Term Sheet: ECB finds region’s lenders robust, US bank regulators propose tighter capital standards, Aareal’s €442m loan for UK PBSA assets

They said it

“We see particular strength in logistics and student housing, both of which are experiencing high demand and not enough supply across the region. Dynamics such as these are why we’ve been so active in the UK and continental Europe despite the negative sentiment”

Kenneth Caplan, global co-head of real estate at Blackstone, posted the mega-manager’s bullish stance on European real estate on LinkedIn yesterday.

What’s happening?

ECB: results of its stress-test survey bode well for banks in the event of further turmoil (Source: Getty)

ECB sees reduced threat of bank failures
An EU-wide stress test, conducted by regulatory agency the European Banking Authority and the European Union’s European Central Bank, undermines the thesis that Europe’s banks are heading for a crisis similar to their US peers. The survey, released 28 July, concluded that lenders would remain sufficiently capitalised in an ‘adverse scenario’.

The test put 70 lenders through the paces of a hypothetical situation, which included a severe EU and global recession over a three-year period, as well as a 30 percent drop in commercial real estate values. In that event, the EBA found that banks’ weighted average capital ratios would fall from 15 to 10.4 percent, a figure it considered adequate. These CET1 ratios compare a bank’s capital against its assets, and is a measure of a bank’s financial health.

Aareal Bank told Real Estate Capital Europe that it had demonstrated “strong resilience” in the test, with a CET1 ratio of 11-14 percent; while pbb Deutsche Pfandbriefbank said it also performed well. In July, the French investment bank Natixis said these two German specialist property lenders would need recapitalisation after putting lenders through its own severe stress test scenario.

US regulators order bigger cushions
A proposal to overhaul how US bank lenders provision for risk was launched by bank regulatory agencies – including the Federal Reserve and the Federal Deposit Insurance Corporation – on 27 July. The key theme in the 1,000-page document is an aggregate 16 percent increase in common equity tier 1 capital requirements – capital that banks set aside to absorb potential losses. The proposals apply to lenders with $100 billion assets or more. The regulators are also seeking to eliminate the use of organisations’ internal models for setting capital requirements. This practice had “produced unwarranted variability across banking organisations in requirements for exposures with similar risks”, said the Fed.

Taking the lion’s share
UK-based lender Standard Chartered Private Bank has issued £105 million (€122 million) in acquisition finance for an office asset in the City of London – the biggest transaction in the area this year, according to trade publication CoStar. The bank provided financing at a loan-to-value of 50 percent to Lion Plaza Propco – a company ultimately owned by Vietnam-based investors Maurice Duc Hinh Nguyen and Thu Thuy Ngo.

The duo paid the seller, US investment giant BlackRock, £209 million and a net initial yield of 6 percent for the 264,967-square-foot building, which is located close to the Bank of England. This was a 20 percent discount to the £263 million initial asking price, set late last year when the asset first came to market. Real Estate Capital Europe tracked €2.5 billion of debt originations from Standard Chartered for the first three quarters of 2022, including an acquisition loan for the €600 million-plus purchase of Brussels’ North Galaxy office tower.

A spoonful of Cain sugar
Moody’s may have dealt yet another blow to London’s Canary Wharf in recent days, but a £525 million (€611 million) loan from two private investment firms – Cain International and Starwood Capital – to the estate’s owner, Canary Wharf Group, will no doubt dust the pill with some sugar.

The duo went 50/50 on finance for the development loan, which will be used for the next build phase on the Wood Wharf area of estate, where CWG is creating 1,308 build-to-rent homes. CWG plans to construct 3,600 residences on this site by 2027. Graham Keable – managing director, real estate debt at Cain International – said Canary Wharf was a “proven location for build-to-rent schemes”, with premium rental values, growing occupancy and substantial investment appetite “despite market headwinds”.

Loan in focus

Student housing: a supply shortage in the UK is driving lender and investor appetite  (Source: Getty)

Lenders dig student homes
German specialist property lender Aareal Bank has issued £380 million (€442 million) of refinancing capital for a purpose-built student housing portfolio in the UK, bringing the total of debt provided to the sector in the last week to almost €1 billion.

The Wiesbaden-headquartered lender issued the senior loan against a portfolio of three Central London assets, owned by Chapter – a joint venture between US residential developer Greystar, asset manager PIMCO Prime Real Estate and Canada’s Public Sector Pension Investment Board. Aareal said it had previously lent against the three assets, located in Spitalfields, South Bank and Aldgate, but it was sole arranger, lender and security agent in this week’s deal.

Echoing the opening comments of this week’s Term Sheet, Michelle Weiss, head of hotel properties at Aareal, said the counter-cyclical nature of PBSA assets in the last year was a “testament to its robust fundamentals”, also reflected in the “growing investor appetite”. On that note, Aareal’s deal follows that of Legal & General Investment Management’s UK and European debt division, which issued a £400 million loan to PBSA operator Unite on July 28.


Incus Capital to target largest fund yet
European real estate credit continues to whet the appetite of investment managers across the region, the latest example being Madrid-based private debt manager Incus Capital, which is planning its largest credit fund next year. Speaking to Real Estate Capital Europe, Martin Pommier, chief operating officer at Incus, said it expects its fifth iteration to be larger than its €650 million European Credit Fund IV. Thirty-five percent of the capital raised will target real estate debt opportunities.

Data snapshot

‘All-time low’ for European investment
European commercial real estate investment has tumbled this year, as sluggishness in office transactions and economic growth weigh on activity, according to the latest Europe Capital Trends report from MSCI Real Assets, a part of data provider MSCI. Total sales during the first half of 2023 amounted to €74.6 billion, 59 percent below volumes recorded last year in the same period.


Jaskula takes office
lnvestment manager AXA IM Alts has promoted Emilie Jaskula to the newly created role of global head of offices, in recognition of the company’s “continued conviction for low carbon, high-quality offices in prime locations”. Jaskula, who was formerly head of asset management for France and worked at the company for 12 years, will also oversee a strategy targeting the upgrade of existing office assets. AXA IM Alts has a €25 billion European offices portfolio.

Today’s Term Sheet was prepared by Lucy Scott, with Mark Mwaungulu, contributing.