U.K.-based Legal & General has agreed to borrow up to GBP 550 million ($700 million) from a syndicate of lenders including Wells Fargo, RBS International and Lloyds Bank in a pivot toward industrial properties as COVID-19 strains commercial holdings.
The firm said Wednesday that funds from the new debt facilities will support its Industrial Property Investment Fund, which specializes in multi-tenant industrial and trade properties.
The fund is managed by Legal & General Investment Management, one of Europe’s largest asset managers with over GBP 1.2 trillion in assets ($1.52 trillion).
“The securing of a new debt facility for the fund will help boost our investment capacity and take advantage of new market opportunities, including a rise in demand for e-commerce and last-mile warehouse facilities,” said Jonathan Holland, a senior fund manager overseeing the industrial fund at LGIM.
The debt facilities include a GBP 200 million ($254 million) long-term fixed-rate loan that takes advantage of the current low interest rate environment, L&G said. It also includes a GBP 250 million ($318 million) revolving credit facility and an option to borrow an additional GBP 100 million, subject to lender support.
LGIM’s Industrial Property Investment Fund had a net asset value of nearly $2 billion in June, according to index data compiled by the Association of Real Estate Funds, a U.K. trade group of property managers.
The fund outperformed much of the group’s index, which is published by index creator MSCI, delivering a 14.3% return over three years, compared to the all-property index return of 3.9%.
Over a three-month period, the fund delivered a 0.3% return, which compares favorably to a majority of funds in the index which contracted due to COVID-19. According to the trade group, the fund has roughly 168 assets and 86 unitholders.
By comparison, returns for the Legal & General Managed Property Fund, which specializes in U.K. commercial properties, shrank by 1.8% over the last three months and 2.2% over the last year, according to index data.
The fund’s industrial skew helped to somewhat insulate it from the impacts of the pandemic, Holland said, adding that the fund remained “open” and had received no redemption requests as of yet.
“The fund has remained incredibly resilient during the lockdown period, continuing to significantly outperform the market, retain high occupancy levels and secure high-value deals across transport corridors in South East of England,” he said.
“Over the coming months, we will continue to push forward with the fund’s strategy, looking for new opportunities to broaden our leading position in the mix-box development market.”
L&G’s renewed push for more industrial property investments comes as COVID-19 shifts the real estate market in most places away from commercial properties due to various lockdown measures.
Concurrently, a sudden spike in online sales — up 40% between May 26 and June 1 alone — is fueling a similar swelling of industrial leasing, to 20.8% from 11.8% last year, according to commercial real estate investment firm Jones Lang LaSalle.
“The exponential growth of e-commerce has driven demand for industrial real estate for the last 10 years, and the sudden spike in online activity since the crisis has accelerated that demand,” said Rich Thompson, international director of supply chain and logistics solutions at JLL.