In January, the property lending businesses of two European insurers clubbed together with two banks to provide a €723.9 million fixed-rate loan in one of Europe’s largest single-asset financing deals so far this year.
The property was Belgium’s largest office building: the Finance Tower in Brussels’ central business district. The 186,000 square metre (2m square foot) tower was bought by The Valesco Group, an investment manager backed by South Korean securities firm Meritz, for €1.2 billion.
The insurance company lenders were Allianz Real Estate, which took a 50 percent stake and LGIM Real Assets, the property arm of UK insurer Legal & General, which took around 20 percent in its first continental European lending deal. The banks were Japanese lender Sumitomo Mitsui Banking Corporation and Germany’s BayernLB.
According to Roland Fuchs, head of debt at Allianz Real Estate, the financing was “seen by four diverse lenders as an opportunity to work together, meaning the deal had factors that appealed to them in common”. For Allianz, explains Fuchs, the risk profile – a circa 60 percent loan-to-value facility backed by a building leased to the Belgian government until 2034 – was akin to fixed income. “It can be thought of as a long-term sovereign bond to the Belgian state, with the added benefit of mortgage security,” he says.
Nicholas Bamber, head of private credit at LGIM Real Assets, says the senior lending market has developed to the point where insurers are comfortable participating in loans with durations usually associated with banks, as well as the long-dated opportunities they typically sought earlier in the cycle.
“This is a natural evolution of the market,” insists Bamber. “Five-year maturity is an overlap point for insurers and banks. The reality is that banks will do longer-term loans than this, while we have written loans as short as three years.” LGIM’s foray into continental European lending is indicative of the growth of its debt strategy, he adds: “As a UK lender, sterling is our natural currency, but as we build out our private credit business, we are extending our lending proposition to major European cities.”
Core assets targeted
For Japanese bank SMBC, the deal fits into a strategy of targeting core properties in Europe’s major city centres. Robert Carney, its head of EMEA real estate finance and structured credit investment, says: “It is the type of asset that works for bank and insurance lenders, so it is possible to find a loan structure that works for both types of lender. The deal shows the benefits of having a diverse and liquid debt market.” As insurance companies diversify their portfolios by loan term, market observers expect to see more instances of them teaming up with banks in lending deals.
Fuchs says yield compression across markets is gradually bringing banks’ and institutional investors’ expectations into line: “Whereas we once had the long-term, fixed-rate-focused insurance sector and the short-term banking community, there is less and less of a distinction. It’s a function of the yield curve flattening across durations. Insurers are not just solely focused on long-term loans.”
He adds: “Shorter, medium-term money also needs to be placed. Interest rates are lower for longer, so it is attractive to be engaged outside the typical fixed-income type products.”