In the summer of 2020, Canadian investor Realstar marketed its portfolio of eight assets for sale, appointing Macfarlanes as legal advisor for the deal.
The portfolio comprised six build to rent (BTR) and two student accommodation assets, any one of which would have been a notable disposal on its own.
Realstar is a long-standing client of Macfarlanes, and one of the first significant investors in the UK’s large-scale BTR market. Macfarlanes has long worked with Realstar in developing its portfolio, which includes high-end new-build towers and listed buildings, primarily located in London and operated under the brand UNCLE.
UNCLE Elephant & Castle is the UK’s tallest BTR development. Completed in 2018, the tower comprises 279 units for private rent, alongside social housing, and rises to 47 storeys. Its distinctive steel ‘crown’ is 153m above street level and was installed by the team that delivered The Shard.
The latest BTR development in the portfolio comprises 101 homes and is part of the new East Wick and Sweetwater site at the Queen Elizabeth Olympic Park, Stratford. Finally, Ravenscourt House replaced a police section house with a 234-bedroom student accommodation development and new nursery for the adjoining primary school.
Lead associate Shane Mitchell says the size and scale of the deal stands out among others he’s worked on. “The transaction involved approximately 450 documents and a team of over 50 lawyers from teams across the firm (including PERE, real estate, finance, tax, corporate, IP, employment and pensions)”, he says. “The pre-existing working relationship between the parties also fostered an environment where difficult commercial and legal issues were resolved relatively smoothly which enabled the transaction documents to be agreed and signed in a relatively short timescale and thankfully just before Christmas!”
A landmark BTR deal
The deal signed in January 2021 for circa £580m in what represented a landmark disposal in the BTR sector. “It is a sector where the experience and skills of the senior management team and quality of the operational business is crucial to the overall success of this type of alternative investment”, Mitchell adds.
The Realstar transaction included nuances in the make-up of the purchasing vehicle and the operating company, which will run the PRS business going forward. While this looks like a typical OpCo/PropCo structure, there were several major differences.
The deal was cutting edge in terms of its size and complexity and is a leading example of the value added to real estate assets by sophisticated operating businesses. This deal captured all these elements.
The deal is a strong example of Macfarlanes’ growing body of work in the private equity real estate (PERE) market. The project was led by newly appointed senior consultant Robert Porter and long-term client partner for Realstar, Clare Breeze. Breeze was promoted to co-head of the practice on 1 May 2021, having been instrumental in the growth of the practice since joining the firm. She works alongside Anthony Burnett-Scott in heading up the practice.
In sum, this was a high value and complex disposal and joint venture. The outcome was a great example of cross-practice collaboration within the firm, and close partnership working with the client.
“The deal involved complex joint venture, licensing and intellectual property arrangements due to the international footprint of the UNCLE brand and also required the sale and purchase of numerous types of ownership interests. It was important that the parties’ wider joint venture and future development terms were consistent with these arrangements. To overcome the various issues our IP, commercial, tax and corporate teams needed to coordinate their various workstreams to ensure the terms of the various agreements properly addressed the interrelated issues”, Mitchell explains.
He joined Macfarlanes in March 2020, having qualified at Herbert Smith Freehills in September 2009. Major focuses of his practice since then have included purchase and joint venture terms in connection with the acquisition of portfolios of hotels, senior living and care home sites and build-to-rent properties; the corporate restructure and refinancing of a portfolio of cold stores located in the UK with Porter, the acquisition of a supermarket with partner Nick Barnes and the purchase and development terms in connection with the proposed development of a freeport site.
He also advised NatWest Pension Trustee Limited. the trustee of the NatWest Group Pension Fund, on a 15-year joint venture with financial services company Legal & General, alongside Porter and co-head of the real estate group Burnett-Scott. The joint venture invested £500m of equity to build net zero carbon later living communities which will be developed and operated by Inspired Villages.
“I enjoy working on deals that have the potential to have a positive impact on issues affecting society”, he says. “For example, the lack of quality senior living accommodation due to the challenges presented by our ageing population. The proposed development of zero net carbon senior living sites is hopefully a small positive step in seeking to address this issue. This deal was interesting due to the combination of commercial, development and wider legislative issues that exist in the senior living sector.”
