SPECIAL REPORT: Different shapes and sizes, but Europe is the target for all

Our inaugural survey of the leading Asian lenders in Europe reflects a growing pool of organisations led by established Japanese banks and relatively new Chinese lenders but also including a growing number of niche operators. Paul Yandall reports

Welcome to the Top Asian Lenders in Europe, Real Estate Capital’s first compilation of the most active lenders from the Far East (and slightly further afield) in European real estate.

We had initially attempted to put a ceiling on the number of lenders profiled but we discovered that the number of lenders recently active in a significant way topped out in the early 20s, so we’ve included all of these, even if some are arguably, by European lender standards at least, relatively minor actors.

What is beyond dispute, however, is that many Asian lenders have become increasingly active over the past few years with the arrival of some large Chinese banks and the cost of debt in countries like Japan providing plenty of market impetus.

Like our Top European Lenders issues, which we run annually, this report is not primarily concerned with which organisation is the largest lender, or which has lent the most recently or even the most efficiently. It is about highlighting the lenders that have made notable entries into, what is for them a foreign market, with clear, well-defined strategies that have helped drive growth.

Banks overwhelmingly dominate our list. That is no surprise as they dominate the lending business in Asia. What is interesting to note though is how their lending behaviour has changed as they have become more accustomed to Europe’s markets, from taking small parts in syndications or clubs to originating their own deals.

London also dominates. For many Asian lenders it is their first toe in European waters before considering the Continent or other parts of the UK. How fast can they change from being local market lenders to pan-European players? This is something we will be watching out for with interest.

One thing we hope will change: Many of the Asian lenders we approached were reluctant to speak about their work, taking their cues from distant head offices in Asia. “We’re happy with our current media profile in Europe”, said one bank, even if that profile was practically non-existent.

Native European lenders naturally speak more freely at home. We hope that as their presence grows in these parts, Asia’s top lenders will speak freely too.

1 Industrial & Commercial Bank of China

Rainmaker: Andrew Day | Head of UK commercial property

London is the prime target for most Asian lenders but ICBC has taken a broader approach in the two years it has been actively lending on real estate in the UK.

“We’re looking at building a well-diversified, in terms of asset classes, geographically spread, portfolio,” says Andrew Day, head of real estate finance for the bank’s UK branch.

To date, that has manifested itself in a UK portfolio valued at around £1.2 billion containing student accommodation, logistics, retail, some development and, of course, London offices.

“But you don’t want to be sitting with 100 percent London or 100 percent offices. It’s all about spreading your risk,” says Day.

Although the bank has been operating in the UK since 2003, it only began commercial real estate lending in 2014 after moving from subsidiary to branch status.

“That was the game changer. It opened up a lot of doors,” says Day, who had been brought on-board to build the property business. “That made a huge difference to our ability to lend, where we could lend and how we could lend.”

Since then, ICBC’s property team of five has driven through 20 deals, with the most notable being the recent taking of half of Lloyds’ £185 million development facility for a new outlet retail centre at London’s O2. In another notable deal, last year, the bank took a participation in the £277 million loan which Lloyds and Citi underwrote to finance MediaCity UK in Salford.

The O2: ICBC's most notable deal
The O2: ICBC’s most notable deal

Deals of those sizes and profiles have helped ICBC build brand awareness in a relatively short amount of time.

“Do more people want to talk to us because we’re a Chinese bank? Most definitely,” says Day. “People didn’t really know what the bank stood for or its capabilities. Now they’re becoming increasingly aware.”

Real estate lending contributes a significant amount of the bank’s revenue in the UK and Day is keen to stress that although ICBC has offices across Europe, the UK division is no indication of the bank’s overall property activities across the Continent. Different territories can have a completely different lending profile to Britain’s.

One thing that is changing in the UK is the bank’s ability to originate and arrange.

“We’re modestly underway,” says Day. “Although, I will admit to the fact that it is not yet of the size of deals that have been making the press.”

