Term Sheet: CBREIM’s senior strategy, AllianzGI’s €515m fundraise, Hilltop and Marathon join forces

CBRE Investment Management cites a long-term outlook for senior lending as it launches its new UK fund; Allianz Global Investors achieves a rapid first close for its debut real estate private debt fund; US manager Marathon Asset Management’s UK subsidiary joins forces with specialist lender Hilltop Credit Partners to provide residential development loans; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Owning things where cashflow will grow is super important”

Jon Gray, president and chief operating officer of Blackstone, speaking on the US manager’s Q1 2022 earnings call last week, explains that, in an inflationary environment, rising cashflows, rather than rising multiples, are likely to drive asset prices higher. Read affiliate title PERE’s coverage here.

What’s happening?

CBREIM’s senior launch
A decade or so ago, when alternative lenders were first entering the European market, they were most likely to target opportunities to write high-yielding loans, such as mezzanine facilities. In the intervening years, many have broadened their offer to include significant senior lending strategies. CBRE Investment Management, the Los Angeles-headquartered manager, is among those non-bank lenders that see a considerable opportunity to provide senior debt against core, income-producing real estate in the UK.

This week, Real Estate Capital Europe revealed the manager has launched an evergreen vehicle – UK Senior Credit Fund – to complement its existing lending strategies, which include a whole loan fund. Through the new fund, CBREIM intends to provide loans of between £7.5 million (€8.9 million) and £30 million, up to 65 percent loan-to-value. Alexandra Lanni, chief investment officer and co-head of EMEA credit strategies at CBREIM, said the decision to launch an evergreen vehicle was due to the “permanent opportunity” CBREIM sees in senior lending.

Allianz’s real estate debt fundraise
Allianz Real Estate, the property-focused business of German insurer Allianz, has established itself as a leading non-bank provider of real estate finance in Europe, including through its debt fund. Now, another division of Allianz – investment management arm Allianz Global Investors – has tested investor demand for real estate debt – and found it to be considerable.

Allianz GI has held a first close on €515 million of its debut real estate private debt fund [see our coverage, courtesy of affiliate title Private Debt Investorhere]. It comes just two months since Allianz Global Real Estate Debt Opportunities Fund was launched. While Allianz Real Estate focuses on direct investments, AGREDO invests in real estate debt funds and co-investments that finance real estate assets and developments, globally. As is the case with Allianz Real Estate’s fund, external investors in AGREDO invest alongside Allianz group entities.

Hilltop’s Marathon lending partnership
In the latest example of a capital manager seeking access to the UK property lending market by teaming up with a specialist lender, MCAP Global Finance, the UK subsidiary of New York-based Marathon Asset Management, has entered a new funding partnership with Hilltop Credit Partners – the residential development finance platform launched in 2019 with the backing of real estate investment firm Round Hill Capital [read more here].

A first deal for the partnership – the £33 million financing of an apartment scheme in Worcester – has been completed, alongside challenger lender OakNorth Bank, in Hilltop’s largest deal to date. Hilltop will originate loans for the partnership, with the intention of providing at least £250 million of whole loans in the next 18 months, in the UK residential development and bridging sector. Senior tranches will be syndicated to lenders, including OakNorth.

LGIM’s sustainable housing debt
In one of the largest green financing deals in the UK housing sector to date, manager LGIM Real Assets, part of Legal & General Investment Management, this week announced it has sourced development finance for its £500 million build-to-rent project in Wandsworth, London. The £270 million, four-year loan has been provided by a trio of banks – HSBC, NatWest and Standard Chartered – and is aligned to industry body the Loan Market Association’s Green Loan Principles.

The LMA’s green loan structure, as well as its sustainability-linked loan structure, are increasingly being used in real estate financing transactions [read our March 2021 Deep Dive on how lenders are using them, here]. Speaking on behalf of the lending group, Phil Hooper, head of real estate at NatWest, said: “The sustainable nature of the assets is testament to LGIM’s transition to a zero-carbon economy and we are therefore pleased to complete the financing as a green loan.”

Whitehall Street’s back (alright)
Scholars of the institutional private real estate industry can chart the birth of the closed-end, real estate fund back to the 1990s and the US investment banks. Among the first purveyors of the private equity real estate fund model was Goldman Sachs’ Real Estate Principal Investment Area and its Whitehall Street funds. The global financial crisis put paid to their continuation. Some 14 years since the last of the series, Whitehall Street International 2008 was closed on $2.34 billion, a new-look Goldman Sachs, with its new-look asset management division, has returned to the market with a new-look real estate equity fund.

