Third Space agrees £88.5m structured finance deal to optimise growth

Third Space has made its first move beyond the equity markets by agreeing an £88.5m structured finance facility with OakNorth and Searchlight Capital Partners.

Speaking to HCM, CEO, Colin Waggett said: “Up to now we’ve been entirely equity financed, so this arrangement improves our overall cost of capital as we grow.

“Third Space has an excellent pipeline of new site opportunities across London, with sites in Wimbledon, Battersea and Wood Wharf under construction and sites in Clapham, Richmond and The Whiteley all signed,” he continued.

“We won’t be stopping there either, as we know there are plenty of neighbourhoods in London where a Third Space club will be successful and we’re capitalising on a combination of excellent demand for our clubs from new members, as well as very attractive real estate opportunities.”

In terms of real estate, Third Space is capitalising on two major trends, firstly the closure of large-scale retailing developments due to online shopping and the pandemic and secondly, the growth of luxury residential.

“It’s noteworthy that of our new sites, Wimbledon, Clapham, Richmond and The Whiteley were all former department stores – so their demise has presented a unique opportunity for us,” says Waggett.

“They’re all really interesting buildings in sweet-spot demographic areas, with huge floor plates, great ceiling heights and a combination of ground, basement and first floor spaces that are perfect for our full service offering.”

Commenting on the residential opportunities, he said: “In nearly every mixed use development in London – of which there are plenty – landlords, now place fitness at the top of the amenity list they know they need to attract residential and corporate occupiers and if that development is a high-end one, then we’re very well placed to be that provider.”

He also acknowledged the high cost of entry in terms of competition, saying: “Each club is a significant capital investment, which is why there are not many people building the sort of clubs that we build.”

Waggett explained that homeworking and aspirations towards achieving work/life balance continue to be factors influencing consumer behaviour, saying: “We’re seeing exceptionally strong demand for Third Space memberships, with most of our clubs operating with waiting lists. Our business sits at the heart of Londoners’ desire for health and fitness, authentic experiences and luxury service, with Third Space uniquely positioned to meet these demands.

“We look forward to opening more clubs in residential locations to complement our excellent central London sites and enhance member value, as we know members like to use a club close to home and to work.”

OakNorth is a neobank ‘for entrepreneurs, by entrepreneurs’, while Searchlight Capital Partners is a private investment firm operating across Europe and North America.

The company, which became majority owned by KSL Capital Partners in July 2021, is in a strong growth phase.

Deepesh Thakrar, senior director of debt finance at OakNorth, Josh Mailling, senior associate and Ben Wulwik, head of execution worked on the deal, along with Oliver Haarmann, founding partner at Searchlight.

OakNorth was advised on the transaction by Lee Federman, leveraged finance partner at law firm, Jones Day. Third Space was advised by Neil Smith, MD and Randal Pringle, director at Rothschild & Co Debt Advisory and Charles Armstrong, banking partner at Latham & Watkins.

Launched in September 2015, OakNorth Bank has lent over £10 billion and raised deposits from 200,000 savers.