The inaugural Spanish real estate lending market report, published in November by City, University of London’s Cass Business School, highlighted just how competitive the market had become in recent years. According to Cass, average senior loan margins in Spain compressed from 330 basis points to 244bps between 2013 and 2018.
“When it comes to new commercial real estate lending, there has been a return of not only German banks but also other international banks, mainly French, as well as insurance companies,” the report stated.
While lenders found deals in Italy and Portugal, and some credit investors bought Greek non-performing loan portfolios, Spain was the most active real estate debt market in the region. It was also the setting for our Financing Deal of the Year: Southern Europe – the financing of US investor Blackstone’s acquisition of a controlling stake in listed Spanish property platform Testa Residencial.
In late December 2018, after the cut-off date for our awards for that year, Spain’s Banco Santander, US lender Bank of America Merrill Lynch and French bank Société Générale agreed to provide a €1.9 billion facility to support Blackstone’s €2.7 billion purchase. It comprised a €1.47 billion senior term facility and a €365 million junior term facility alongside senior and junior capex facilities, and represented a huge equity and debt investment in the Spanish market.
One of the lenders in that deal was voted Bank Lender of the Year: Southern Europe. Bank of America Merrill Lynch reported that it had advanced close to €2 billion of finance across Spain, Portugal and Italy in 2019, making it one of the most active lenders across the region. The high-yielding nature of many southern European lending deals, compared with those in core markets such as France and Germany, has led to significant activity by investment banks in recent years. In 2019, BAML’s deals in the region included loans against hotels, multifamily residential, logistics, retail and offices.
While Spain’s domestic banks reportedly increased their real estate lending activity in 2019, homegrown bank lenders in southern European countries, including Italy and Greece, remained focused on deleveraging defaulted legacy loans, much of which related to real estate. As a result of the limited presence of domestic banks in the region, non-bank real estate lenders, including investment managers and private equity firms, have targeted lending opportunities.
Blackstone Real Estate Debt Strategies, the property lending business of Blackstone, was voted our Alternative Lender of the Year: Southern Europe. Since 2018, BREDS and Blackstone’s mortgage REIT, BXMT, have originated €1.7 billion of loan commitments in southern Europe across six transactions. These included two separate loans totalling €573 million in commitments secured by two hotel portfolios and a €69 million whole loan secured by two office assets in Italy.
To add to its Europe-wide and French debt advisory awards, First Growth Real Estate was voted Debt Advisor of the Year: Southern Europe. The independent advisory firm’s deals in the region in 2019 provided a snapshot of the complex transactions that sponsors were undertaking there.
They included sourcing a €25 million senior and capex loan for a Madrid private rented sector residential portfolio from a UK-based debt fund; and, in Italy, assisting the buyer of a €95 million ‘unlikely-to-pay’ loan from an Italian bank, and maximising the recovery of the position secured by an outlet centre.