Lone Star decides fate of £2.25bn Quintain

Lone Star has reached a decision over the future of Quintain and its giant PRS Wembley Park project after weeks of painstaking negotiations and an impasse between the parties involved.

The private equity firm has withdrawn the company from the market and ceased talks over a prospective sale to a Delancey-led consortium that also includes Qatari Diar, Oxford Properties and APG.

A spokesman for Lone Star said: “Following a review of options at Quintain, we have taken the decision to conclude recent discussions around a sale. Quintain is a unique, well-funded asset, and has Lone Star’s full support and commitment as it progresses its plans to fulfil its potential as one of London’s most exciting development projects.”

It is understood that the two parties came very close to agreeing a deal with Lone Star holding out for around £2.25bn and Delancey offering more than £2.1bn, but neither side was willing to shift further.

Comment: What does Lone Star’s decision say about the PRS?

Clear front-runner

LRC Group, Grand City Properties and Greystar had also previously been vying to buy the 85-acre scheme but the Delancey-led consortium was a clear front-runner among them.

The prospective sale of Quintain was to be the first transaction of its size in the UK PRS market and the failure to conclude a sale is a blow to the burgeoning market. However, although Lone Star has been a major net seller in the UK over the past year, including having disposed of more than £1.4bn of hotels, its strength of belief in the future of the PRS is what has driven it to hold on to the company.

Now that Lone Star has decided to retain Quintain it will push forward with its rapid build out of Wembley Park and deploy hundreds of millions of pounds more capital.

The 7,000-flat scheme only has around 260 units operational at present but this will hit 2,500 in two years’ time. Blocks or flats will not be sold off piecemeal in order to ensure that the extra value of having control of the whole estate is retained.

When Lone Star does re-examine an exit it is expected that the company will be a more straightforward proposition for a prospective purchaser with a larger income stream, fewer flats still to build out and less development risk.

Search for new projects

Lone Star will now back Quintain’s management team to step up a search for new projects across the UK with Jason Margrave, executive director of development, leading the charge to find large sites with the capacity for 600 or more flats and regeneration angles.

Lone Star bought Quintain in a £1bn take-private deal in 2015. The company is held as an investment in Lone Star’s fourth real estate fund, which closed in the same year with $5.8bn (£4.5bn) of equity. Wembley Park will remain within the vehicle, although it is possible that new investments by Quintain could be financed using the private equity firm’s latest and fifth fund that raised the same amount as its predecessor in 2016.

Angus Dodd, chief executive of Quintain, said: “Quintain remains focused on the delivery of more than 7,500 new homes at Wembley Park, of which over a third are affordable and the majority are for rent.

“The scheme is one of the UK’s most iconic mixed-use development projects and is already one of the most dynamic and interesting areas to live and work in London.

“With Lone Star’s ongoing support, Quintain and Tipi have a clear strategy to be one of a small number of dominant market leaders in the UK’s build-to-rent sector. It’s business as usual and we are committed to delivering Wembley Park’s full potential as well as investing in Quintain’s future.”

Eastdil Secured and Credit Suisse were advising Lone Star. Lazard was advising the Delaney-led consortium.

What about a refi?

When the prospective sales process kicked off in March, bringing in a new investor to Quintain was one of a number of options Lone Star considered, although a sale was the preferred outcome. The private equity firm has also garnered major support for a refinancing from lenders, although it is understood that one wholesale, new debt deal is not being planned in the short term.

Any refinancing of existing assets which may be examined at a later date to reduce Lone Star’s cost of debt or to take some cash off the table would not need to have covenants that bring about heavy penalties were Quintain sold in the medium term and those facilities paid back.