Term Sheet: AEW’s €51bn debt gap warning, Generali and Blackstone’s fundraising targets, Pluto’s key hire

AEW’s revised estimate of the debt funding gap facing the UK, France and Germany illustrates the scale of the industry’s refinancing challenge; Generali and Blackstone’s debt fundraising targets indicate lending strategies remain attractive to investors; Pluto’s hiring of Phil Hooper from NatWest hints at its ambitions; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Undertaking energy refurbishments will not be technically and economically feasible for all properties, so… we will see a number of ‘stranded assets’ as well”

Peter Axmann, head of real estate clients at German lender Hamburg Commercial Bank, says the brown-to-green transformation of real estate will translate into opportunities for financial institutions, but warns not all properties will benefit.

What’s happening?

A €51bn problem
In a deep-dive analysis in December, we examined how the huge volumes of real estate debt originated in recent years will be refinanced against a backdrop of rising interest rates and falling property values [read it in full here]. As part of that analysis, we cited manager AEW’s estimate that the UK, France and Germany face a €24 billion debt funding gap for the 2023-25 period.

This week, we reported on AEW’s updated estimate – that the refinancing gap is far larger than originally estimated at a more sobering €51 billion. In its latest research, the manager factored in faster-than-anticipated collateral value declines and significantly expanded the analysis by factoring in the impact of falling interest coverage ratios on lenders’ appetites to refinance. “Lenders and borrowers will have to be creative to restructure the capital stack to reach sustainable LTV and ICR levels,” said Hans Vrensen, head of research and strategy at AEW. Read more about the research here.

Generali goes again
Generali Real Estate, the property investment arm of Italian insurer Generali, is one organisation with an eye on upcoming financing opportunities. It has launched [read here] a second European property lending vehicle, targeting €1 billion of commitments – four years after debuting in the European lending market. Generali Real Estate Debt Investment Fund II will be focused towards providing senior financing facilities with a loan-to-value of up to 60 percent.

The non-bank lending market in Europe has been hot since the turn of the year, with new entrants including Canadian manager QuadReal Property Group, which partnered with London-based Precede Capital Partners. Bahamas-based manager Sterling Global Financial and Dubai-based manager Neo Capital are also plotting credit expansions into Europe. It seems managers are harnessing increased investor demand for European real estate debt, referenced in INREV’s Investment intentions Survey 2023.

Inflows not outflows
While Blackstone has spent recent months defending its non-listed BREIT vehicle, last week’s earnings announcement offered a reminder that private real estate’s 800-pound gorilla can still continue to pack on weight. Despite a challenging market environment, the New York-based mega-manager added $2.3 billion to Blackstone Real Estate Partners X, its latest flagship global opportunistic real estate fund, bringing the total commitments to $28.6 billion. Blackstone also began raising its latest real estate debt fund, targeting a similar amount to its $8 billion predecessor, Jon Gray, president and chief operating officer, told investors during the earnings call.

That was not the last of it, with Gray adding that the manager expects to start raising its seventh European-focused real estate fund later this quarter, again aiming for a similar size to the previous fund, which closed with €9.5 billion in third-party capital. Check out our earnings coverage on affiliate title PERE, here.


Securitised risk
The refinancing risk identified in AEW’s research, discussed above, is impacting Europe’s commercial mortgage-backed securities market. In research this week [see here], credit analyst Scope Ratings warned a third of loans in European CMBS face significant refinancing risk.

It highlighted that almost 20 percent of loans maturing in European CMBS this year have expected cashflows that are too low to meet higher expected requirements from lenders. It added another 14 percent face high risk if swap rates rise by another 100 basis points.

Scope said the situation is exacerbated for sterling-denominated loans, because interest rates have risen faster in the UK. It went on to say the data is bleaker for loans expiring in 2024, with 18 percent of euro-denominated loans and 43 percent of sterling-denominated loans “heavily exposed” to refinancing failure.

People moves

Pluto hires Hooper
London-based specialist lender Pluto Finance has signalled its growth intentions with a senior hire from the UK real estate banking industry. The firm, which provides bridging, development and investment financing in the UK, has hired Phil Hooper [his LinkedIn here], the former head of real estate finance at NatWest, as its new head of lending. Hooper had taken the reins at the UK’s property division in 2018 [read our interview with him from the time here].

Pluto plans to increase its lending to developers and investors, predominantly in the residential sector. In a statement, Justin Faiz, founder and chief executive officer of Pluto, said the firm – which is part-owned by UK pension scheme Universities Superannuation Scheme – is aiming to challenge the traditional banks in real estate lending. “With Phil on board, the next 12 months will be pivotal for our five-year growth plan,” he said.

Data snapshot

Discount rate indeed
As the global repricing takes shape, Oxford Economics’ latest analysis has found the debt markets are having a more than meaningful effect on prices. In Western markets, the 10-year forward rate has depreciated real estate values by at least 8 percent relative to pre-pandemic values.

Loan in focus

Hotels loan: The portfolio includes Holiday Inn and Crown Plaza hotels. (Credit: fredrocko)

Vivion’s in-time refinancing
Vivion Investments, a Luxembourg-based real estate company which invests in offices and hotels in the UK and Germany, has sourced a £200 million (€226 million) refinancing for part of a CMBS loan secured against 20 hotels in the southeast of England, that had been due to mature in April.

Investment manager M&G Investments provided the five-year facility, according to trade publication CoStar. The loan has a fixed interest rate of 3.95 percent and a bullet maturity payment due in 2027.

It replaced debt securitised in the £449.8 million Ribbon Finance 2018 CMBS, arranged by investment bank Goldman Sachs. The remaining £272 million was repaid using the company’s own capital. The original CMBS loan financed the Dayan family’s €873 million April 2018 acquisition of the portfolio – including Crowne Plaza and Holiday Inn hotels. When the family established Vivion later that year, the assets were among 53 that were transferred to its seed portfolio.

Today’s Term Sheet was prepared by Daniel Cunningham, with Lucy Scott, Mark Mwaungulu and Peter Benson contributing