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 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