Term Sheet: Blackstone’s €680m refinancing, Cheyne and Berlin Hyp’s office loans, ARA’s property credit reshuffle

Blackstone’s €680 million Spanish hotels refinancing demonstrates lender appetite for certain sponsors and properties; Cheyne Capital and Berlin Hyp provide office loans to sponsors with transformation plans; Singapore’s ARA reorganises its European property lending businesses; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Commercial real estate was really an attractive asset on the way up. It becomes in bad markets, poor credit markets, a really bad asset — and everybody forgets that”

Jim Chanos, president and founder of hedge fund Chanos & Company tells the Business Breakdowns podcast that the high exposure of US regional banks to real estate makes the banking sector vulnerable to tightened lending standards and falling asset values.

What’s happening?

Refinancing deal sealed
In recent months, amid market uncertainty, there has been much commentary on the challenges that sponsors will face refinancing their maturing loans. In January, manager AEW said a €51 billion refinancing gap looms for key European markets. Despite this backdrop, Blackstone, the biggest borrower in European markets, has sourced a major refinancing for 15 of its Spanish hotel holdings.

This week, Real Estate Capital Europe reported that the US manager has sourced €680 million of fresh financing for the portfolio, with bank lenders Morgan Stanley and Crédit Agricole underwriting €370 million of senior debt, and manager LaSalle Investment Management providing a €310 million mezzanine loan [read the full story here]. The transaction suggests big-name borrowers like Blackstone can attract lenders’ attention with significant refinancing requests, particularly for high-end properties in popular sectors such as hospitality.

New Life for offices
Two office deals suggest lenders have appetite for the challenged sector, particularly when sponsors have plans to keep the assets relevant to occupiers. In the City of London, manager Cheyne Capital provided £150 million (€171 million) to finance the acquisition by UK property investor Castleforge and Malaysia’s Gamuda Berhad of Deutsche Bank’s former offices at Winchester House, which was reportedly bought for £257 million. The sponsors plan an extensive sustainability-focused refurbishment, in what Cheyne’s Andreas Dimitriou described as a “rare opportunity to redevelop an office of this size in the heart of the City of London”.

Meanwhile, in Brussels, German bank Berlin Hyp provided a €52.3 million loan to manager Tristan Capital Partners for an office portfolio. Around €9 million was made available as a green ‘transformation’ loan to fund energy efficiency measures across three buildings. The two transactions show offices clearly remain in lenders’ purview, when owners have a clear, sustainable plan for their futures.

Construction appetite
A major financing deal announced last week indicates lender appetite for construction financing in Dublin. Irish developer Marlet Property Group has secured €384 million of construction finance from Activate Capital, a provider of development finance in Ireland. The loan will fund the construction of 1,100 apartments, 107,000 square feet of retail and co-working space, and 32,000 square feet of amenity space across two schemes, located at Grand Harbour Canal in the city’s docklands and east of the city, at Howth.

Dublin-headquartered Activate Capital, which was established in 2015 through a partnership between the sovereign wealth vehicle Ireland Strategic Investment Fund and investment firm KKR, specialises in development finance for housing, student accommodation and mixed-use schemes.

ARA’s property credit reshuffle
Singaporean investment firm ARA Asset Management has reshuffled its European real estate debt business ahead of the launch of its third European commercial real estate debt fund later this year. The manager lends in Europe through ARA Venn, its private real estate debt subsidiary, and ARA Europe, its European real estate investment management platform.

The firm’s commercial real estate debt business will be moved from ARA Venn to ARA Europe, with the firm believing it will benefit from the synergies in investment strategies and geographical focus with ARA Europe’s equity investment team. All historical funds will maintain the Venn brand. However, the real estate debt fund ARA is due to launch later this year will be branded ARA Real Estate Debt Fund III.

Thinking modularly
Atelier, a London-based specialist lender, says it has found a way to make lending to small to medium-sized developers using modular offsite construction methods less risky for both borrower and sponsor. Financing SMEs seeking to construct homes offsite can be difficult because manufacturers require large payments upfront for materials, says the lender’s joint chief executive, Chris Gardner. While larger manufacturers tend to have insurance in case of mishaps, smaller factories are less able to do so – making lenders uneasy.

Atelier’s lending guide has been devised with input from bodies such as the National House Building Council and Buildoffsite Property Assurance Scheme. It spells out eligibility criteria to ensure developers are protected through the process. “The drive marks the first time a major lender has addressed the challenges that SME developers face in financing modular and offsite construction,” said Gardner. Keep an eye out for more coverage on recapitalnews.com.

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Solid bedrock
In a research report, manager AEW has extolled the virtues of residential property in a higher interest rate environment. AEW predicts 3 percent rental growth per year between now and 2027, as the asset class continues to display solid fundamentals.

The manager argues that the residential market represents a defensive investment due to undersupply across Europe, exacerbated by the rising cost of both finance and construction. Furthermore, Energy Performance Certificate rating regulations are expected to further tighten supply across markets. The firm said it has already observed the emergence of a “green premium”.

Recently introduced rental caps to protect tenants against inflation-linked rent indexation are expected to be temporary and not inhibit long-term market rental growth, AEW added. Read the full report here.

Data snapshot

Asian investment rebound
Asian investors are “reigniting” their interest in the Central London investment market, according to preliminary figures from CBRE for Q1 2023. The real estate adviser said Asian buyers accounted for 74 percent of the £1.65 billion (€1.88 billion) of total investment activity during the first three months of the year, owing to a repricing of offices and the strength of the occupier market. This upsurge came as overall investment volumes doubled during Q1 2023 compared with Q4 2022.

Loan in focus

Precede delves further into BTR
London-based development finance specialist Precede Capital Partners last week announced it has provided a £188 million (€215 million) five-year whole loan to a joint venture between investment managers Apache Capital and Harrison Street and insurer NFU Mutual to fund the development of a build-to-rent residential scheme in Birmingham, UK [read more here].

The loan is the second to be provided by Precede through its partnership, agreed in January, with Vancouver-based manager QuadReal Property Group. The firm provided its first loan on behalf of the partnership in January in a £227 million financing of UK property group Downing’s £400 million multifamily project on Manchester’s First Street.

Marking the firm’s  latest financing in the BTR sector, Precede’s loan will support the delivery of the Great Charles Street scheme in Birmingham city centre, with a £302 million gross development value. The scheme will be developed, managed and operated by Moda Living.

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