Nordic lending: First to the Finnish

Finland is on the radar of international investors and lenders, joining its Nordic
neighbours as a hot destination for real estate capital, writes Daniel Cunningham

Not only is Blackstone’s €2.6 billion financing of its recently acquired Sponda platform one of the largest European loan deals this cycle, it is further proof that Finland is on investors’ and lenders’ radars.

The US private equity giant is close to signing three loan deals encompassing around €2.2 billion of senior debt, provided by a combination of Citi, Morgan Stanley and Royal Bank of Canada, plus €340 million of mezzanine finance from Goldman Sachs’ third-party funds business. The senior is understood to be priced at just over 200 basis points.

Blackstone bought Sponda – an owner of prime offices, retail, logistics and residential property located across Finland – in a share deal in June. The purchase puts it in control of a large chunk of Finland’s real estate, valued at around €3.8 billion.

For Blackstone, the deal is a leap forward in its Nordic strategy, which saw it take control of the Certeum Finnish logistics platform in December 2015 for Logicor, and subsequently source a €575 million financing from Bank of America Merrill Lynch, priced at around 300bps.

The size of the Sponda deal required the underwriting capacity of investment banks, but German lenders have been actively financing real estate in a market which has traditionally been banked by Nordic lenders including Nordea, OP Group, Danske Bank and SEB.

In September, German banks pbb Deutsche Pfandbriefbank and Helaba backed CBRE Global Investors’ European Shopping Centre Fund II with a €67.2 million, five-year loan against the Skanssi shopping centre in the Finnish town of Turku.

Pbb’s Norbert Müller described the Nordic region as a “key strategic market” for the bank, which in June provided €29 million to refinance a prime Helsinki office property owned by asset manager Schroders.

Financing mandates on the scale of Blackstone’s Sponda are unlikely to be repeated any time soon, given the size of the Finnish market, but investment by foreign investors has encouraged international lenders to look at Finland. Last December, BAML wrote €143 million to finance M7 Real Estate’s portfolio located across Finland, Germany and the Netherlands.

Blackstone’s investment in the country represents a bet on a recovering economy. Finland lagged its Scandinavian neighbours in the years after the global financial crisis. Despite being in recession for much of 2011 to 2015, a record six quarters’ growth was recorded by mid-2017, supported by strong exports and a weaker euro.

The underlying property market appears stable. Investment transactions reached a record €7.4 billion in 2016, up 35 percent year-on-year, according to recent research by Finnish real estate information service KTI Finland. Sponda completed the year’s largest investment – the Forum mall in Helsinki for €576 million.

Foreign investors accounted for 28 percent of last year’s transactions, and while the absolute volume of foreign investment was up, overseas investors’ share relative to
domestic buyers was down. Blackstone’s deal will likely reverse that trend in this year’s figures and more investors are expected to follow.