Term Sheet: Aeon’s credit commitment, Brookfield’s mega-fund, Immobel’s finance hire

Credit investor Aeon says commercial real estate lending is ‘attractive’ as it seals a new funding agreement; Brookfield’s Flatt says people are unsure about real estate despite huge fundraising; recently launched Immobel Capital Partners makes a finance hire from Schroders; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“They are surmising that their investors would be unhappy if they were more focused on platform realisation or sales versus a laser focus on maximising LP value.”

David Hodes, founder and co-managing partner of advisory firm Hodes Weill, on one of the reasons firms may hold off on seeking M&A opportunities in H2 2022. Full coverage from affiliate title PERE here.

What’s happening

Debt looking good
The depressed fixed income market and falling equity prices makes the UK commercial real estate lending market look attractive, according to Oumar Diallo, chief executive of Aeon Investments, a London-based credit investment firm. This week, specialist lender Assetz Capital announced a new SME funding partnership with Aeon [see here]. Aeon will provide an initial £200 million (€238 million) of capital over the next three years into commercial investment property loans of up to £10 million, which Assetz will arrange. Assetz chief executive Stuart Law said the need for SME funding has never been more apparent. “An increasing number of traditional lenders aren’t offering financing solutions to SMEs,” he said.

For Diallo, the arrangement represents a good opportunity to deploy capital. “If you adopt a strong focus on risk management and have prudent LTVs and conservative debt coverage, we believe commercial real estate lending is a very attractive asset class.”

Recovering sectors
Deal evidence suggests lenders are increasingly willing to finance properties in those sectors that suffered most during the pandemic, provided the location, the sponsor and the business plan are right. ICG Real Estate’s latest loan – announced by the manager last week – will fund the creation of a mixed-use property including offices, hotel space and retail – three sectors that have been in recovery mode since the worst of the pandemic. The acquisition and refurbishment whole loan, of an unspecified size, was provided to manager AnaCap Financial Partners, which is working with asset manager Maya Capital on creating 92,000 square feet of revamped offices, a new 200-plus room hotel and ground floor retail at 160 Blackfriars Road in central London.

Managing director Martin Wheeler said: “Our latest loan… underscores our continued commitment to supporting experienced investors and asset managers on value-add projects with strong sustainability credentials.”

Aareal’s outlook
Germany’s Aareal Bank announced its second quarter results last week, during which it made clear its belief that the above-mentioned challenged sectors have emerged from the pandemic and are providing dealflow for lenders. The bank said: “As expected, commercial property markets recovered from pandemic pressures, led by hotel markets and retail properties in prime locations, but also high-quality offices – with the logistics sector still considered attractive.”

The bank said new business originated in Q2 reached €1.9 billion, albeit down on the €2.2 billion in Q2 2021. However, the H1 2022 total was €5.2 billion, markedly above the €3.3 billion originated in H1 2021. Logistics accounted for 28 percent, retail properties for 20 percent, and hotels and office properties for 17 percent each of newly originated loans in the first half of the year.

Brookfield’s middle ground
In the private equity real estate market, the prospect of two double-digit funds closing this year grows ever greater. A few weeks back, Blackstone announced it was expecting to close soon on the $30 billion Blackstone Real Estate Partners X. Now Brookfield Asset Management has raised $14.5 billion for its latest flagship global real estate fund, Brookfield Strategic Real Estate Partners IV, just shy of its $17 billion target.

The Toronto-based firm, which launched the fund in April 2021 and had raised $9 billion as of August that year, is expected to hold a final close for the vehicle this autumn. During the firm’s Q2 2022 earnings call last week, Brookfield CEO Bruce Flatt noted that investors “are probably most positive” about infrastructure and renewables, while private equity “would be the hardest” in terms of fundraising. Real estate, meanwhile, is “somewhere in the middle,” because although it is cashflowing and inflation insensitive, “people are unsure” about the asset class.

People move

Immobel’s finance hire
Immobel Capital Partners, the investment management business of Belgian developer Immobel Group, which launched in January under the leadership of former Schroders global head of real estate Duncan Owen, has made a finance-focused hire. Andrew MacDonald – also a former Schroders employee – has joined as head of finance and joint ventures, based in London.

In his new role, MacDonald will be responsible for sourcing and structuring debt and corporate finance, alongside responsibilities for originating, structuring and managing joint ventures. Immobel Capital Partners operates sustainability-focused pan-European office and residential investment strategies. MacDonald was previously head of real estate finance at Schroders Real Estate, where he was responsible for sourcing debt financing and capital structuring.


Lever up
An MSCI report published last week found closed-ended US real estate funds demonstrated strong performance against the MSCI US Quarterly Property Index, with this subset outperforming the index by a factor of 1.07 from inception through the end of 2021. But there is more to the metric than meets the eye, with MSCI pointing out the factor falls to 1.01 when accounting for fund specific leverage. The report digs deeper into the impact of leverage, noting 58 percent of the funds studied outperformed the unlevered index, with this number dropping to around half with leverage added in. The report also notes 72 percent of funds of 2005 to 2007 vintages were underperformers on both a levered and unlevered basis, underscoring the importance of timing on performance.

Data snapshot

Shed space demand
As reported in last week’s Term Sheet, there are concerns slowing consumer demand and inventory overhang may impact logistics property demand. However, the latest data from consultant CBRE shows take-up in Europe in the first half of this year was robust – up 8 percent compared with the same period last year. CBRE added the average vacancy rate across the top 10 country markets in Europe dropped below 2.5 percent for the first time ever.

Loan in focus

Guildford Business Park: Starz provided £77 million of financing (Source: Starz)

Starz sees future for regional offices
Alternative lender Starz Real Estate signalled its confidence in the UK regional office park market with a £77 million (€91 million) loan announced last week [see coverage here]. The loan was provided to manager PineBridge Benson Elliot for the refinancing and part redevelopment of Guildford Business Park, Surrey. The four-year facility comprises a £58 million term loan and a £19 million capex facility designed to fund the refurbishment of one of the properties to deliver a 107,000-square-feet, net-zero-carbon, BREEAM ‘Outstanding’ building by 2024.

Starz chief executive David Arzi said the lender is interested in undertaking loans against high-quality office space. “There is a lot of noise around the office market. But there is a need for high quality office space, where there is demand for high quality, energy efficient properties that are surrounded by amenities.”

Today’s Term Sheet was prepared by Daniel Cunningham, with contributions from Peter Benson