Term Sheet: Blackstone’s proposed CMBS, Fitch’s warning on Brookfield loan, COIMA’s Milan financing

The first European CMBS in more than a year is planned, secured by logistics properties owned by Blackstone; Fitch highlights potential stresses for a securitised Brookfield loan in Germany; Italy’s COIMA sources green financing for part of its Milan regeneration scheme; and more in today's briefing, exclusively for our valued subscribers.

They said it

“If you speak to the local banks that have quite a lot of real estate exposure, I can’t see anyone panicking really” 

Erik Winter, chief executive officer for the Nordic operations of French bank BNP Paribas, tells Bloomberg that the refinancing pressures being experienced by the region’s commercial real estate companies will not trigger a banking system collapse.

What’s happening?

Logistics: A CMBS backed by properties in the sector is on its way, according to CoStar News (Image: Getty)

A rare CMBS on the cards
The European commercial mortgage-backed securities market has not seen new issuance since May 2022, due to capital markets volatility and weakened investor demand for exposure to the property sector. However, the first new CMBS issuance in Europe in more than a year may be imminent, according to a report by CoStar News [read here].

CoStar last week reported that US manager Blackstone is preparing a UK CMBS in the order of £300 million (€349 million) secured against a portfolio of logistics assets, citing two sources familiar with the situation. Blackstone is arranging the deal, CMBS 2023-1 UK DAC, as an agency transaction, with Citi as the seller and arranger, and Standard Chartered as arranger and joint lead manager, according to CoStar. While a successful transaction would be something of a vote of investor confidence in the sector, the CMBS market looks likely to remain sporadic for the time being. Only four public transactions were placed in 2022, following 15 in 2021.

Brookfield needs to get Haus in order
A note issued by credit ratings agency Fitch on 14 July highlighted the pressures on borrowers in existing CMBS deals. Fitch highlighted Haus (European Loan Conduit No.39), as the “most severe case” of heightened credit risk among the CMBS transactions issued in 2021. The securitised loan, which is backed by thousands of German multifamily housing units owned by manager Brookfield, faces a “severe test” to meet repayments because interest rate costs have doubled since issuance.

The borrower’s problems are compounded because it has not been able to upgrade the assets and improve income according to its original plan, due to delayed construction works during the pandemic and escalating development costs since, Fitch said. It added that a default would not be easy for the special servicer involved: “[It] would be in a relatively weak bargaining position in relation to the borrower were it to seek to enforce midway through the portfolio turnaround.”

The Fed’s new requirements
In the US, the Federal Reserve, which this month published the results of its annual stress test for banks, is calling for more stringent regulation in the sector – a shift that could result in higher debt costs for commercial real estate borrowers and reduced lending capacity for these banks, reported affiliate title Real Estate Capital USA. In his 10 July remarks, Michael Barr, vice-chair for supervision, proposed changes that would lower the threshold for long-term debt and risk capital requirements to apply to banks with $100 billion in total assets compared with the current $700 billion mark.

“Events over the past few months have only reinforced the need for humility and scepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks,” Barr said, referring to the March collapse of New York-based Signature Bank and San Francisco-based Silicon Valley Bank, and other regional banking volatility.


Size does not fit all
A spate of recent headlines would have us believe every business is reducing its office space in London. But while HSBC, Clifford Chance and other large international corporations are taking significantly less space, research from broker JLL shows that the average size of leasing transactions in Central London in H1 2023 is not far off the 15-year average. Longer-term office attendance patterns are still hard to predict, however, as the hybrid working debate rages on. This is why other factors like well-connected and amenitised locations, best-in-class sustainability ratings and flexible configurations of space are equally critical to understanding occupier demand.

Rob Thompson, a partner in the real estate group at law firm Dentons, which is downsizing by more than half when it moves to One Liverpool Street in 2026, tells affiliate title PERE that working out how much space the business needs was one of the most difficult parts of the moving process. However, as far as ESG goes, “any developer or landlord that we felt was cutting corners on ESG or sustainability targets would have been a negative for us.” Read more in PERE’s analysis (registration required).

BTR boost
The build-to-rent residential model has been gathering momentum in the UK market in recent years, with lenders keen to finance institutional-grade assets. New analysis by industry body the British Property Federation shows recent market volatility has not halted the growth of BTR. The BPF’s figures, compiled alongside consultant Savills, show the number of completed BTR homes in the UK increased by 13 percent in the past year to 88,100 units. The total number of BTR homes completed, under construction, in the planning pipeline stands at 253,402, up 12 percent in the past year.

The research revealed growth in single-family housing – accounting for 28,000 units completed or in the pipeline, making up 12 percent of the BTR sector. However, the BPF warned that build cost inflation and economic uncertainty looks set to slow down delivery, with construction starts in the first half of 2023 down 55 percent on the first half of 2022.

Data snapshot

Losing interest in real estate

Real estate is currently perceived as the least attractive private asset class due to challenges in traditional real estate sectors such as office and retail. According to Invesco’s Global Sovereign Asset Management Study 2023, investors’ net allocation intentions in the asset class dropped from 23 percent in 2020-22 to 9 percent in 2023.

Loan in focus

Banks unite for Milan financing
Italian real estate company COIMA has secured a €137 million green loan to refinance an element of its Porta Nuova regeneration scheme in the centre of Milan. The loan, which was provided by Italy’s Banco BPM, Germany’s Bayern LB, France’s Crédit Agricole and the Netherlands’ ING Bank, was provided to COIMA’s Porta Nuova Bonnet Fund, which owns the recently refurbished Corso Como Place complex.

COIMA acquired the complex, previously known as the Unilever Tower, in December 2016, and undertook a sustainability-focused refurbishment. According to the company, the complex now has 50 percent lower energy consumption when compared to standard Milan commercial buildings. The complex has achieved LEED Gold for sustainability and was the first Italian office building to attain a WELL certification, achieving a gold rating.

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