Last year saw the Dutch bank’s REF team seal its place in the premier league with a glut of origination and syndication success.
Michael Shields reaches for a football analogy to describe the progress of ING Real Estate Finance (ING REF) from the Global Financial Crisis to the present day. “We were injured, then we went through a period of recovery before being sent on to the pitch to score some goals. We did that last year, and now we can play the full 90 minutes.”
Indeed, last year saw ING REF at or near the top of the scoring charts, with €9.5 billion in new business making it one of Europe’s top lenders during 2015. Add to that figure €4.2 billion of loans extended at maturity, and the bank racked up total business of €13.7 billion.
With some 80 deals completed during the year, including the financing of the Celsius portfolio of French and Belgian shopping malls (alongside Natixis CIB) and that of the Christchurch Court London office building, Shields – London-based member of the global management team – reflects that “all of the European platforms were firing”.
He says that the level of activity began to accelerate in May with the UK and French markets at the forefront but with deals being done across seven European countries including Spain, Poland and the bank’s home market of the Netherlands. On top of that, the US platform was up and running again for the first time since the Crisis, with a team of four notching up €675 million of new deals.
Asked about the secret of this surge of new business, Shields points out that it was a simple case of motivation meeting opportunity. The bank’s senior executives gave him plenty of encouragement and a big budget and – aided by benign market conditions – his team delivered.
“We were in full origination mode and we wanted to win deals on high quality assets,” says Shields. Asked whether he expected to get quite so much on the books so quickly, he admits to being “a bit surprised” by the bank’s success rate in the second quarter.
Arguably the potential danger in landing so much new business is the possibility that ING’s “originate to distribute” strategic approach might fail if syndication were unable to chip away significantly at the bank’s exposure. Fortunately there were no problems in that regard in 2015 as the European syndications team headed by Jean-Maurice Elkouby enjoyed a fruitful year.
Altogether, during 2015, ING REF syndicated more than €2.2 billion of paper and was ranked by Dealogic as the most active bank in the market for non-REIT loan syndication. Much of the appetite came from Germany and Asia, with German banks buying 25 percent of the paper, Chinese banks 24 percent and Japanese banks 21 percent.
But despite the positive eventual outcome, Elkouby admits to a brief period of anxiety. “We had over €1 billion to place by the end of June at a time when Greece was wobbling and it took us a bit by surprise. Selling down can only ever happen at the pace of the slowest participant, but at the same time the origination taps can be turned fully on.”
He adds that any concern was considerably eased when Bank of China came into Celsius with a €200 million ticket which “made a big dent into our sell-down requirement”.
Asked what he sees as ING REF’s advantages in a market where the firm’s prolific rate of deal completions appears to defy a highly competitive environment, Shields alludes to the bank’s fleetness of foot. “Clients see us in the market doing large landmark deals with short turnarounds and see that we can execute quicker than much of our continental European peers,” says Shields.
He adds that the firm has developed a reputation for efficiency of execution with professional advisers. “When you have a big Asian investor committing to Europe for the first time and they want to know who they should speak to about financing the asset, lawyers and other advisers feel confident recommending us to these newcomers and anyone who has a tight timeframe.”
Looking ahead to the rest of 2016, Shields thinks it will be another strong period for origination – but perhaps not quite as spectacular as 2015. “We won’t whip the horses in the UK and France like we did last year,” he says. “We had to pull back a bit towards the end of the year and our focus now is on being targeted and selective.”
But while Shields predicts that a more modest €5 billion to €6 billion of origination would be a good figure to reach in 2016, he does not have too many concerns about market conditions. “Deal flow is proving itself just as strong. Offshore capital is still coming in and, with the pricing seeming to be about right, owners are tempted to sell good assets,” he maintains. Although asset pricing is high, investors are stepping up with big equity checks and only asking for moderate leverage levels.
With a steady flow of deals in Spain and Italy, the continuing resurgence of its US operation and a sense that more could be done in Germany, ING REF has its sights set on diversification in the period ahead, with each of the bank’s major target markets having budgets of around €2 billion each.
“We are trying to stick to core real estate with core sponsors and strong liquidity in almost any kind of environment,” says Shields. “People continue to be attracted to strong, core assets and at our current leverage points, we feel fairly insulated from the current noise around things like a possible Brexit.”
This should ensure that Elkouby’s syndication machine continues to be fed, even if 2016 does prove to be slightly quieter for Shields and his colleagues. “We don’t want to grow our assets as much as last year, but we do want to do some high quality deals,” he concludes.
Riding the Asian wave: ING is ‘connecting the dots’ to offer its European expertise to investors from outside wanting in.
One of the growing waves of real estate capital today is the one heading from Asia into Europe. It’s a trend which has certainly not gone unnoticed by Jan-Evert Post, Amsterdam- based member of the global management team, who has responsibility for a number of geographies including Asia.
In 2015, some €16.4 billion of investments were made in European real estate by investors with their home base in Asia, according to data compiled by Real Capital Analytics.
“As the year before, this was driven by an ongoing desire for stable and attractive (cash) income from core properties, offering attractive returns when compared to most Asian markets, in European jurisdictions with proven strong and transparent legal systems,” says Post.
ING REF has successfully chalked up many deals working with Asian partners, including a sovereign wealth fund on the Celsius portfolio.
In 2015, REF Asia launched a “Connecting the Dots” strategy, which highlighted the team’s insights into European real estate. As a way of illustrating this, the bank co- hosted events in key cities such as Tokyo and Seoul where it showcased its ability to act as a financing partner to investors in Europe.
Asked about where in particular the capital is coming from, Post responds: “Every country is different. There is a solid flow from Korean investors and sovereign wealth funds such as CIC and GIC. There is also some hope and expectation that more Japanese investment will be heading to Europe.”
One emerging trend which Post has detected is the growing number of single investors handing asset managers separate account mandates, whereas the bulk of the capital has traditionally come from large investment funds pooling the resources of multiple institutional investors.
Post says ING REF has been developing its relationships to meet the requirements of this evolving investor base.