REC Decade: Through the archives – 2015 to 2017

Real Estate Capital concludes a look-back through the archives as we celebrate 10 years covering Europe’s real estate finance markets.

2015: Reaching the peak (again)

Strong investor demand kept European prime yields low throughout 2015, while financial market wobbles caused concern.

European real estate was a prime target for global investors during 2015, creating large financing opportunities for lenders. In April, ING finalised the syndication of a £365 million (€405 million) loan provided to Brazil’s Safra Group to finance its purchase of London’s iconic Gherkin office building.

There were signs throughout the year of a return of development finance, to the best schemes. In June, two Japanese banks provided Japanese investor Mitsui Fudosan and development partner Stanhope with a £350 million redevelopment financing for London’s BBC Television Centre.

In December, BNP Paribas and pbb Deutsche Pfandbriefbank backed a speculative office scheme in central London, brought forward by Brockton and Oxford Properties.

Not all lenders had a great 2015. In April, it was announced that GE would sell off most of its global GE Capital lending arm; which at $363 billion was one of the largest shadow lenders in the US. The firm’s strategic move was to boost its value by focusing on high-tech industrial business lines.

A notable feature of the market in 2015 was the rise of real estate debt advisory in the European market. While intermediaries had been an established part of the US market for decades, the breakdown in Europe’s old banking relationships due to the crisis and the influx of alternative lenders created the need for brokers. In September, Real Estate Capital highlighted 15 active advisory firms.

In August, China’s central bank devalued the country’s currency, sparking fears of a global ripple effect. US CMBS spreads widened and a glut in asset backed securities in Europe saw the few CMBS deals which were issued price below par. The Greek sovereign debt crisis added to the financial volatility which gave lenders pause for thought. By the end of the year, lenders reported that senior debt margins had stabilised, and were even inching up in some European markets.

During the summer, respected real estate analyst Mike Prew of Jeffries called the top of the market and issued a series of downgrades to listed property stocks. Many disagreed with the assessment, but the debate as to where in the cycle the market was began to rage.

2015 timeline:

February: Wells Fargo and Royal Bank of Canada provide £700 million to fund Lone Star’s purchase of UK Moorfield assets.

April: GE sells most of GE Capital’s real estate assets to Blackstone and Wells Fargo for $23 billion.

August: AXA closes its ninth debt fund on €2 billion.

August: China’s central bank devalues the country’s currency, raising concerns of a slowdown.

December: BNP Paribas and pbb Deutsche Pfandbriefbank provide more than £200 million of development finance for the speculatively developed Post Building, London.


2016-17: Shocks and caution

The UK’s Brexit vote rocked markets, including real estate, as the industry got used to dealing with uncertainty.

Europe’s real estate lenders were already cautious entering 2016. Concerns that real estate equity investment was becoming a little frothy had encouraged some to avoid prime sectors including central London offices. Germany’s banks warned that 2016 profits would dip after a bumper 2015, while the CMBS market remained virtually closed throughout the year.

The UK’s vote to leave the European Union in June 2016 came as a major shock to many in the industry. Investment volumes fell, lenders dialled back their risk appetites and increased their margins. Investment activity, as well as lending, would rebound during the year, but the Brexit vote shook the market profoundly.

In November came the second shock; Donald Trump’s victory in the US presidential election. Into 2017, there were further concerns around potential shock populist results in the Dutch and French elections, neither of which materialised.

Although dealflow slowed, there were major transactions – partly driven by foreign investment into the UK on the back of the cheaper pound, plus the weight of equity from Asia looking for prime investment opportunities. In February, Hong Kong’s CC Land bought London’s Cheesegrater building for £1.15bn, while in June, CIC bought Blackstone’s Logicor for €12.25 billion.

At the mid-point of 2017, Europe remains awash with debt and equity. Real estate markets remain active, but caution is the watchword.

2016-17 timeline:

May 2016: BAML sells A notes at 128 basis points in Europe’s second 2016 CMBS.

June 2016: The UK votes to leave the European Union.

September 2016: Lone Star and JPMorgan buy Dutch ‘bad bank’ Propertize.

November 2016: Donald Trump is elected President of the US.

December 2016: Starwood sells servicer Hatfield Philips to rival Situs.

June 2017: ING, HSBC and Bank of China provide £644 million loan for London’s Cheesegrater.