London’s Canary Wharf business district announced on Tuesday that it has secured a £610 million ($777 million) refinancing deal from U.S. investment firm Apollo Global Management.
The funds will be used to repay bonds set to mature over the next two years.
Canary Wharf Group (CWG), the landlord of the iconic district, has been navigating challenging market conditions exacerbated by the COVID-19 pandemic. The shift to remote and hybrid working models has led to the departure of key tenants, including banking giant HSBC.
CWG highlighted the deal as a sign of strong lender confidence in the district. However, the refinancing arrangement with Apollo comes with higher interest costs compared to the bonds it replaces, which were issued during a period of historically low rates.
The new loan, secured against most of CWG’s 1.2 million square feet of retail properties, will allow the group to settle bonds maturing in 2025 and 2026. Once the bonds are repaid, CWG said it would have no significant refinancing obligations until 2028.
The maturing bonds carried interest rates of 2.625% and 1.75%, well below the current financing costs in the property sector. CWG did not disclose the specific terms of its agreement with Apollo.
Global Challenges for Property Companies
Property firms worldwide are grappling with the impact of refinancing pre-pandemic debts in today’s higher interest rate environment. Despite these pressures, the Apollo deal provides CWG with financial breathing room.
In November, Brookfield, one of CWG's major backers, arranged a £900 million financing safety net to help the company address its bond obligations for 2025, 2026, and 2028, if necessary.
Becky Worthington, CWG’s chief financial officer, expressed optimism, stating:
“We have achieved a significant amount of financing over the last 12 months, and this latest deal with Apollo is testament to the strength of our proposition and performance at Canary Wharf.”
Declining Property Values and Strategic Shifts
Canary Wharf has faced falling property valuations, with a £1.2 billion decline reported in 2023, largely driven by reduced office space values. To adapt, CWG has been exploring alternatives for its vacant office spaces, including converting them into hotels.
Additionally, major tenants are reassessing their long-term plans in the district. JPMorgan, one of Canary Wharf’s largest occupiers, is considering options for its European headquarters, including the possibility of constructing a new building.
The Apollo deal signals confidence in the district's prospects despite ongoing challenges, providing CWG with a clearer path to stabilize its financial position. Photo by S nova, Wikimedia commons.