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Term Sheet: Aviva hits sustainability target, Blackstone’s spec logistics financing, Nuveen’s emerging manager lending programme

Aviva Investors considers a new target after writing £1 billion of sustainable loans; Blackstone Real Estate Debt Strategies takes the development financing route to logistics; Nuveen plans to lend to emerging managers; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Assets linked to social infrastructure are often considered ‘alternative’ by mainstream institutional investors, but this transaction demonstrates the appetite from lenders for the core product that we create”

Neil Sarkhel, chief operating officer of UK social infrastructure real estate investment manager Newcore Capital Management, says the £40 million debt facility it sourced from London-based OakNorth Bank for its fifth value-add social infrastructure fund hints at lender support for such strategies.

What’s happening

Green loan landmark
UK manager Aviva Investors announced this week it has reached its target of providing £1 billion (€1.2 billion) of sustainable transition loans – three years ahead of target. The company provided a £227 million sustainability-linked refinancing to property group Romulus, in a deal that took it over the threshold [read more here].

The milestone demonstrates borrower demand for debt facilities linked to the sustainability of the underlying real estate. In March, Gregor Bamert, head of real estate debt at Aviva Investors, said its sustainable lending framework was born of the need to codify the company’s sustainable lending [read here]. Speaking after the Romulus deal, Bamert said its £1 billion target, when set, seemed challenging: “However, the reaction and engagement from borrowers has been astounding and we look forward to setting ourselves some even more challenging targets in the next phase of the programme.”

Spec logistics opportunity
Despite yields being as low as 3.5 percent in the UK industrial and logistics market, high-yield hunter Blackstone is still backing the sector. The US investor’s credit business – Blackstone Real Estate Debt Strategies – has funded pan-European opportunistic fund manager Oxenwood’s development of Nottingham’s Power Park, a 28-acre logistics facility close to Nottingham city centre, as well as an urban logistics facility in Barking, East London. Both developments are speculative.

The £63 million, three-year loan comes as businesses are demanding more warehouse space in an already supply-constrained market. New full EU custom controls, owing to Brexit, mean companies are mitigating delays by holding more inventory. Developers are responding to the shortage, with 18.6 million square feet of space under construction, according to consultant Savills.

Fixing structural challenges
Nuveen Real Estate, which earlier this month launched a global impact investment programme, is trying to address a structural problem widely seen by diverse developers and investment managers. “When we think about the structural challenges in this industry, one of the major ones is access to capital,” said Nadir Settles, head of global impact investing. “We will be starting an emerging manager lending programme that will finance diverse developers and investment managers.” By financing small but seasoned managers who want to get projects off the ground, Nuveen is hoping to see an exponential impact.

The Sony never sets
Berlin’s architecturally pleasing Sony Center can boast a stellar line-up of institutional ownership since the global financial crisis. In the 14 years since the electronics giant was the original owner-occupier, the Helmut Jahn-designed office-heavy, mixed-use complex has been bought and sold by US firms Morgan Stanley Real Estate Investing and the John Buck Company with German manager Corpus Sereo, and then the National Pension Service of Korea.

On Friday, NPS’s buyers, Oxford Properties, the real estate arm of Ontario Municipal Employees’ Retirement System, and joint venture partner Madison International Realty announced they too were offloading a combined 50 percent position in the asset. This time it is being sold to Norway’s sovereign wealth fund steward, Norges Bank Investment Management. While the valuation of the asset has moved with the times – and capital expenditure efforts – this latest deal has the counterparties agreeing it is worth €1.35 billion, approaching twice the €750 million Sony reportedly paid to construct the 1.2 million-square-foot complex in the first place. The Center’s iconic canopy was said to be inspired by Mount Fuji, known by the Japanese as the ‘Never-Dying Mountain’. Certainly, institutional interest in this Potsdamer Platz highlight has remained full of life.

Trending

Narrowing spread
British Land chief executive Simon Carter was sanguine over the narrowing spread between debt and property yields in its call with investors last week. Asked by a banker during the presentation of the listed real estate giant’s full year results about the spread between the cost of corporate bond yields, in the region of 3.5 percent, and property yields of 4-5 percent, Carter said: “Clearly if rates go higher that has a consequence. But there is quite a big cushion today.” He added that the company expects rental growth from its portfolio of offices, retail parks and London urban logistics. “Investors… are allocating capital away from bonds into real estate,” he explained. “And so, given where we sit today, we think that is supportive of yields. But as I say, it’s based on interest rate forecasts today.”

Mortgage momentum
In the US, commercial lending activity picked up speed in the first quarter despite inflation, interest rate and global geopolitical conflict headwinds – and alternative lenders significantly increased their market share, according to data released last week from CBRE. According to the 5 May report, the CBRE Lending Momentum Index increased by 5.5 percent quarter-on-quarter and 69 percent year-on-year.

A coinciding lender survey showed alternative lenders, including debt funds and mortgage REITs, commanded the largest share of non-agency loan closings in Q1 2022 – 42.7 percent of activity compared with 30.6 percent a year prior. This momentum was driven by floating-rate multifamily bridge loans with an average term maturity of 43 months.

The final frontier?
What has outer space got to do with real estate? More than you might think, says broker Savills, which last week published research on how “rocketing venture capital investment” could follow life sciences in driving the next wave of commercial real estate requirements. According to the broker, spaceflight, satellites and exploration technology has seen global investment growth of 67 percent per year for the last three years “and is therefore likely to drive a spate of new requirements for real estate globally”. Offices in the US, China, Japan and the UK have seen much of the attention. But alternative locations are bound to emerge too as this expanding area seeks accommodation.

Of course, as with life sciences and other specialist asset types, expertise will be needed. Steven Lang, director in Savills commercial research team said: “Launch sites are very specialised, and possibly something more for an infrastructure fund in partnership with public investment. But there are many R&D, academic-linked and corporate locations that will emerge as the ecosystem grows, akin to the life sciences sector.

Data snapshot

The only way is up
Global real estate assets under management continue to break records. Now at $4.7 trillion, according to ANREV, INREV and NCREIF’s 2022 Fund Manager Survey, the world’s asset base has more than doubled in the last decade. The top 10 managers combine to make up more than $1.9 trillion of that overall figure.

Loan on focus

Wembley: Cheyne has financed a mixed-use development (Source: Cheyne Capital)

Wembley bound
Alternative investment manager Cheyne Capital last week announced it has provided a £187 million senior loan to real estate manager LaSalle Investment Management to finance the acquisition and construction of a Regal London residential-led scheme in the Wembley area of London. The scheme was acquired by LaSalle’s value-add investments business line, with Regal London retained as the development manager.

The mixed-use scheme will contain two in-vogue asset classes. As well as 759 apartments, of which 35 percent are labelled affordable, it will contain 40,000 square feet of urban logistics and commercial space. “Wembley has been undergoing a significant regeneration in recent years and this mixed-use scheme will build on this,” said Arron Taggart, head of UK real estate at Cheyne.


Today’s Term Sheet was prepared by Daniel Cunningham, with contributions from Lucy ScottSamantha RowanJonathan Brasse and Peter Benson.

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