0.5m in costs to get planning approval for the Tyne and Wear supermarket as well as costs incurred in securing the pre-let to Sainsbury’s on a 25-year lease.
Following the forward equity and debt funding, Terrace Hill has already been prepaid £2.5m, and stands to increase its profit considerably further on the transaction by the time the supermarket opens in March next year.
Terrace Hill’s typical profit margin on developments is between 15 and 20% of gross development value. Based on the agreed £35m value of the completed supermarket, at the top end of Terrace Hill’s typical profit margin range of 20%, it would suggest a gross return of £7m which, less £0.5m in initial costs, suggests its profit could be as high as £6.5m.
Terrace Hill said the project reflects the developer’s strategic decision to focus further on the supermarket development sector and has several similar developments within the Terrace Hill pipeline.
Philip Leech, chief executive of Terrace Hill, said: “The securing of forward funding is a significant step for the project, and underlines Terrace Hill’s ability to source financing for our developments, in spite of the challenging funding environment.
“We continue to see potential for further growth in the foodstore sector, and believe that our activities in this market will generate good returns on behalf of our shareholders as we progress this and our pipeline of opportunities.”
The acquisition and development of the supermarket has been forward funded by Osprey Supermarket Income and Growth 1, with £15m in equity provided by UK high net worth individuals – both directly and through personal pension funds – and the five-year £20m HSBC senior loan.
During the nine-month construction period, there is a premium of the HSBC senior debt facility, thereafter, the loan reverts to a traditional investment pricing. While the pricing was not disclosed, current senior debt margins range between 275 basis points and 350 bps over three-month LIBOR, depending on covenant strength, lease length, asset quality and location.
The 97,729 sq ft Sainsbury’s supermarket will include a six pump petrol filling station and 517 parking spaces.
Osprey Supermarket Income and Growth 1 is the first of a series of private investor funds launched by Osprey Equity Partners, designed to achieve attractive income and growth returns underpinned by secure, well-let, direct commercial property assets.
John White, director and head of property at Osprey Equity Partners, said: “We are delighted to be working with Terrace Hill and HSBC on this project. The fund was oversubscribed and reflects the appeal of secure, income producing property assets amongst private investors and SIPPs, especially against a backdrop of continuing volatility in equity markets and with historically low returns on cash deposits.”
Osprey Equity Partners Limited is the appointed representative of LJ Capital Limited, which is authorised and regulated by the Financial Conduct Authority (FCA No. 582903)
Osprey Equity Partners is the trading name of Osprey Equity Partners Limited (No. 7805418). Registered office: 10 Old Burlington Street, Mayfair, London, W1S 3AG