Term Sheet: Aareal’s potential private equity future, AEW’s tip for 2022’s best-performing sector, Oaktree-backed Silbury’s luxury retirement scheme financing

The board of German bank Aareal sees a bright future in private equity ownership; lender competition is poised to heat up on AEW’s positive 2022 outlook for prime shopping centres; Oaktree-backed Silbury leans into the UK luxury retirement living sector with new loan; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“We are worried the major European core prime real estate will be getting more expensive than before, and a lot of Korean capital is quite worried about whether we can profit in the European market from now on.”

Doyle Kim, managing director of real estate investment finance at Seoul-based Hana Financial Investment, tells affiliate title PERE’s Asia Summit 2021 that he is worried about inflation, especially its impact on core assets across global real estate markets. Read more here.

What’s happening?

A PE future beckons for Aareal
One of Germany’s leading real estate lending banks could soon be owned by US private equity. On Tuesday, Aareal Bank welcomed a takeover offer by a company formed by Boston-based Advent International and New York-based Centrebridge Partners, which valued it at €1.7 billion. Read the full announcement here.

The bank said its prospective owners have committed to strengthening its strategic ambitions in property financing, as well as software, digital solutions and payment services. It added that growth will be financed through retained profits. “During the talks it became clear that we could even better leverage this potential together, through significant investments as well as our combined expertise and market access,” said Aareal CEO Jochen Klösges. Not all stakeholders are as enthusiastic. Reuters reported Adam Epstein, co-founder of investor Teleios, which owns 6 percent of the bank, said the offer cuts corners. “Aareal is not a Christmas present for the board to give away,” Reuters quoted him as saying [read here].

Shop ‘til you drop?
Real estate investment manager AEW, which has a property lending business, has tipped prime shopping centres to be the most attractive sector in Europe in 2022. In its European Annual Outlook report for 2022, which examines how investors can re-align their portfolios, it said prime shopping centres are projected to have the highest returns, at 7.4 percent, of any sector in the next five years. This outlook is based on current yields, which have widened by 120 basis points since 2018, and projected yield tightening of 30bps for the next five years in the company’s base case as a result of significant re-pricing. With several lenders continuing to advocate for Europe’s best shopping assets during the pandemic, we may see debt market competition for Europe’s top-tier malls intensify next year.

Alternative liquidity
In the US, alternative lenders were a major force behind the surge in commercial real estate lending activity in the third quarter, making up almost 40 percent of the loans originated, Brian Stoffers, global president of debt & structured finance for capital markets at CBRE, told affiliate title Real Estate Capital USA on Tuesday. “Activity from debt funds is extraordinary right now,” Stoffers said.

The firm also tracked a 31.6 percent increase in lending volume from the second to third quarter in its CBRE Lending Momentum Index, published on Monday. Onlookers will be keen to note if this improved trajectory continues to be fuelled by alternative sources of debt finance as the US market starts to emerge from the covid-19 pandemic.

Specialised properties climb the agenda
After a shifting its fund’s strategy to focus more heavily on specialised real estate sectors such as medical office, senior and student housing, Kayne Anderson Real Estate has closed its biggest fund to date at $2.75 billion. As first reported by affiliate publication PERE last week, Kayne Anderson Real Estate Partners VI’s successful fundraise coincides with the firm’s broader pivot towards more alternative property types. “This is the first time in our 15-year history that we’re swimming downstream from a fundraising perspective, where it’s not a matter of convincing investors that these sectors make sense for an allocation,” said Al Rabil, CEO of parent company, Kayne Anderson Capital Advisors. With the manager having already deployed about 20 percent of the fund with another 30 percent committed, the hard-cap was raised from $2.5 billion to $2.75 billion due to the rapid pace of transaction activity.

Data snapshot

And the cumulative loss rate is…
Kroll Bond Ratings Agency last week published its first report in three years on US commercial mortgage-backed securities conduit defaults and losses, digging through 104,247 loans totalling more than $1 trillion from 1995 to 2020. The takeaway: conduit loans have had a cumulative loss rate of 4.6 percent since the market’s inception.

Loan in focus

High-end retirement
The market for luxury retirement facilities in the UK is a niche that equity investors, and lenders, are exploring. Among them is Silbury Finance, the UK development finance specialist backed by Oaktree Capital Management. This week, it announced a £39.3 million (€47 million) senior loan to fund the development of a scheme in Tunbridge Wells, in Kent, UK, with ‘hotel-style’ facilities, according to the announcement [read here]. The loan was provided to the UK Retirement Living Fund, managed by Schroders Capital, and advised by Octopus Real Estate, which will deliver the scheme alongside luxury retirement living specialist Elysian Residences. Such projects are targeted towards wealthy retirees and provide a range of amenities. In this case, alongside the 89 for-sale homes, the scheme included facilities such as a gym, sauna and treatment rooms.

Today’s Term Sheet was prepared by Daniel Cunningham, with Samantha Rowan and Evelyn Lee contributing.