REC AWARDS 2017: The deals and borrowers of the year
REC AWARDS 2017: The advisors and loan sales players of the year
Bank lender of the year
Winner: ING Real Estate Finance
Runner up: Morgan Stanley
During 2017, ING’s real estate financing business lent in scale across several European markets, taking leading roles in some of the year’s largest bank financings.
Within lending clubs, the Dutch bank participated in the £644 million (€725.6 million) loan to fund the purchase of London’s ‘Cheesegrater’ skyscraper in June; the €625 million financing in November of Berlin’s Sony Center; and the €900 million December financing of Paris’s Coeur Défense office building.
The latter two deals “reflect a change in investor focus to mainland Europe and show the strength of our local real estate knowledge”, says Michael Shields, head of real estate finance in Western Europe, the US, the UK and Asia-Pacific.
In 2017, ING wrote €6.8 billion in new loans across Europe, albeit down from €11 billion of new lending in 2016. ING’s loan book stood at €28.6 billion at the end of 2017. “We were fortunate to have so many of our clients active in the market and the result is a top-quality loan book with the best sponsorship,” Shields says.
Real estate lenders operating in Europe saw challenging market conditions last year. Shields, nonetheless, notes ING’s European teams “have all participated in the [bank’s] overall growth over the past three to four years.”
Adding: “2017 was a very strong year for our European business overall and we saw particularly strong growth in Germany, which benefited from our €130 billion deposit business with ING-DIBA.”
The bank is targeting growth in the German market, while it is also aiming to increase its lending outside Europe, in the US and Australian markets.
Insurance company lender of the year
Winner: Allianz Real Estate
Runner up: Aviva Investors
German insurer Allianz Real Estate was a prolific pan-European real estate lender in 2017. Amid its continued expansion, deals were closed across Europe in the UK, Ireland, Spain, Italy, Austria, the Czech Republic and the Netherlands – in addition to Germany and France, its core markets.
Large loans, including €290 million to finance BVK’s Liffey Valley mall near Dublin and £212 million (€239 million) for London & Regional’s 55 Baker Street in London, contributed to the insurer meeting its target for European new lending for 2017, with a volume of €2.2 billion.
“The real estate loan book of Allianz in Europe is now truly pan-European and exceeds €6.3 billion,” says Roland Fuchs, head of European debt.
Allianz started lending in Germany in 2011, then France, where it last year provided a €300 million loan to finance ‘Window’, a prime office building in Paris. Since 2013, the insurer has lent in more than 10 European countries.
In 2017, Allianz continued its drive into the UK market, reaching around £450 million of debt exposure. The insurer also co-wrote a €300 million debt facility to fund Amundi’s acquisition of Amsterdam’s Atrium office complex, in a deal dubbed as the largest single-asset financing in the Dutch office market last year. In addition, Allianz diversified its loan book – underwriting almost two-thirds of a €160 million loan for a portfolio of logistics assets across the Czech Republic.
Fuchs notes 2018 started with “new and attractive finance opportunities”, as Allianz will continue to further grow and diversify its pan-European debt portfolio.
Senior debt fund lender of the year
Winner: DRC Capital
Runner up: AXA Investment Management – Real Assets
Last year, DRC Capital invested and committed to more than £250 million (€281.5 million) of new loans through its senior lending programme, consisting of three Europe-focused debt funds.
With fundraising for senior strategies attracting around £750 million of capital in 2017, managing partner Dale Lattanzio notes fundraising for 2018 is projected to increase up to £1.5 billion for the strategy.
Senior deals done last year included a £42 million loan, with a development element, in April to Evans Randall for an office and retail scheme in London’s Midtown. Last year it also provided a €30 million post-development loan to an undisclosed property manager to finance a multi-family residential scheme in Berlin.
“The scheme is let to the City of Berlin for the entire loan term, with the debt provided at a conservative leverage point combined with an attractive amortisation profile,” Lattanzio explains.
Lattanzio expects DRC’s senior offering will continue to benefit from the market opportunity presented by the banking sector’s need to de-lever due to ongoing regulatory reform, which is seeing alternative lenders playing a larger role in the senior funding of commercial real estate activity.
“We therefore feel that our senior debt offering is well-placed to take advantage of the ongoing market conditions,” Lattanzio argues.