The growth of the BTR sector made working on the Realstar deal particularly compelling. “The BTR sector is becoming increasingly important due to the challenges facing the wider population in achieving home ownership and the development and growth of high quality BTR offerings will be important in helping to present people with viable and attractive alternatives”, Mitchell explains.
“Our recent focus has been on the alternatives PERE sector. The complexity and scope of this deal was good experience in relation to some of the structural challenges that arise when dealing with both the underlying real estate and an international operating business and understanding how an operating business can add significant value to the underlying investment.”
The firm’s involvement with Realstar has spanned the establishment of its fund structures, agreements with investors, its tax and financing arrangements and its development work to help Realstar create its market leading BTR and student accommodation offering.
Macfarlanes has continued to advise on leading investment and development deals in the market, working through lockdown on matters including advising Legal & General on the funding and delivery of a £200m ‘Life and Mind Building’ at Oxford University which will house the departments of Zoology, Plant Sciences and Experimental Psychology.
The firm also advised long-standing client Stanhope and its joint venture partners, Mitsui Fudosan and AIMCo, on the sale of their mixed-use White City Place development in West London to Canadian property management company Cadillac Fairview. It also continues to advise Stanhope on its redevelopment of BBC Television Centre, and its role as development partner for the extension of the British Library.
Elsewhere, Macfarlanes has advised a private Qatari investor on the acquisition of the Ritz Hotel, London, and Berkeley Homes on its delivery of 4,000 homes, a public park and new entrance to West Ham tube station, at the site of a former Parcelforce sorting office in East London.
It advised socially responsible property development company Stories on its partnership with St Mungo’s to deliver a PRS development, and Derwent London on matters across its portfolio, including its letting to Transferwise at the Tea Building and its continued development of the Featherstone Building, Old Street.
Meanwhile, the practice has moved successfully into the private equity real estate market. Porter joined the firm to head its private equity real estate offering in February 2020, alongside Mitchell. Andrew Hughes joined as senior counsel in April 2020, followed by Nicole Mitchell who joined as senior solicitor from global investment manager Nuveen in June 2021. They have integrated quickly into the department, supporting existing clients such as Realstar and brought new clients into the firm, such as M7 Real Estate and Hillwood Property Investors, who have been major additions to the client base of the department.
Macfarlanes advised M7 on the sale of the business to Oxford Properties, and Hillwood on a series of high value, confidential transactions in the European logistics market. This work sits alongside the team’s pre-existing work for clients such as Brookfield.
Commenting on the unusual conditions faced by the team due to the covid-19 pandemic last year, Mitchell says: “It limited the ability to convene the parties in one location to resolve headline commercial and legal issues “in person” but it actually made it easier to convene all party meetings (albeit on Zoom or Teams) as by this point in the year, the need to conduct all calls and meetings remotely was common practice.
“The momentum and pace of the deal was maintained by the willingness of the parties to convene on relatively short notice to discuss and resolve key commercial points. The parties seemed to have greater availability due to the fact that travelling considerations were not relevant during this period.”
The importance of regular, open and structured communication cam sharply into focus. Mitchell says there was a greater need for “regular internal and cross-party meetings based on clear agendas to help ensure that issues across all practice areas are being discussed in the appropriate forums and in a coordinated manner”, adding “the biggest potential pitfall is for an issue to be negotiated in a relative vacuum which prevents it from being discussed amongst all relevant groups which ensures that all of the (intended and unintended) consequences are considered and addressed.”
About Shane Mitchell
2020-present: Senior associate, Macfarlanes
2017-20: Associate, Skadden
2015-17: Associate, Paul Hastings
2011-15: Associate, Herbert Smith Freehills
Who’s Who: the Macfarlanes team
- Clare Breeze, partner, real estate
- Robert Porter, senior consultant, real estate
- Mark Baldwin, partner, tax
- Jat Bains, partner, finance
- Alex Amos, partner, funds
- Will Hedges, partner, IP and commercial