Term Sheet: Aareal’s €360m retail parks loan, a major data centre financing, CBREIM estimates the scale of Europe’s ESG capex financing need

Aareal Bank’s €360 million retail parks loan demonstrates lender appetite for the well-performing retail sub-sector; an ING and Bank of America-led financing shows lender support for data centres; CBRE Investment Management’s latest research suggests Europe’s green upgrade could require more than €300 billion of capex debt; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“As a non-correlated asset, real estate can better withstand a down market”

Bernie Wasserman, president of Miami-based real estate investment firm Participant Capital, tells affiliate title Real Estate Capital USA that real estate’s ability to weather short-term volatility better than liquid assets is behind its growing appeal to high-net-worth investors. Read more here.

What’s happening?

Retail parks en vogue
Many believe retail parks have emerged from the covid pandemic as the star performer of the retail real estate sector. A bank loan of €360 million announced this week [see here] suggests lenders are among the sub-sector’s fans. Germany’s Aareal Bank provided the senior loan to retail specialist Pradera to refinance its pan-European retail park investment vehicle, which was established in 2017 to acquire parks adjacent to IKEA stores in Germany, France, Poland and the Czech Republic.

Andrew Payne, director of funds at Pradera, said the portfolio has recovered quickly as covid restrictions have been lifted across Europe. He added the company sees “increasing investor and lender appetite for asserts that offer reliable, diversified income”. In a December 2021 report [see here], consultant Savills said retail park yields were on a par with shopping centre yields for the first time on average across Europe as investors focused on formats driven by value and convenience.

Following the data
With lenders increasingly inclined to favour sectors with a growth story behind them, data centre financings are likely to become more frequent. Last week, one of the largest sustainability-linked loans in the UK data centre sector was closed – a £700 million (€844 million) syndicated facility underwritten by Dutch bank ING and US lender Bank of America.

The loan was provided to UK operator Ark Data Centres and will finance the construction of data centre infrastructure to enable the company to continue to grow in the UK market and refinance debt from 2019. ING, which announced the deal, named eight lenders – mainly banks – that participated in the financing aside from itself and Bank of America, suggesting significant lender appetite for the sector. The loan structure also demonstrated how lenders are thinking about sustainability – the margin is linked to the borrower’s performance in power usage efficiency, water usage efficiency, and renewable energy.

Trending 

Capex required
New research by manager CBRE Investment Management suggests Europe’s real estate stock will require a lot of financing for capital expenditure if it is to meet sustainability standards [read our full coverage of it here]. Through a series of calculations, the manager estimated as much as €315 billion of capex financing could be required in the coming years.

Alternative lenders will take the lead on providing such finance, CBREIM argued. Emma Huepfl, managing director and co-head of EMEA credit strategies at CBREIM, told Real Estate Capital Europe banks are increasingly focused on financing core property. “Alternative lenders are better positioned to structure loans around business plans,” she said. “Banks will be suited to providing take-out finance for these assets, post-renovation and alternative lenders which take on the transitional financing risk will typically be expecting a bank refinancing exit.”

Credit quality
In a European real estate report published last week [access it here], rating agency Moody’s Investors Service said weaker investor sentiment and tightening financial markets are the main risks to companies’ credit quality. It acknowledged the credit implications of the Russia-Ukraine war will vary across sub-sectors, but said rising rates and deteriorating investor sentiment could weaken property values and debt-to-asset ratios.

While Moody’s does not expect the operating performance of companies with assets in countries bordering Russia or Ukraine to weaken much more than Western European-focused companies, it said rates are rising faster in CEE countries, narrowing the yield gap, which risks eroding property values and weakening companies’ debt-to-asset leverage ratios. But overall, Moody’s said all the European real estate companies it rates will have enough liquidity to cover cash outflows in 2022 without access to new sources of funding.

Data snapshot

Record high
The Capital Raising Survey 2022, published today by industry bodies ANREV, INREV and NCREIF [available for members to view here], shows at least €254 billion was raised globally for non-listed real estate investment in 2021 – a record high and a 107 percent increase on the capital raised in 2020.

Loan in focus

CAERUS’s student loan
CAERUS Debt Investments, the Dusseldorf-based alternative lender, saw a supply-demand imbalance in student accommodation in the German city of Dortmund as a compelling reason to write a €65 million senior loan in the sector. Last week, the firm announced the four-year loan, made on behalf of an unidentified German insurance company, to finance a premium student housing complex  opened in 2021. The property is operated by BaseCamp, a developer and operator of high-end student housing, and includes an ‘e-sports’ centre and roof-top bar.

“The rapidly growing student numbers in Dortmund are confronted by relatively low capacities in student halls of residence,” said Peter Anthuber, chief investment officer of CAERUS. “This market is therefore very attractive for us,” he added.


Today’s Term Sheet was prepared by Daniel Cunningham

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