They said it
“At the end of the day, those are shorter-term leases, those are specialised operations and specialised assets, and if you can get any of these wrong, you can end up in a very bad place”
Daniel Gorzawski, founder of newly launched manager Westwind Capital, on investing in alternative real estate sector.
New venture for M&G’s Barakat
One of the leading figures in Europe’s non-bank real estate lending market has launched a new business. In May, London-based investment manager M&G Investments announced John Barakat [his LinkedIn profile here] was to leave its real estate debt business – which he had launched in the aftermath of the global financial crisis in 2012. Barakat has swiftly returned to the market as co-founder of new firm Girona Partners.
Little is known about the business at this point, although it is understood to be a debt fund manager. Barakat is joined at the new firm by two property finance specialists: Peter Foldvari [his LinkedIn profile here], who worked with Barakat at M&G and is a co-founder of Girona; and Jamil Farooqi [LinkedIn here], also ex-M&G and a co-founder of the business. Girona launches at a time when investor demand for real estate debt is strong – affiliate title PERE’s Q1 2022 fundraising report showed that debt accounted for more than 34 percent of capital raised during the quarter [read more here].
Financing development projects is becoming trickier as construction costs soar. However, the developer of one of London’s most high-profile – and high-end – residential schemes announced this week it has secured a £400 million (€461 million) development loan from a club of banks. Developer Qatari Diar announced it had sourced the green loan for the fourth phase of the redevelopment of the Chelsea Barracks site in West London.
The phase will provide 97 apartments and 32,000 square feet of amenity space. The lender consortium comprised Credit Suisse, Standard Chartered, Allied Irish Bank, Qatar National Bank and National Bank of Kuwait. The loan is aligned with the Loan Market Association’s Green Loan Principles and the interest rate risk was hedged through a green derivative structure on the basis of the building’s LEED certification status.
British retailer John Lewis has earmarked two Waitrose supermarkets and a former collection depot for redevelopment into residential as part of its plan to build 10,000 rental properties over the next decade. The three sites – in Bromley, West Ealing, and Reading – were chosen for their proximity to local transport links and high rental potential. John Lewis is diversifying into residential due to a squeeze in the profit margins in its core retail business. It will build for different-sized households and offer a variety of long- and short-term tenures, while prospective tenants will be provided with furnishing packages. The retailer said this week that an investment partner would be brought in to help finance the redevelopments.
No playbook for the new world
The CRE Finance Council held its June Annual Conference in New York this week, a standing room only convention where a spate of bad economic news muted what had been expected to be a largely a jubilant post-pandemic reunion for more than one thousand commercial real estate debt professionals.
The consensus was that while there is no playbook for how to navigate a post-pandemic market where inflation is rising steeply and the potential for a near-term 75 basis point interest rate hike is real, leverage is lower and liquidity is higher than it was prior to the global financial crisis. Pragmatic realism, rather than optimism, ruled the day.
More lenders than ever
Debt may be getting more expensive, but more organisations than ever are providing it in the UK, according to Savills. During its 34th annual Financing Property presentation in London last week, the property consultancy said more than 400 lenders are actively providing real estate debt – up from 240 at its last count in 2018.
Head of valuation for the UK and cross-border, Nick Harris, said most real estate remains financeable, despite the uncertain economic backdrop. He added that the rising cost of debt comes as yields are historically low, meaning the all-in cost of credit is comparable with prime entry yields for many markets in the UK and continental Europe. “We see there is virtual parity now between those debt costs and prime yields in the City of London and in markets such as Milan,” he said. “For those investors that are focused on cash-on-cash returns, the rising property cost is already starting to have an impact.”
Speaking during a keynote panel at the 2022 PERE Asia Summit this month, Jeffrey Perlman, head of Southeast Asia and Asia-Pacific real estate at manager Warburg Pincus, said deglobalisation is real. “What we’ve lived through over the last 40 years of everything becoming more and more integrated is potentially a relic of the past,” he said.
Perlman believes deglobalisation will lead to more geopolitical instability and consequently have a negative impact on the world overall. However, he believes it will have a positive impact on logistics and high-tech industrial, as governments reassess national security interests and more manufacturing is done locally.
The impact of onshoring and reshoring can already be seen in logistics demand, said Greg Lui, senior vice-president of investments at Singapore-based manager Mapletree Investments. He noted that although e-commerce-related demand has moderated during the past year, overall demand for logistics space is still on the rise due to demand from a mix of tenants including logistics services providers, retailers and companies refining and reconfiguring their supply chains. Read more on the topic, courtesy of affiliate title PERE, here.
Offices lose ground
Law firm CMS released its European Real Estate Deal Point Study 2022 this week, suggesting that investment in Germany, the UK, Spain, and the Czech Republic is showing signs of a strong recovery. Offices are losing market share, it revealed, as investors favour logistics and residential for stable cashflows. Meanwhile, the proportion of investments in alternative asset classes has almost tripled in the last five years.
Drawing its conclusions from 2,200 transactions the firm advised upon during 2020 and 2021, CMS said European investment volumes remained strong because of the ongoing good credit terms and partly due to the continuing lack of alternative sources of return, but added that the direction of real estate investment in 2022 “remain[ed] to be seen”, not least due to the war in Ukraine.
Sheds stay popular
European logistics real estate was in demand from property investors in Q1 2022. Data from real estate consultant Savills shows €14.3 billion of investment took place during the quarter, up almost 20 percent on the same period last year.
Loan in focus
Alternative lender QSix Real Estate Finance announced this week that it had written a €34 million loan to Dutch real estate investor Lenferink Group for a portfolio of assisted living properties in the Netherlands. The refinancing for the five properties – which include a former Redemptorist Monastery complex – has a €9 million credit line for refurbishment, including for material energy efficiency improvements.
The loan – the third that QSix has issued in the Netherlands – features a social aspect as well as an environmental facet, explains Gareth Williams, head of real estate finance at the lender. “The capital will help deliver much-needed places to live for vulnerable people. We are proud that in one of the properties the local municipality will be housing around 150 refugees from Ukraine,” he said.