A pioneering structure for securitizing UK property has been devised by the Grantchester Group, BZW and London law firm Wilde Sapte in a £100 million ($167 million) issue of debentures launched at the end of last year.
Many attempts have been made to turn UK property into a more liquid market. PINCs and, more recently, APUTs will be remembered by some as attempts to launch unit trusts specializing in commercial property investment. But so far the UK has lagged the US whose REIT structure (real-estate investment trust) is now commonplace. The Granchester structure does not pretend to be a way to transform commercial property into a pooled investment. It does, however, point to the possibility of establishing a conduit structure that could be harnessed to launch a note programme providing a more liquid form of property investment.
At the heart of the deal is the standard securitization mechanism: a special-purpose vehicle that issues notes backed by security taken over a portfolio of properties. But several innovations make the structure unique. The first is the flexibility which the borrowing group retains. The deal is on-balance-sheet but effectively the noteholders' recourse is restricted to the underlying security - typical of, say, a non- or limited- recourse project financing.