Enter the first Goldman Sachs Real Estate Investment Partners ‘programme’, with $3.5 billion of capital committed from external investors, including institutions and high-net-worth individuals. Affiliate title PERE tipped the fund in 2019 in coverage you can read here. Notably, the fund carries a lower risk and return core-plus to value-add strategy versus Whitehall’s opportunistic wrapper. But insiders told PERE the bigger picture is the switch in dependence on the bank’s mighty balance sheet to sharing more of its strategies with third-party capital sources. Regardless of those points, long-time market followers will note the return of one of the sector’s creators and once-dominant forces as just as significant.

Retail revival
Who says in-person apparel shopping is dead? Chicago-based LaSalle Investment Management has signalled to the market it does not think the concept is defunct in the UK with a £600 million acquisition of a pair of discount fashion outlets. The assets, one in Cheshire and one in Swindon, were purchased from manager Nuveen Real Estate, which held them in its UK Shopping Centers Fund. McArthurGlen, the specialist developer and operator of designer outlets, will remain in place as the operator of the assets, having originally developed them and been a co-investment partner in the £365 million purchase of a portfolio by Nuveen-predecessor Henderson Global Investors in 2008. The increase in value, despite a torrid time for retail post-global financial crisis, demonstrates there may be opportunity to find compelling assets in the sector for investors yet.

Trending topic

Office renaissance?
There has been plenty of speculation about the strength of post-covid restriction office demand in Europe’s major cities, sparking much debate among real estate investors and lenders about the sector’s prospects. According to Savills, occupational demand for central London is at a five-year high as businesses see having premises in the UK capital as crucial to attracting the best employees.

The consultancy this week said, at the end of March, active central London office requirements were 10.6 million square feet, 34 percent above the five-year average. The firm said demand includes requirements from corporate occupiers previously headquartered elsewhere, including tech giant Microsoft, which it said is reported to be looking for 500,000 square feet in a move from the town of Reading. Jon Gardiner, head of central London office leasing at Savills, said such companies “see London as a key tool in the war for talent. They are looking for amenity rich, well-connected urban campuses”.

Sites, camera, action!
The spotlight continues to shine on studio space as an institutional asset class. According to a Knight Frank report published last week, the demand for production in the UK is not being met by the around six million square feet already in the market, sparking a 45 percent increase in planning consents for studios over the past three years, the London real estate brokerage firm found.

Some studios are turning away requests for space, Knight Frank said. Development of new space is being driven, in part, by US institutional capital managers. Blackstone and Los Angeles-based Hudson Pacific Properties’ formed a joint venture to develop a Broxbourne, Hertfordshire property and Culver City, California-based Hackman Capital Partners began developing the country’s largest studio in Dagenham, an area of London, in 2020. Future projects will need capital, meaning a few stars have time to make a name for themselves this series.

Data snapshot

Europe rebounds
Investment volumes rebounded to the second best Q1 on record in Europe, according to data from CBRE out last week. Southern Europe led the recovery, with Spain, Italy and Portugal all growing their 2021 levels by more than 100 percent. Italy and Spain even exceed their investment volumes from the record Q1 2020.

Loan in focus

Investec goes big in BTR
This week, Real Estate Capital Europe revealed that Investec Real Estate, part of UK- and South Africa-headquartered bank Investec, has partnered with an institutional investor to provide £170 million of finance to a joint venture led by residential property owner Greystar to refinance the Sailmakers, a 327-unit apartment building in London’s Canary Wharf district. The loan is Investec’s largest in the UK build-to-rent sector to date and comes as it is aiming to grow its presence in the country’s syndicated property lending market.

Investec provided £85 million of the financing. Mark Bladon, head of real estate at Investec, told Real Estate Capital Europe one of the big focuses for the business is to grow its distribution capabilities. “The ability to sell down debt will give us the ability to arrange larger financing deals than we have done previously, meaning we can support those big clients we have relationships with,” he explained.

Today’s Term Sheet was prepared by Daniel Cunningham with contributions from Peter Benson, Jonathan Brasse and Evelyn Lee.