Term Sheet: Cain’s £262m content creation loan, Bayes report reveals lending boom, QSix targets growth

Cain International’s £261.5 million (€306 million) loan highlights the lending opportunities in the content creation industry; the latest Bayes report reveals a bumper year of lending in the UK in 2021; QSix targets larger loan deals after securing lending mandate; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“ESG reporting is the Wild Wild West”

Jessica Long, head of sustainability, Americas at Nuveen Real Estate, and a member of a new sustainability think-tank formed by US industry bodies the National Council of Real Estate Investment Fiduciaries and Pension Real Estate Association, says a lack of sustainability guidelines in the industry needs to be addressed. Read more about the new initiative here.

What’s happening

And action!
Growing demand for property designed to facilitate content creation in the entertainment industry is leading to investment opportunities for real estate managers, as affiliate title PERE wrote in a deep dive feature in July 2020. A notable UK financing deal announced this week suggests it is also generating opportunities for lenders. Cain International, the private real estate debt and equity investor, announced a £261.5 million (€306 million) loan to support the development of what, at almost one million square feet, will be one of the UK’s largest film and television production facilities.

The loan, to Shinfield Studios, will finance the construction of 18 sound stages, plus office accommodation and workshop space, near Reading. Shinfield Studios is the first UK outpost of BGP HoldCo, a platform controlled by affiliates of Los Angeles-based manager Commonwealth Asset Management. According to Matteo Milan, principal for real estate finance at Cain, the sector is a growth prospect. “With the UK’s creative industries having grown three times as fast as the wider economy between 2010 and 2018, and the pandemic accelerating trends towards online streaming exponentially, we are entering a fascinating moment for this market,” he said.

Back on form
Not only did the UK real estate lending market bounce back from a slow 2020 last year – it clocked up its strongest year of lending since the most recent market peak of 2015. The latest full-year UK market lending report by Bayes Business School [read our full coverage of it here] showed lenders in the UK market put covid uncertainty behind them in 2021, originating £49.7 billion (€59.4 billion) of loans during the year – a 48 percent increase on 2020’s total.

Nicole Lux, senior research fellow at Bayes, told Real Estate Capital Europe the UK property lending market was back in growth mode following two years of decline. While lenders financing a backlog of delayed deals in the first part of the year contributed to the performance, Lux stressed the sheer volume of new transactions to finance – on the back of strong acquisition activity – bolstered the numbers. She added expectations of rising rates, and a notable weight of capital raised by debt fund managers, contributed to market participants’ urge to get debt deals done.

Expansion plans
QSix Real Estate Finance, a lending business launched in 2006 and previously known as PMM Real Estate Finance, is aiming to increase the size of its loans in the European market. This week, the firm announced [read here] it has secured a segregated mandate with an unnamed global alternative investment firm through which it aims to deploy £300 million (€350 million) of capital in loans in the next 12 months. The company will target whole loans of between £25 million and £75 million in the UK and the Netherlands.

The mandate illustrates the drive by institutional capital providers to allocate to real estate debt strategies. Data published last week by affiliate title PERE showed debt strategies are increasingly popular with investors [see here]. For managers like QSix, this influx of investor capital represents an opportunity to grow loan portfolios. Be sure to read our interview with the company’s head of real estate finance, Gareth Williams, which will be published this week.

Hotel rebound
There is good news for the European hotel sector, according to consultant Savills, which has reported a rebound in investment activity as tourists check back in. Transactions were up 61 percent across the region in 2021, year-on-year, with the Spanish market receiving 211 percent more capital and Italy’s hotel sector registering a 122 percent increase.

This is no small achievement for a sector so battered by the pandemic – and the all-time lows for occupancy and revenue that it brought. The omicron outbreak dampened investor appetite in the first quarter, but, despite this, the war in Ukraine and rising staff and utilities costs, the global real estate adviser is predicting yield compression in the best locations for 2022. Richard Dawes, a director in the hotels team at Savills EMEA, said certain markets were already outperforming 2019 and demand for European hotels would “endure” despite headwinds.

London focus
In the UK-listed real estate sector, an interesting merger is on the cards. The boards of Shaftesbury and Capital & Counties confirmed they are in advanced discussions for an all-share merger. If the deal goes through, it will create a West End of London REIT with 2.9 million square feet of real estate.

The combined company would be a leading player in one of London’s most sought-after sub-markets – and would have significant exposure to it as a shopping and leisure destination: Shaftesbury’s portfolio is 37 percent weighted towards hospitality and leisure, and 27 percent to retail. CapCo’s is 49 percent retail and 25 percent food and beverage. While retail is a struggling sector in many locations, London’s West End is destination many equity investors are keeping faith in. Offices – a sector facing its own set of pressures – form 18 percent and 16 percent of the companies’ exposure, respectively.


Warehouse woes
The banks and insurance companies that provide warehouse lines to loan originators, including debt funds and other alternative lenders, are increasing pricing and lowering advance rates due to widespread volatility in the US and broader global financial markets. “Pricing has been all over the place, rates are changing, and a lot of the typical warehouse lenders are having a tough time quoting deals,” one senior real estate executive told affiliate title Real Estate Capital USA. Watch this space – REC USA will be digging into this phenomenon in its next issue, due out on June 1.

Data snapshot

Debt in demand
Investor interest in real estate debt strategies, globally, was evident in affiliate title PERE’s Q1 2022 fundraising report. According to the data, debt was the top fundraising strategy in Q1, accounting for 34 percent of total capital raised [read more here].

Loan in focus

Malinas retail park: designed to be carbon neutral

KBC and Mitiska’s green Benelux retail facilities
According to the chief financial officer of Mitiska REIM – a specialist European convenience real estate investor – its latest financing deals demonstrate how the company has access to green finance in the European market. The company this week announced it has sourced €110 million of green loans from Belgium’s KBC Bank, including €58 million to refinance Malinas retail park in Mechelen, Belgium, and €42 million for acquisition opportunities in the Netherlands.

“At present, a quarter of our debt portfolio is in the form of green loans and our aim is to establish a broader green financing framework in which to increase the number of green loans across the 10 European markets in which we operate,” Mitiska chief financial officer Bert Heyman said.

Malinas retail park, which opened in October 2021, is billed as Belgium’s most sustainable retail park, designed to be carbon neutral and to achieve a BREAAM Excellent rating. Mitiska said the green loans are different to conventional loans due to the inclusion of climate risk elements, including a margin pricing grid in relation to the BREEAM score obtained.

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