Term Sheet: Barings’ first European sustainability-linked loans; Cale Street’s potential £1bn London financing; Union sees weakening property demand

Barings seeks “greater returns” in sustainability-linked lending as it completes its first such loan deals in Europe; A major London regeneration gets a boost with Cale Street reportedly in talks to finance HB Reavis’s Waterloo mega-scheme; Union Investment says the real estate investment climate is “deteriorating considerably”; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Taking debt positions today is a great way to invest capital without having to take a clear, decisive position on where precisely the value of that asset is as we get through this inflationary episode.”

Brian Klinksiek, LaSalle Investment Management’s new head of global research, tells affiliate title Real Estate Capital USA why investing in debt can help investors navigate the current volatile market environment.

What’s happening

Green debut
This week, investment manager Barings became the latest property lender to join the green loan club. Sam Mellor, head of European and Asia-Pacific real estate debt at Barings, explained this was part its strategy to “seek greater returns”. Mellor sees backing borrowers with ESG-focused business plans as a way to “innovate” in its lending strategy.

The manager’s first sustainability-linked loans against European real estate included a £48.6 million (€57.7 million) loan to Schroders Capital UK Real Estate Fund and Immobilien Europa Direkt for the acquisition and ESG improvement of a retail and leisure park in Romford, UK. It also loaned an undisclosed amount to manager Round Hill Capital to finance the refurbishment of Amsterdam’s Rembrandt Park One building into a sustainable office.

London mega-loan
Cale Street Partners, the alternative lender backed by the Kuwait Investment Authority, is close to providing a financing package of around £1 billion to development company HB Reavis for the £3 billion redevelopment of Waterloo’s Elizabeth House in London, React News [pay wall] reported this week.

According to the report, HB Reavis had explored the option of finding an equity partner for the 1.3 million square feet scheme. It subsequently turned to the debt market to raise capital. London-based Cale Street, which typically lends between €125 million and €750 million, will provide financing at around 60 percent loan-to-cost, React said, although a term-sheet has not been agreed.

CPP and PIF make hotel bets
After a challenging two years, the hospitality sector has received a boost from two of the world’s biggest investors. Saudi Arabia’s sovereign wealth fund, Public Investment Fund, has backed a $900 million acquisition of luxury hotel operator Aman Group alongside London-based developer Cain International.

Meanwhile, Toronto-based CPP Investments has committed €475 million to a joint venture focused on European hospitality with regional operator Hamilton – Pyramid Europe. Both ventures highlight a growing interest in the asset class as travellers return following the pandemic. “There is significant scope for growth in many markets across Europe, as tourists and local visitors look for superior hospitality experiences,” Andrea Orlandi, managing director and head of real estate Europe at CPP Investments, said in a press release.


Dialling back
survey of real estate investors conducted by Hamburg-based manager Union Investment suggests demand for property is weakening. Thirty-nine percent of respondents intend to invest less in real estate in the coming 12 months, Union said. Only 3 percent plan to stop purchasing property altogether. Overall, half of the 150 respondents – from Germany, France and the UK – said they are sticking to their existing investment strategies, despite the marked increase in interest rates. Union said the investment climate is “deteriorating considerably” and blamed uncertainty about interest rates, energy costs and the economy for dampening sentiment among real estate investors.

US lending snapshot
In the US, the pace of commercial real estate lending activity eased in the second quarter of 2022 amid heightened market volatility from rising inflation and interest rates, according to the latest research from CBRE. While the CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the US, declined by 7.9 percent quarter-on-quarter, it remains up 41.1 percent year-over-year. The index closed Q2 2022 at a value of 403. CBRE’s lender survey indicates that banks had the largest share of non-agency loan closings in Q2 2022 at 38.1 percent – up from 27.5 percent in Q1 2022 and 10 percentage points higher than a year ago. A key takeaway is that banks funded a broad mix of permanent, bridge and construction loans across property types in Q2 2022.

Data snapshot

Office requirements
Office occupiers surveyed as part of JLL’s global Future of Work survey indicated quality over quantity will inform workspace decisions.

Loan in focus

The Gas Works, York: Silbury is financing a new scheme (Source: North Star Investment Management)

Silbury’s largest loan yet
Silbury Finance, the UK-based development lender backed by private equity company Oaktree Capital Management, has provided a sustainability-linked senior debt facility of £73.8 million to York-based property firm North Star Investment Management. The loan, which has a 30-month duration and a loan-to-gross development value of 73 percent, is Silbury’s largest to date as it targets £500 million of origination by the end of the year. It will fund the remediation and construction of a 215-flat scheme on the Gas Works at Heworth Green, York – a city centre location that has been vacant for 20 years.

Today’s Term Sheet was prepared by Lucy Scott, with contributions from Daniel Cunningham, Samantha Rowan, and Peter Benson