2 Sumitomo Mitsui Trust Bank (SMTB)

Rainmaker: Howard Evans | Head of European real estate finance

 Sumitomo Mitsui Trust Bank’s (SMTB) main focus is prime central London offices and 2015 was its “best year yet”, according to its head of European real estate finance, Howard Evans.

The bank, which has had a presence in London since the 1970s, returned to commercial property lending in 2013 after shuttering the business in the wake of the GFC. In the three years back lending it has built its real estate loan book up to around £838 million.

“Last year was, by some distance, our best year ever in terms of the volume of deals and the amount we lent,” says Evans.

The bank provided £620 million in 14 transactions in 2015 with its 70 percent share of the £350 million financing of Mitsui Fudosan’s redevelopment of the BBC Television Centre site at White City the highlight.

“If we are able to achieve that type of deal volume again this year, then the bank will be very happy,” says Evans. “Unfortunately, it may be challenging.”

The UK’s EU referendum in June has put a dampener on market activity so far this year and increased currency costs are pushing up the cost of funding for the bank’s six-strong property team in London.

“If we’re seeing increasing costs of funding, then my guess is that most people in the market are seeing that too,” says Evans.

The UK clearing banks have to meet their slotting requirements and the German banks also have currency costs to deal with so “quite a few banks have got a bit of pressure on their internal returns at the moment,” he adds.

Looking ahead, SMTB is keen to diversify away from London offices but only as far as UK regional city offices.

“We don’t have the return hurdles some of the other banks do, but if you’re only playing in prime Central London offices, which has the tightest margins in the market, if your funding costs are going up then it becomes a bit tight,” says Evans.

That’s something the bank hasn’t had to worry about for a number of years. Ironically, it has been more concerned about being too aggressive and pushing spreads down to the low 100s where primarily only other Japanese banks have been found operating.

“We’ve still got a pretty good advantage,” says Evans. “But it’s not a no-brainer anymore. We have to sit down and check if we can get there. Although we certainly haven’t declined anything on pricing yet.”

3 Sumitomo Mitsui Banking Corporation

Rainmaker: Robert Carney | Head of structured credit and new products

In its third foray into European real estate lending, Sumitomo Mitsui Banking Corporation (SMBC) is again focusing on prime city offices with elements of retail and development speculation for the right sponsor.

Since returning to the scene in 2014 – it went quiet on real estate lending in the 1990s and mid-2000s – the Japanese bank has built up a loan book of around £500 million in around 15 deals primarily based in London.

“We thought [in 2014], ‘this is the right time to return’,” says Carney. “Maybe 12 months earlier would have been nice but I still think we have found what we have wanted.”

The bank does consider retail, logistics, student accommodation and private rented sector opportunities but its conservative, risk-averse approach keeps it mainly at the most liquid end of the market: Central London offices.

And yet, probably its most notable deal was outside the capital: It took part in last year’s £400 million refinancing of the £900 million Liverpool One shopping centre at 130bps for Grosvenor Liverpool Fund. In addition, it played a role in providing part of the £350 million partly speculative development finance to Mitsui Fudosan’s BBC White City scheme in London.

“In that case, we were comfortable with the plan, the concept, and of course developers Mitsui Fudosan and Stanhope lent it a lot of credibility,” says Carney. “We were happy with their ability to deliver the right product to the market at the right time,” he adds.

Does SMBC plan to expand geographically in Europe?

“Yes, we want to be able to do work on the Continent, but we just don’t have the people on the ground yet that the European banks have,” says Carney.

“On the other hand, it’s hard to see the same opportunities on the Continent as there are in London. There are only a handful of big deals out there,” he adds.

For now, seeking and structuring opportunities in this year’s relatively quiet market is more than enough work for the bank’s six-strong real estate team.

“We are still seeing some good opportunities in core markets here,” says Carney. “There are a lot of synergies with other Asian capital coming to London, even North American capital that we want to work with, and I see that continuing.”

