Shopping for Irish finance

The €625m financing of Dublin’s Dundrum mall indicates lenders’ appetite for Ireland’s trophy assets, writes Daniel Cunningham

The capital stack behind the 124,000-square-metre Dundrum Town Centre mall in south Dublin demonstrates how international the market for Ireland’s trophy properties has become.

The circa €1.5 billion asset is owned 50/50 by UK REIT Hammerson and German insurance subsidiary Allianz Real Estate, with around 60 percent equity. The €625 million debt package, which reflects the remaining 40 percent of its value, was provided by a club led by French bank BNP Paribas and German lender DekaBank, with two international insurers also understood to be in the group.

Last July, another of Ireland’s trophy retail assets – the Blanchardstown mall near Dublin – was financed by its new US owner, Blackstone, with a €770 million loan underwritten by US investment bank Morgan Stanley. Fellow US investment bank Goldman Sachs participated in the mezzanine and there was even room for a domestic player in the senior debt – AIB.

The Dundrum deal shows how keen international lenders are to finance Ireland’s best properties. Hammerson CFO Timon Drakesmith tells Real Estate Capital that with no “desperate hurry” to source debt, the JV partners assembled a club of lenders to find the most competitive deal.

“We think this is one of the largest ever Irish property loans,” says Drakesmith. “The domestic banking industry is quite constrained, but we initially had more than 30 international lender enquiries. We then focused on working up the structure with those indicating the most competitive terms, which included relationship lenders and those with prior knowledge of the asset.”

Hammerson and Allianz took ownership of Dundrum last August after initially buying the distressed debt held against it. “We began to operate the asset last  summer, so after this we could start to think about a standalone financing structure,” says Drakesmith.

The mandate was launched six months ago and resulted in a seven-year, fixed-rate loan priced at 1.9 percent. “It’s a good compromise; medium-dated debt for a low coupon. Over the summer, the seven-year swap rate came down from 0.5 percent to 0.3 percent; we were waiting for it to come down to benefit the overall coupon,” adds Drakesmith.

The deal marked the culmination of a plan by Hammerson and Allianz, which had become the unlikely buyers of a loan portfolio from the National Asset Management Agency – the Irish ‘bad bank’ – in September 2015. Typically, NAMA books had traded to private equity firms such as Lone Star and Cerberus, but ‘Project Jewel’ was heavily weighted towards the debt securing Dundrum, alongside stakes in other Dublin retail.

“We monitored Dundrum for a couple of years as it is an asset which fits perfectly with our portfolio,” explains Nicole Poetsch, head of investment management at Allianz Real Estate. “Usually we would not buy loans, but we were able to with a view to converting the debt into direct ownership.”

The two firms paid €1.85 billion for the loan book, reflecting a 28 percent discount to the gross liabilities of the €2.57 billion loan portfolio, with the intention of converting the loans into ownership through a consensual agreement with owner Chartered Land. That took nine months, with the JV taking ownership in July 2016.

Allianz financed its €1.23 billion share of Jewel through equity. “Allianz is an all-equity buyer, but we take a moderate amount of leverage if the asset is particularly large or if it is a JV situation, as was the case here. This financing was the last stage of the plan.”

Hammerson initially secured a €1 billion bridge facility from a club of relationship banks – including BNP Paribas – which was subsequently increased to €1.5 billion to cover the purchase of Birmingham’s Grand Central shopping centre. That debt was refinanced through three capital markets issues; a November 2015 sterling bond, a March 2016 eurobond and a November 2016 US private placement.

“By putting secured debt on Dundrum, we take our share of €312 million and pay down some of our corporate level facilities,” says Drakesmith. “It diversifies our funding and we achieved a good long-term rate, taking the debt from the corporate level to the asset.”