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Aareal’s Schöttmer: There is limited debt liquidity for cross-border logistics deals

Following the bank’s €400m refinancing of a pan-European logistics portfolio for GLP, its managing director for special property finance says funding for multi-jurisdictional transactions is scarce.

The €400 million loan provided by German bank Aareal to the logistics giant GLP earlier this month serves as further evidence that senior real estate lenders across Europe remain keen to write big loans in what is widely considered to be a hot sector.

The loan will be used to refinance the acquisition of 27 prime logistics properties located across the UK, Germany, France, the Netherlands and Belgium by GLP, which has an operating portfolio in Europe managed via four funds totalling more than €10 billion in assets under management.

However, while lending competition for logistics assets is fierce, few lenders are willing to underwrite deals where the underlying assets are located across several countries, said Severin Schöttmer, managing director for special property finance at Aareal. “These transactions tend to attract a smaller pool of lenders given they require a special structuring know-how and local presence,” he told Real Estate Capital. “For the larger cross-border logistics tickets, there is not much debt liquidity – there are not many players in that segment.”

Underwriting pan-regional transactions can be challenging, Schöttmer explained. Such deals often come with the added complexities of varying legal and tax regimes, currencies and property market norms, such as varying lease structures.

The bank, which has a logistics loan book of around €2.9 billion, has a dedicated financing team for the sector which, according to Schöttmer, is an advantage. “If you [as a lender] come across a pan-European portfolio like this one from GLP, and want to fund its growth, you need to have the ability to finance in most of its underlying markets, which we have but most lenders do not cover,” he said. “This is why you need a special know-how as well as the ability to underwrite big tickets quickly, and local networks.”

High levels of competition in the broader logistics sector have resulted in yield compression in almost all European countries. According to research published by property manager AEW this week, prime yields compressed by 140 basis points from 5.60 percent in 2016 to 4.20 percent as of Q1 2021. For the coming years, the report added, logistics yields are expected to converge towards prime offices and come out just below after 2026.

Aareal, Schöttmer said, is mindful of yield compression and is providing conservative levels of leverage to the sector. “We are mainly doing deals in the 50-60 percent loan-to-value ratio and also, there is a lot of equity invested in these deals.

“Diversified portfolios with a robust cashflow like this one give us a lot of comfort.”