The size of DRC’s senior loan book stood at around £450 million by the end of 2017 and the firm expects it to grow to more than £1 billion by year end.
High-yield debt fund lender of the year
Winner: Blackstone Real Estate Debt Strategies
Runner up: M&G Investments
Michael Zerda, head of Europe for Blackstone Real Estate Debt Strategies (BREDS) describes 2017 as “transformative for the business”.
“We provide high-yielding debt products including mezzanine and whole loans, but we expanded into new areas of business during the year,” explains Zerda. “We did our first ground-up development loan, our first co-working office financing and our first deals in Belgium and Finland.”
Other areas of expansion included loan-on-loan financing, corporate financings, regulatory capital release transactions with banks and the purchase of performing credit. In total, the firm invested €2 billion across 13 transactions in Europe, up substantially from 2016 during which around €200 million was written in what Zerda describes as a “transitional year” for the business.
Deals in 2017 included mezzanine participations including €230 million in the financing of OfficeFirst and a €188 million participation in the financing of the Finnish Sponda platform, both for its parent company. BREDS also played a minority role in Blackstone’s purchase of £11.8 billion (€13.5 billion) of buy-to-let mortgages from UKAR in March. In June, it issued £323 million of construction debt to Consolidated Developments for St Giles Circus, a mixed-use development in the West End of London.
Development finance is an attractive prospect, Zerda says: “In no other sector have we seen such a pronounced pricing shift as in UK construction; from low 300s basis points two years ago to more than 500bps today, due to the pull-back from traditional lenders.”
BREDS lends from several pockets of capital, including its $4bn-plus global BREDS III fund, its BMXT US mortgage REIT, a mezzanine fund called BREDS High Grade and a series of illiquids based in the US.
Lender of the year in the UK and Ireland
Winner: Lloyds Bank Commercial Banking
Runner up: Morgan Stanley
Lloyds saw a “marked pick-up in the volume of opportunities” in the UK last year, despite grim expectations for 2017, a year that many in the market expected to be slower than 2016, says Madeleine McDougall, the bank’s head of commercial real estate.
Lloyds’ two cornerstone programmes – its Green Lending Initiative and its partnership with group insurer Scottish Widows – underpinned an increasing number of the bank’s transactions last year, McDougall notes.
Through its ‘green’ initiative – in which loans to environmentally sustainable buildings get a margin discount – the bank issued around £900 million (€1 billion) by mid-January 2018. The scheme’s most recent financings in the UK have funded science parks, pubs and development.
The bank is also keen to back assets in regional markets across the UK. Last year, for instance, it wrote a £61 million loan for a Birmingham office building through the green fund.
“Our regional activity, supported by our growing network of locally based relationship teams, helped us to support some of the most high-profile developments and investments outside the capital,” McDougall says.
The collaboration with Scottish Widows, has also enabled Lloyds’ CRE team to arrange longer-term financings. The £409 million financing provided to Lazari Investments to refinance six of its key central London assets, combined medium- and long-dated funding. The deal included two loans, a £118 million, 10-year facility provided through Scottish Widows and a £291 million, five-year loan provided alongside Royal Bank of Scotland and MetLife.
Lender of the year in Germany
Winner: pbb Deutsche Pfandbriefbank
Runner up: LBBW
Amid a competitive market, pbb Deutsche Pfandbriefbank remained a high-volume lender in Germany last year – with €3.2 billion of new loans written during the first nine months of 2017.
The German lender increased its new lending by 3.2 percent during the period, year-on-year, despite tough conditions in its local market.
“For pbb, the biggest challenge was to select the right business to match our conservative risk profile,” says Gerhard Meitinger, head of real estate finance in Germany.
The bank noted more transactions coming to the market featuring weak assets or locations, while there was increasing pressure on margins in the core segment of the market. In total, the bank closed just 20 percent of all transactions it analysed across the German market.
Despite the increasing difficulty sourcing deals appropriate to the bank’s lending profile, pbb wrote significant financings in its home market during the last quarter of the year. Deals included the financing of the €112 million KARL development in Munich, plus a €260 million senior loan to finance the acquisition of a portfolio of German and Dutch logistics for Growth Industrial Asset Net-Income Trust.
“I like those deals best where we provide a funding solution rather than ‘just’ the funding,” Meitinger comments.
