Term Sheet: BlackRock discusses the impact of inflation on real assets, investors debate single-family rental housing investment, Aareal refinances Ghelamco’s new mixed-use campus in Warsaw

BlackRock discusses how inflation impacts the use of debt secured against real assets; affiliate title PERE delves into the controversial topic of investment in single-family rental housing; Germany’s Aareal refinances a major new development in Warsaw; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“The concern is not right now. The challenge comes two to three years out.”

Sharon Quinlan, head of real estate finance at banking group HSBC UK, says the issues facing the office property sector may become more apparent when corporate occupiers have break options or expiry clauses in the coming years. Quinlan was speaking for Real Estate Capital’s Autumn edition cover story on the future of the office, to be published on recapitalnews.com on 2 September.

What’s happening?

BlackRock on inflation
Inflation is a topic increasingly occupying real estate finance professionals’ thoughts. It emerged on 31 August that eurozone inflation increased to a 10-year high, with the headline level at 3 percent [read more from Reuters here]. US investment giant BlackRock, which is ramping up its European real estate lending with its latest debt fund, has published a paper in which it said real assets may perform well in periods of higher inflation, especially when combined with economic growth, as they capture greater income growth [the full paper can be accessed here].

BlackRock’s advice was to focus on what you can control when structuring deals. That includes the structuring of debt. Assets with longer-term, fixed-rate debt can benefit from an inflationary environment due to loans being paid down over time with inflated money, it said. The manager also said asset prices should continue to rise with inflation, meaning higher levels of leverage can help borrowers boost returns, although it added that higher loan-to-value increases risk. BlackRock also said investors of floating rate debt stand to benefit if interest rates trend higher, although at a more muted pace compared to inflation.

The SFR minefield
In its September cover story, affiliate title PERE delves into the debate surrounding the most controversial real estate investment strategy in the US today – single-family rental housing [PERE subscribers can read the full story in the digital version of the magazine here]. While investment in SFR housing is less a trend in Europe right now, real estate investors and lenders would be wise to consider how they feel about a strategy that PERE said “brings bad press”. Corporate owners of SFR have been blamed in numerous media articles for inflating house prices, elbowing out first-time buyers and using tough tactics to secure payments for renters at a time of hardship. Some investors in SFR argued to PERE that the charges are wrong. Either way, as the worlds of global capital and individual renters collide, intense scrutiny can be expected to follow.

REC’s autumn coverage
Today sees the publication of Real Estate Capital’s autumn edition, which subscribers can read digitally here, as well as the first Real Estate Capital supplement – a publication dedicated to coverage of Europe’s property debt advisers [read in full here]. The content will be published on recapitalnews.com over the coming days. Be sure to keep an eye out for our cover story, in which real estate finance specialists discuss the future of the under-fire office sector, and our big interview with Tristan Capital Partners’ Dan Pottorff and Ian Laming in which they provide the inside track on the manager’s new debt strategy.

Data snapshot

Value-add surge
According to Lazard’s private capital advisory group, institutional investors’ appetite to deploy capital into real estate became more focused on value-add strategies in August. PERE’s full coverage of Lazard’s findings is here.

Loan in focus

Aareal finances Warsaw office and hotel complex
German bank Aareal has provided a €312.5 million senior loan to the real estate investor and developer Ghelamco Group to refinance the recently completed Warsaw HUB development in the Polish capital. According to Aareal board member Christof Winkelmann, the borrower’s history of development in Poland since 1991, where they have “shaped the cityscape of Warsaw” was a factor in its decision to get behind the scheme. The HUB contains two 426-feet-high office towers and a 282-feet-high hotel, connected by a common podium. In total, the complex contains 387,000 square feet of office, co-working, conference, hotel, retail and leisure space. Aareal added that once the three buildings’ BREEAM certifications are in place, the loan will be converted to one which fits the bank’s Green Finance Framework.


Today’s Term Sheet was prepared by Daniel Cunningham, with Kyle Campbell contributing.

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