4 Shinsei Bank

Rainmaker: Daniel Hwang | Head of global real estate finance (ex-Asia)

Spurred by the relatively high returns available in London’s commercial property market compared to Japan’s, Shinsei Bank entered Europe’s real estate finance market 12 months ago.

Since then it has built up a loan book approaching £500 million in 10 deals by collecting slices of loans on trophies such as the iconic ‘Gherkin’ and Tower Place, both in the City, and HSBC Tower at Canary Wharf.

“At this stage, our main counterparties are the lead arrangers in the UK rather than borrowers,” says Daniel Hwang, head of Shinsei’s global real estate business outside of Asia. “So, the question I have to answer is, why would BNP Paribas or ING choose to work with us?”

First, like most Japanese banks in Europe, Shinsei can lend cheaply, taking margins to the low 100s if need be, although it is more comfortable in today’s current prime environment of around 130 bps to 160 bps.

Second: “We don’t try to fit Europe into our own domestic box, which is a mistake many lenders make when they go overseas,” says Hwang.

Lastly, the bank’s decision-making process is binary; if it makes sense to proceed given what the market is offering, then it will do so in the most efficient manner possible.

Evolving from that to become an arranger itself is the ultimate aim, as well as diversifying its London-heavy portfolio into the UK regions.

“It’s never a good idea to put all your eggs in one basket and Central London offices have proven to be one of the more volatile asset classes,” says Hwang. “We recognise that, so are looking to broaden our base.”

Expanding into the mezzanine and whole loan space is also under consideration and having strong sponsors who are well known to the bank can make all the difference.

“We are comfortable up to 65 percent but we are able to push the loan-to-value ratios a bit when it comes to sponsors we have a close relationship with.”

However, expansion into the Continent may not be the most effective growth strategy for Shinsei.

“Deploying our limited resources across the multiple legal jurisdictions in Europe is not the best way to utilise them. The next logical destination might actually be the US,” says Hwang.

“The fact that the entire market effectively operates under a single, legal regime makes it a lot more efficient for us when we go to deploy our capital.”Mizuho Bank

5 Mizuho Bank

Another Japanese lender that has tended to deploy in Europe via clubs or syndications. After a notable absence from the market it recently took part in a £420 million revolving credit facility to UK REIT Hammerson at an initial margin of 90 bps. A decade ago, it was one of a number of banks that provided a £1.65 billion facility to General Healthcare Group UK secured on a portfolio of its 35 private hospitals that was structured into CMBS loans.

6 Bank of China

With a wide, pan-European presence, the Bank of China has deployed the largest loans of any of the Asian banks operating in Europe. With the capability to cross €200 million, the bank is considered a sophisticated, committed player in Europe’s real estate markets although its largest deals have been with well-known Asian clients. Also happy to provide unsecured revolving credit facilities to UK REITs and was part of the eight-bank club that supplied £420 million to Hammerson in April.

7 Nomura International

The Japanese investment bank provided a £550 million loan-on-loan facility to Cerberus Capital Management for its purchase of the Project Arrow portfolio from Ireland’s National Asset Management Agency (NAMA). The bank provided a similar £780 million loan to Cerberus for its £1.2 billion purchase of Project Eagle from NAMA in 2014. That year, it also deployed a £237 million whole loan financing of Camden Lock market that was subsequently refinanced with a long-term loan from AIG.

8 Bank of Tokyo-Mitsubishi UFJ

One of a number of Japanese banks most comfortable participating in club deals to provide corporate facilities to UK REITs. It most recently took part in a £415 million unsecured revolving credit facility to developer Hammerson at an initial margin of 80 bps with a syndicate of nine banks in April last year. Earlier in 2015, it was also part of the club that provided British Land with a £485 million unsecured revolving credit facility.GIC


Formerly known as Government of Singapore Investment Corporation, the sovereign wealth fund provided a £90 million facility to Maya Capital in October last year for UK regional office acquisitions. It was the second known loan in the UK real estate market from GIC. In June last year it provided a £90 million five-year loan to student housing group Urbanest.

