Savills finds 20 new lenders in UK since last year, but “many are embryonic”. Lauren Parr reports
The recent refinancing of the Park Plaza Westminster Bridge London hotel by Bank Hapoalim, Israel’s largest bank, for a Jewish client does not necessarily represent a new pool of capital for European real estate. Likewise, Bank of China’s participation in a lending syndicate that provided £560m of unsecured corporate debt for British Land, alongside Industrial and Commercial Bank of China and Bank of Tokyo-Mistsubishi UFJ, does not yet reflect a wider presence.
It is hoped that the bank will ramp up its London business, as it has done in New York. Bank of China is believed to be providing more than $250m to refinance a Manhattan office tower, following its $800m refinanc-ing of 245 Park Avenue in November. Robert Martin, vice-chairman of Jones Lang LaSalle in New York, who introduced the bank to borrower Brookfield Office Properties, says Bank of China “was looking to lend to reputable owners of buildings with long-term leases and credit-worthy tenants. It wasn’t originally willing to loan that much to one shop, but then decided to take the whole loan itself.”
Far Eastern banks were identified as potential new lenders by Savills’ head of UK valuation, William Newsom, in his study of property financing, published this month. Bank of Singapore is known to be exploring relationship deals. Newsom counted 20 new lenders since last year, but admits “many are embryonic”. De Montfort University research shows that just six lenders – four UK ones, one German and one international accounted for 66% of the £19.9bn of loans originated in 2010.
National Australia Bank subsidiary Clydesdale Bank has been active this year, refinancing Goldman Sachs’ Whitehall’s £101.3m Queens Moat Houses loan in March. This month it lent Helical Bar £6m for its purchase of a Scottish industrial estate, and Development Securities and Patron Capital £23.7m to replace part of a Lloyds debt facility.
There are suggestions that US players are regaining their lending appetite, following what is seen as a modest comeback by JP Morgan, Wachovia and Citibank. The latter is thought to have backed bids for RBS’s Project Isobel loans sale, as have Goldman Sachs and HSBC. It is expected that Citi would have to distribute any debt it provided.
Margot Waddup, Eurohypo’s head of syndicated debt, says that besides underwriting, HSBC is also taking a lead role in putting together clubs for clients. French banks have survived the turmoil relatively unscathed, while German pfand-brief lenders still have a strong presence. But the withdrawal of WestImmo and DG Hyp has removed a notable amount of liquidity. “The retreat to domestic markets hasn’t reversed dramatically,” adds John Barakat, M&G’s head of real estate finance.
Bottleneck for syndication market as handful of players struggle to keep up
The layer of banks and institutions active in the debt syndication market “is so thin that when they’re busy, you’ve got to wait for them to clear their desks before they can get onto the next deal”, says Jean-Maurice Elkouby, a director of syndicated finance at ING Bank. “It’s not a fully functioning market yet, but you can get deals done.” ING and Eurohypo syndicated a loan backing GE Capital Real Estate’s €550m purchase of a Polish retail portfolio to Hypo NOE, Société Générale and SEB in March, after over eight months in the pipeline. In the UK, it plans to sell on its slice of a £350m refinancing of Shell Mex House, with Deka Bank, before the deal closes, as it is thought to want to line up a buyer first.
“Europe’s market is lumpy and fickle, as the banks you would typically approach for syndication can also arrange deals,” adds Elkouby. “Their attitude is always: ‘Why should I use my capital on a participation?’” Restructurings and work-outs have taught banks “lessons specific to their business, making syndication harder, as each bank has its idiosyncrasies – they want control, or don’t want to be less than X percent in the syndicate, etc. It complicates matters for those underwriting then selling down.”
Lenders that can look at deals on their own merits have also emerged, like AXA, Bawag and Crédit Foncier. “They can look at deals across Europe and are natural go-to participants for arrangers. This is enabling arrangers to implement an ‘originate to distribute’ approach’, as opposed to the traditional club route.” Eurohypo’s Margot Waddup says debt syndication depends “on the deal and lead bank as to how much depth there is”. She sees a desire to move away from lengthy club deals and back to getting large deals underwritten by small groups of banks that sign and document the deal, then distribute the debt to others.