Although 2020 is little more than two weeks old, there is already plenty for real estate debt professionals to digest. Here are four points worth noting.
1. ICG-Longbow has demonstrated investor demand for senior debt. London-based manager ICG-Longbow announced on 10 January it has raised £500 million (€580 million) in equity for the fourth vintage of its senior real estate lending strategy. The money came from investors, including public and private pension funds, and a leading UK insurer, the firm said. It is aiming to close the fund in Q4 this year, with a hard cap of £1 billion. Last time ICG-Longbow held a final close for its senior property lending strategy, in August 2017, it collected £370 million. The fundraise shows there is continued demand from fixed-income investors for a product that provides attractive yields – relative to corporate bonds and gilts – and downside protection. We spoke to ICG-Longbow’s head of senior debt, David Mortimer, for his take on the strategy.
2. Big organisations are tapping into local expertise in property lending. ARA Asset Management, the Singapore-based real estate fund manager, has made inroads into Europe’s property lending space by taking a majority stake in the London-based boutique lender Venn Partners. Large real estate managers gaining credit exposure through the acquisition of smaller non-bank lenders is becoming a trend. In November, investment manager CBRE Global Investors bought London-based Laxfield Capital to be its European real estate debt business. In 2021, Savills Investment Management has the opportunity to buy the remaining 75 percent that it does not already own in real estate lender DRC Capital. Lots of real estate debt expertise is concentrated in Europe’s non-bank property lending sector – Venn, for example, was founded by former bankers with CVs featuring Citi, Nomura and Goldman Sachs – so expect to see further M&A activity this year as larger investment platforms seek access to debt.
3. A £120 million London office loan has been written against co-working space. The flexible office space model was a major talking point of 2019, particularly due to the fall from grace of sector poster child, co-working provider WeWork. However, many in the market argue there is a future for the flexible office space model, even if it is more modest than that originally envisaged by WeWork’s founders. On 14 January, Allianz Real Estate, the property investment management arm of German insurer Allianz, announced a £120 million loan to The Office Group, the flex office provider which is majority-owned by private equity investor Blackstone. The credit is for the acquisition and refurbishment of the Chancery House office building in London. A significant aspect of the deal is that the operator will also own the property, in contrast to WeWork’s model of taking long leases.
4. The first green European CMBS is on its way. Many in the commercial real estate industry have reaffirmed their commitment to environmental, social and governance practices in 2020. In the past year, lenders were increasingly keen to explain how their loans were structured with sustainability as a priority. US investment bank Goldman Sachs has kicked off the year by marketing what would be Europe’s first ‘green’ commercial mortgage-backed securities issue, with the €186 million River Green Finance 2020 transaction. The CMBS could set a precedent for capital markets issues backed solely by sustainable real estate. We can expect to see a greater focus from property lenders on making their loans green this year.
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