Retail real estate is ahead of other property sectors in its evolution towards meeting end-user demand, with strong assets getting stronger and weak assets getting weaker, according to Roland Fuchs, head of European real estate finance at Munich-headquartered manager Allianz Real Estate
Fuchs made the comments following Allianz’s closing of a €400 million loan as part of a €700 million refinancing of one of Germany’s leading shopping centres – the 2.6 million square feet Westfield Centro in the city of Oberhausen, which is owned by Paris-based retail giant Unibail-Rodamco-Westfield and Canada Pension Plan Investment Board.
The sustainability-linked loan, provided on behalf of Allianz group insurance companies and third-party investors, was provided alongside €300 million of finance from German bank Helaba.
The Westfield Centro deal was one of three retail sector financing transactions closed by Allianz in Q2. The deals also including loans in the Netherlands and France with a combined volume of €430 million.
Fuchs argued the retail sector is producing strong financing opportunities despite the challenges it has faced in recent years. “I would argue that the sector’s transition started earlier than other sectors, maybe even ahead of the cycle, as operators have been forced to rethink concepts and tenant mixes in order to adapt to changing consumer behaviour and future needs. This has been accelerated with covid,” Fuchs said.
“Across the retail sector we have seen bifurcation; strong centres getting stronger and weak centres getting weaker. With Centro, we have a very successful example of a centre that has turned challenges into transitional opportunities. Its performance track record and our operational confidence in the sponsors make us very comfortable with this transaction.”
Allianz described the centre – the only Westfield-branded asset in Germany – as one of the country’s top shopping and leisure destinations. It said the property, located in the populous North Rhine-Westphalia state, has a catchment of 3.5 million people within a 45-minute drive.
“We have a long track record with this asset, having first financed it in 2012,” explained Fuchs. “It was one of the first major assets we financed bilaterally; it has performed consistently well and, over time, has transitioned into what we would define as a multi-purpose retail and entertainment centre. It has become one of the most dominant, state-of-the-art centres in Germany.”
Fuchs added that UBW plans to expand the centre further by opening an entertainment park due to open next to it, to attract families.
When selecting retail financing deals, Fuchs said Allianz looks, in addition to a centre’s dominance in its market, for “experience-led concepts and a proactive operator”.
The sustainability credentials of the asset, which has a BREEAM In-Use Excellent certificate, were also important, added Fuchs. “The fact that the loan has in-built ESG KPIs [key performance indicators] demonstrates the commitment from the sponsors to reach ESG targets.”
Despite economic headwinds across Europe, Allianz has upped its lending, with its first half of 2022 property financing volume reaching €1.8 billion – its highest H1 volume to date.
Fuchs argued it is a good time to be a lender. “Within the current volatile environment, lending is one of the most defensive plays. Our strong lending volume in the first half of 2022 is evidence of these professional sponsors prudently locking in interest rates for the long term.”
He added that Allianz has a mix of refinancing deals and newly underwritten loans with leading sponsors. “In particular in the retail space, which had been relatively silent during covid, there is activity back in the sector.”
Allianz’s H1 deals include a 90 percent participation in a €301 million refinancing facility to developer Intospace for six logistics assets in the Netherlands and £200 million (€232 million) to a consortium of four sponsors to support the development of 105 Victoria Street in London.
The company had €11.7 billion in European debt assets under management at the end of March.