Estates Gazette • 15 February 2025 • Finance

The company expects to commit more than £200m this year, and has said it will also look beyond the living sector.

Grosvenor’s UK arm is looking to ramp up its real estate lending, with a target of deploying £215m in 2025 – nearly a quarter of its residential debt strategy.

The company set a goal a year ago of lending £900m over the next decade. Of that sum, allocated to supporting housing delivery through new funding and recycling capital from existing and future lending, Grosvenor Property UK has so far committed £165m across 12 loans.

Its latest deals include an £18m debt package to Firethorn to finance its investment in the Malmaison York hotel. The 150-bedroom hotel is operated by Malmaison and Hotel du Vin on a 35-year lease. Firethorn bought it from Lothbury Property Trust in June 2024.

The company had earlier made a £30m loan to support McAleer & Rushe to build out The Place, a 409-bed student accommodation scheme in Nottingham, as well as three land bridging loans to McLaren Property totalling £16m to fund student accommodation projects in Nottingham and Leeds and a build-torent development also in Leeds.

Steph Ball, an investment director at Grosvenor, told Estates Gazette the lending strategy came about as the team realised it had a higher gearing of office and retail assets across its estate and wanted to increase its exposure to residential investments.

“We thought about different ways of getting more residential exposure, but we decided that going into the debt strategy was a way that managed to get higher-yielding, risk-adjusted income that would complement the lower property income you get when you have capital values very high in prime central London,” Ball said.

“It also became a good way to increase our geographical reach – schemes we have supported have been in Leeds, Nottingham and Bath. We have supported the funding of 3,370 homes and, from a social impact point of view, it is very important to our ESG strategy to be able to have that impact.”

Grosvenor’s debt strategy has seen the company invest primarily in development loans, alongside a few smaller bridging loans across various residential subsectors such as build-to-rent, purpose-built student accommodation and for-sale.

“The market was very challenging last year from a construction pipeline point of view,” Ball said. “We have the benefit of having our own balance sheet capital. It means we can then pivot, and we actually did our first investment loan last year, to Firethorn Trust, refinancing its acquisition of a hotel in York.”

Ball highlighted the Firethorn deal as a good example of an opportunity in which Grosvenor could use its in-house expertise and had an informed view of how to underwrite the deal differently.

In terms of Grosvenor’s ambitions for lending the £215m allocated for 2025, Ball said the company is looking mainly at development lending. “But we have also realised that investment loans work really well for our portfolio, and if we consider quirkier loans, they also work,” she added.

Grosvenor’s debt strategy is also open to making “opportunistic loans that outperform on all our metrics”, Ball said. “ESG is really important and runs through all of our values and we are seeing opportunities to support decarbonisation,” she added. “It is something we will look to if we can’t find things in the living space, then we will be opportunistic and we are able to be agile because we don’t have fund investors to answer to.”

When Grosvenor’s debt strategy takes it beyond the living sectors, Ball said the company will “stick to what it knows”.

“We are doing a lot of central London office development at the moment, so [we will be] underwriting that sort of brown-to-green transition,” she said. “We are seeing quite a lot of that in the city, so if we were able to look to that we would feel comfortable to underwrite it.”

Ball added that the industrial sector is proving just as competitive as the residential sector, and that Grosvenor would also be open to providing debt to retail. She said the company will look at assets other than living in central London, as it is comfortable with the area.

However, there will be challenges. Ball sees a fall in the construction pipeline, construction cost rises and inflation as major issues ahead as the company looks to deploy its allocated £215m.

Another challenge it faces is major banks that are also increasingly eager to deploy into the living sectors.

“When we first started the strategy, the banks had all sort of retrenched,” she said. “We didn’t realise how good the market was for a private lender at the time. Then they all came back in, offering higher levels of debt at lower pricing, and so it became much harder for us.”

She said Grosvenor is looking to find its niche in the market, as private equity funds look to lower ticket-sized assets and the banks target larger transactions. Hence, Grosvenor’s “sweet spot” for lending is £10m-£30m in the mid-market region.

“The mid-market is where there is the most opportunity,” Ball said. “A lot of people are lending less than £10m and then it’s that mid-market area – that’s the part of the market that gets hurt the most by cost inflation and viability challenges.”