Lender of the year in France
Winner: BNP Paribas
Runner up: Société Générale
An active lender in its home country, BNP Paribas’s deals included participating in the bank club that provided a €900 million loan for the purchase of the Coeur Défense office building in Paris by a trio of investors, in France’s largest single commercial property transaction last year.
In 2017, in another club deal, the French bank also provided a €480 million loan to Canadian real estate firm Ivanhoé Cambridge to finance Natixis’s headquarters in Paris. Also in the French capital, the bank co-wrote a €250 million debt facility for a European data centre portfolio owned by real estate investor Colony Capital.
BNP Paribas last year recorded double-digit percentage growth in new loans across Europe, with France being in line with this figure, says Gilles Polet, the bank’s head of real estate finance Europe, who declined to disclose lending volumes.
BNP increased its market share in France, despite challenging conditions in the local commercial real estate market, Polet explains. “This was admittedly due to a scarcity of valuable assets, resulting in less market investment activity.”
Meanwhile, more development projects – including new construction, renovation and refurbishment – with a different level of risk from traditional cash-generating assets were seen in the French market last year, Polet notes.
“While competition was as fierce as ever, we continued to build out our on-the-ground capabilities in France and elsewhere in Europe,” Polet says, noting the bank has also teams based in the UK, Italy, Spain and Germany.
Lender of the year in Southern Europe
Winner: Deutsche Bank
Runner up: Société Générale
Deutsche Bank has been an active player in Southern Europe’s real estate debt markets for several years. Spain was a particular focus during 2017.
Loans closed during the year included a €100 million acquisition financing of a Spanish retail portfolio, plus a circa 65 percent loan to finance Henderson Park’s €52 million debut in Spain with the acquisition of Los Cubos – one of Madrid’s most recognisable office buildings. The Los Cubos deal, which included a capex facility, will fund Henderson Park’s repositioning of the building, which was vacant when purchased in October.
“We tend to see our borrowers being more cautious on leverage and maximising senior debt to avoid the need to pay mezzanine pricing,” explains Roman Kogan, head of Deutsche Bank’s European commercial real estate group. “We have found we can provide optimal solutions for our clients and ourselves by targeting a leverage point that is above where local banks are willing to go, but not as high a risk point as debt funds tend to go.”
Loan pricing in Spain, Kogan adds, has tightened “considerably” for core assets. “For the right sponsor and the right assets, we can be more aggressive than local banks and that is where we find the opportunities.”
In Italy, Deutsche Bank teamed up with debt fund manager Tyndaris for an €80m financing of the five-star Borgo Egnazia resort in Puglia. Achieved through a private securitisation, Deutsche Bank provided €60 million of senior debt and Tyndaris provided mezzanine debt.
In the loan sales market, the bank bought the Project Inés non-performing loan book from Sareb, Spain’s ‘bad bank’, in October, through the team’s special situations group.
Syndication team of the year
Winner: Goldman Sachs
Runner up: ING Real Estate Finance
During a year in which it wrote more than €3 billion of European real estate debt, investment bank Goldman Sachs supported its activities through the distribution of around €2 billion of paper through the syndication market.
Among the loans it distributed was its half-portion of the €1.7 billion senior financing of Blackstone’s OfficeFirst German platform. “Investors from many different countries across Europe, North America and Asia, including banks, insurers and debt funds joined us in that deal,” comments Andrea Bora, executive director in Goldman Sachs’ Real Estate Finance business, who co-heads the team and focuses on its distribution activities.
Across the European markets, syndication business dipped during 2017 as commercial banks countered increasing loan repayments by holding larger volumes of loans to bolster their balance sheets. Goldman Sachs, however, continued to operate its originate-to-distribute model throughout the year. “Our lending volumes increased because we were able to distribute significantly,” says Bora, adding that the market for syndicated European real estate debt remains strong: “There is a lot of liquidity from a wide variety of sources.”
The lack of CMBS paper in the market fuelled investor demand for syndicated loans, although Bora notes that improved pricing in the CMBS market is likely to mean 2018’s distribution business is more evenly spread between syndication and securitisation.
“We underwrite to the best exit and, last year, CMBS was not competitive. It couldn’t keep up with syndication. Now, it is possible to price loans for CMBS,” Bora says. “CMBS works in a number of jurisdictions. That market is very receptive to the right deal.”