They said it
“The better short may be more recent vintage securities with heavy office exposure”
Marathon Asset Management CEO Bruce Richards tells Bloomberg that shorting CMBS secured against retail is now too expensive, but the uncertain prospects for US offices makes shorting office CMBS a better bet.
High-profile examples of loans defaulting in the European market remain rare. However, all eyes are on the US, where affiliate title Real Estate Capital USA has been reporting on the debt problems of one of the sector’s biggest names [read more here].
Canadian manager Brookfield’s DTLA Fund Office Trust last week defaulted on a pair of loans on two high-profile Los Angeles properties – $465 million of financing from Wells Fargo on the Gas Company Tower and roughly $290 million of debt on 777 Tower from Citibank and Morgan Stanley. The default was announced in a public filing in which the firm disclosed it would not exercise options to extend existing short-term debt that matured earlier this month. Brookfield maintains the debt position of each of its assets is considered separately. But the decision could have a larger impact on the Toronto-based manager’s DTLA Fund Office Trust, according to a research note from Barclays. “We believe DTLA’s decision to default on these two assets increases the risk for the remaining loans in their portfolio,” analyst Lea Overby wrote.
Amundi on the fundraising trail
In the European alternative lending market, French asset manager Amundi last week announced it has held a first close on its second real estate debt fund, raising €150 million. The Parisian firm is aiming to raise around €600 million in total for its Amundi Commercial Real Estate Loans II fund. The €1.9 trillion manager is targeting a higher volume of capital for its latest fund than it did for its predecessor, for which it raised €443 million from European institutional investors.
Bertrand Carrez, head of real estate debt at Amundi told Real Estate Capital Europe the reason for introducing a second iteration was because the debt market has “repriced and restored the liquidity premium – versus listed bonds”. He added: “It embeds a natural hedge against inflation as exposures are on floating rates. As a result, expected gross returns are close to 6 percent, for investment grade-type quality exposure.”
Previous Term Sheets have covered the ongoing story of Blackstone’s securitised Sponda loan. Last week, we reported noteholders in the FROSN-2018 DAC commercial mortgage-backed securities transaction voted on 14 February against a request for a one-year extension to the maturity of the senior loan, which is secured against properties within the Finnish Sponda property platform.
The loan was due to mature on 15 February. However, that day, CMBS servicer Mount Street approved a temporary extension of the maturity date to today, 22 February, to allow it to consult with the borrower on next steps. As Term Sheet went to press, further news was pending.
Climate change is having a material impact on real estate holdings, according to property investors. In a survey of 102 organisations with $3.3 trillion of global assets, 46 percent said they have seen extreme weather affect their portfolios. The survey, conducted by sustainability services company Evora Global, revealed some are experiencing a fall in property values, income and occupancy rates, as well as insurance costs, as a result.
“Last summer we had extreme heat across Europe. Floods and storms are becoming very common in many parts of the world. To suggest this isn’t going to harm investments is folly,” commented Sonny Masero, chief strategy officer at Evora Global. He added that, when assessing value, investors need to consider future changes that could undermine historical market comparable data.
The report also showed only 11 percent of respondents are confident in the quality of environmental, social and governance data being supplied in the market. Evora’s reports can be found here.
Losing the edge
Core property has acted as a substitute to government bonds in recent years, owing to the low interest rate environment. But its competitive advantage has eroded, following rising rates and a drop in global transaction volumes, said data provider MSCI this week. In a blog, Tom Leahy, executive director, MSCI Research, wrote: “Once past this short-term disruption, the question is where real estate fits into a remodelled investment landscape… interest rates will likely settle at a higher level than in the last cycle. This means property may serve a different purpose in a multi-asset-class context.” Read more here.
Loan in focus
A towering Spanish loan
CaixaBank, the Valencia-headquartered lender, has issued a €270 million loan to Torre Rioja, the real estate company of Spain’s Soria family. The 10-year loan will reinforce the company’s liquidity, putting it on a “stable and sustainable debt scheme”, according to consultant Colliers Debt Advisory, which advised the bank. “This financing will allow it to solidly face the challenges of the future and continue to consolidate itself as a leading company in the office market,” Colliers said in a statement.
Torre Rioja, which has a portfolio comprising of mainly Madrid office assets, plans to focus on creating buildings with zero energy consumption. In July 2022, Torre Rioja requested permission to exit its status as a Spanish listed real estate investment company, which it converted to in May 2020, so it could restructure – according to trade publication Brains RE.
Today’s Term Sheet was prepared by Daniel Cunningham, with Lucy Scott, Mark Mwaungulu and Shihao Feng contributing