Lenders Start To Back Retail Repurposing Schemes

There are dozens, maybe hundreds of shopping centres and department stores across the UK that will need to be repurposed and converted to other uses following the drop in physical retail sales. Investors are starting to buy into these schemes, but to transform them they are going to need something that has thus far been lacking: debt.

Banks and debt providers have been steering clear of lending against retail for years. But there are signs they are getting comfortable with providing the development loans needed to convert retail schemes to other uses that people actually need. 

A debt fund managed by BentallGreenOak has provided a £55M loan to fund the repurposing of a former Debenhams department store in Clapham, south west London, React News reported.

The Arding & Hobbs building, built in 1910 and one of the first department stores south of the Thames, is slated to be converted into 75K SF of offices and 30K SF of retail on the lower floors. The project is being undertaken by W. Real Estate, received planning permission in November 2020 and is due for completion in 2023. 

The scheme has a gross development value of £140M, and BGO’s loan accounts for about half of the development cost, React said. W. Real Estate paid British Land £50M for the building in 2018. 

BGO said the scheme is the first retail repurposing it has backed, and it expects to do more.

Elsewhere, Tikehau Capital and Areli Real Estate are in talks with potential funding partners to provide capital for their £500M retail repurposing scheme in Maidenhead, to the west of London, CoStar reported. The duo are redeveloping the former Nicholsons shopping centre into a new scheme comprising 653 apartments — 307 of which would be sheltered accommodation — 312K SF of offices and 89K SF of flexible retail.

Knight Frank is advising the JV on finding funding partners.