10 Chang Hwa Commercial Bank

The 111-year-old Taiwanese bank was one of nine lenders that provided a five-year, £415 million, unsecured revolving credit facility to UK REIT shopping specialist, Hammerson, a year ago at an initial margin of 80 bps. The lender had previously provided a smaller facility to Hammerson which re-signed it for the larger 2015 loan.

11 Bank of East Asia

The third-largest bank in Hong Kong made its first real estate investment in Europe earlier this year. Alongside Lloyds Bank and China’s ICBC, Bank of East Asia provided the senior tranche of a £240 million facility to Rocket Investments for its development of the 40-storey Atlas Building residential tower in East London.

12 China Construction Bank

One of the ‘Big Four’ banks in China and another to have started making inroads into the European property market. Last year, it took a €50 million slice of ING and Natixis’s €670 million loan to finance the French, Belgian and Dutch ‘Celsius’ portfolio. Alongside Bank of China and Japan’s Mizuho Bank, it also took part in an eight-bank provision of £420 million to UK REIT Hammerson in April.

13 Daiwa Capital

Part of the Daiwa Securities Group, one of the largest brokerages and financial services groups in Japan, Daiwa Capital entered the European real estate market last year with a £12.8 million facility to a joint venture between developer MRP and clients of Certa Capital for the redevelopment of 40-41 Great Marlborough Street, London W1. The loan reflects a loan-to-value of almost 70 percent.

14 Aozora Bank

This Japanese bank seeks slightly higher-yielding debt than other lenders from Japan. Once known as Nippon Credit Bank, last year it took a participation in a Citibank loan to Greystar secured on student housing in London. It is also believed to have taken a slice of Morgan Stanley’s refinancing of the Adelphi office building in the capital.

15 Overseas-Chinese Banking Corporation

The Singaporean bank is one of the largest financial services groups in south-east Asia and is best known in Europe for being one of the backers of the £8 billion redevelopment of London’s Battersea Power Station. OCBC has been active in Europe since 2012 when it took part of Citigroup’s £300 million loan to Malaysia’s Employee Provident Fund for the purchase of three UK properties worth £490 million.

16 DBS Bank

Formerly known as the Development Bank of Singapore, the lender is another south-east Asian bank backing the Malaysian developers of Battersea Power Station. Alongside OCBC it provided a four-year £200 million development loan to developers Native Land and Grosvenor for their Campden Hill residential development in west London.

17 United Overseas Bank

The Singaporean bank lends in Europe to relationship clients such as compatriot wealth fund Temasek. The bank took a participation in HSBC’s £200 million underwrite for Temasek and Oxford Properties on MidCity Place in Holborn, London. UOB has been lending on property in Europe since 2011 when it was one of three banks to provide a total of £230 million for developer Richard Caring’s 20-21 Grosvenor Square flats.

18 & 19 ICICI Bank & State Bank of India

The Industrial Credit and Investment Corporation of India and the State Bank of India are two lenders, both headquartered in Mumbai, that have been lending on commercial property in the UK to relationship clients. They focus on central London bilateral deals lending and holding on their own balance sheets.

20 RHB Bank

The Malaysian bank followed its domestic clients to Europe to provide funding for the Malaysian developers behind the redevelopment of Battersea Power Station. The bank joined the £1.4 billion financing of phases two and three of the £8 billion redevelopment of the scheme as lead arranger.

21 & 22 Hanwha Life & Korean Investors

The Korean insurance company Hanwha Life was among a group of Korean investors sold a €97 million mezzanine tranche by German bank Helaba in 2014. The tranche was chipped off a €280 million debt package Helaba had underwritten for a group of Korean investors to buy the Sanofi headquarters in Paris.