Essen-based investment management firm Aukera Real Estate has provided a €130 million senior ‘bridge-to-exit’ financing to Luxembourg property manager Silverfinch Property & Asset Management to fund the completion of Connection – a mixed-use development in its home country.
The office and retail scheme is located at Rue de Bitbourg 21-25, close to Luxembourg’s city centre as well as its airport. The building has a BREEAM ‘Excellent’ sustainability rating and an Energy Performance Certificate rating of ‘AAA’. The development contains around 531,737 square feet of rental space.
Speaking to Real Estate Capital Europe, Patrick Züchner, chief investment officer at Aukera, said the financing was designed to provide the sponsor with additional time to exit its investment in a more favourable market.
Unlike conventional bridge financing loans that tend to mature within an 18-month period, Aukera refers to this type of financing as a ‘bridge-to-exit’ deal. In this case, the loan provides financing beyond the completion of the development to the stage where the sponsor is ready to sell or refinance the standing asset.
“The expected finalisation date was the end of the year to the first quarter of next year. So, it’s at a very late stage of the development and therefore the building cost risks, and the permit risks are gone now,” Züchner said.
Aukera will refinance the asset as though it was a standing asset, for a three-year term. Because it is 50 percent pre-let, the asset will be able to support the loan through its cashflow streams, Züchner added.
“They [the sponsor] reacted to the current market conditions and approached us on the refinancing. They intended to sell it nearer to the finalisation date but realised they needed more time for more favourable market conditions.”
The facility was provided through Aukera’s real estate debt fund.
Market participants have told Real Estate Capital Europe there has been a significant drop off in transactions as a result of the inflationary environment, with most markets in Europe reporting a decline in investment volumes quarter-by-quarter.
According MSCI Real Assets, a part of data provider MSCI, latest Europe Capital Trends report the total sales during the first half of 2023 amounted to €74.6 billion, 59 percent below volumes recorded last year in the same period.
It is understood that Silverfinch Property & Asset Management had tested the market for a sale on the asset as well as a higher LTV refinancing from lenders but the current market climate made both options unattainable.
Züchner expects bridge-to-exit financing to become more prominent in the current environment because some sponsors will have no choice.
Separately, Aukera is working on plans to launch its first commingled real estate debt fund in early 2024, after having raised more than €1.5 billion of investor capital through lending mandates during its first three years in operation. The firm will target €250 million in equity.