Term Sheet: Expo Real takeaways, a Copenhagen climate gathering, APG’s adoption of AI

Expo Real attendees sound a hopeful note despite ongoing uncertainty; the industry gathers at C Change Summit to discuss its response to the climate crisis; Dutch investor APG gets to grips with artificial intelligence; and more in today's briefing, exclusively for our valued subscribers.

They said it

“The image of the ‘perfect storm’ is wrong, as user demand is intact in many segments, construction and land costs will ease again, and legislators are backpedalling at least a little”

Tobias Just, managing director and scientific director at the International Real Estate Business School at Bavaria’s University of Regensburg – a key observer of Germany’s property market – says sentiment at last week’s Expo Real in Munich indicated it is not all bad news for the industry.

What’s happening?

Expo Real: more than 40,000 people participated, according to the organiser. (Source: Messe München GmbH)

Munich mood music

Across more than 60 meetings at Expo Real in Munich last week, Real Estate Capital Europe and affiliate titles Real Estate Capital USA and PERE took the pulse of the industry. Here are three takeaways from the gathering, which the organisers said attracted more than 40,000 participants.

1. Sluggish conditions will persist, for now.

Debt specialists are frustrated by what they say is the slowest investment market since the global financial crisis. Lending activity into 2024 will be focused on refinancing maturing debt. However, many are hopeful rates have peaked, or are close to doing so, meaning clarity on property values and more acquisition activity should follow. Lenders were also at pains to point to robust occupier demand and rental growth in certain segments of the market. “We are all focused on what will happen at the tenant level across Europe, with different outcomes for different property types,” one said.

2. Right-sizing leverage is critical.

With a mountain of debt in need of refinancing, lenders argued they are up for the challenge. However, it is clear they will only write loans on defensive terms. Market observers noted lenders are reducing their loan-to-values in any new transactions, as they ensure levels of debt service coverage are adequate in a higher-rate environment. One lender said borrowers were reluctant to accept lower LTVs earlier this year but added they have become more realistic about the amount of leverage they can expect to source. While lenders indicated their willingness to do deals, they are clearly risk-off.

3. Distress remains tricky to quantify.

Expo attendees said examples of loan enforcements remain rare. But one debt provider said all lenders will have experienced defaults in their books. However, there is a clear sense lenders and borrowers are working pragmatically to find solutions, including bringing new capital – be it equity or opportunistic debt – to the table. It remains difficult to assess the amount of distress ahead for the sector, and some pointed to problems in the German development financing segment. However, the emphasis remains on solving problems collaboratively.

Known unknowns

Real Estate Capital Europe is in Copenhagen for the Urban Land Institute’s C Change Summit. The event is part of the industry body’s mission to mobilise the real estate industry to decarbonise and the fact it is a sell-out indicates the message has been received. Further proof, however, is contained in a survey launched this morning showing that transition risks – risks associated with moving assets to a low carbon environment – are having a significant influence on investment decisions.

Over 60 percent of 224 investors and managers surveyed said transition risks were impacting acquisition decisions in ‘nearly all’ cases or ‘often’. Crucially, transition risks had resulted in acquisitions not going ahead for 61 percent of respondents. Separately, 54 percent of respondents have allocated assets for disposals due to these risks. The ULI said the findings showed the urgency of factoring transition risks into valuations in a standard way – something that cannot be done today, as our Deep Dive analysis of the topic shows. “This is causing owners to underestimate the affect they can have on value or not being aware of the challenges and costs to decarbonise assets in their ownership,” it said.

Making inroads

Sweden-headquartered residential property company Heimstaden Bostad has made another dent in its debt pile, announcing the sale of its Icelandic residential real estate company to Norwegian property company Fredensborg this week. The disposal, which comprises 1,625 homes in and around Reykjavik, is the latest example from recent weeks of the company addressing $2.5 billion of maturing debt obligations in 2024. It also recently raised €700 million of financing from a consortium of lenders to help it manage its liabilities.

Ratings agency Fitch put the landlord on negative rating watch in September, citing the rising cost of interest on its debt and slow deleveraging. But on 3 October, the company released a statement in response to what it called the media outlets that have been “portraying it as a company in crisis”. Over the next 18 months, Heimstaden has enough cash, credit lines and secured bank financing to cover its bond liabilities, giving it “firm control over maturities until Q3 2025”, explained chief executive Helge Krogsbøl.

Trending

Source: Getty

Human and machine

Dutch pension investor APG Asset Management is one of the world’s largest private real estate investors, placing 16th on affiliate title PERE‘s 2023 Global Investor 100 ranking, with nearly $32 billion allocated to the asset class. It has also distinguished itself as an early mover in the adoption of artificial intelligence in real estate, having developed a digital portfolio manager named Samuel to work alongside its 55-strong global team of human portfolio managers, as PERE highlights in its October cover story.

“To me, investment decision-making will always be a function of man and machine,” Rutger van der Lubbe, APG’s head of global real estate investment strategy, says in his interview with PERE. Although one of the biggest fears around the adoption of AI in real estate is the eventual displacement of human investment professionals, van der Lubbe and others make various arguments as to why they do not foresee that happening. For more on APG’s journey in AI and the future of AI in real estate, read the full story here. Also be sure to check out PERE’s web-only companion piece on the data-related risks associated with AI here.

Slim pickings

In a year plagued by uncertainty and low transaction volumes, many may be surprised to hear the most traded asset class in the UK so far this year was offices. According to research by real estate consultant Savills, the asset class accounted for 26 percent of all transactions to October, with an uptick in the number of office deals in central London in mid-September. Savills believes sectors where buyers can combine solid rental growth expectations in a “flat-lining economy” and some yield hardening over the next five years will see pricing recover first. It expects prime logistics and West End of London offices to lead the recovery phase of this cycle.

A call for clarity

Real estate lenders in the UK are being challenged in their response to the climate crisis due to an “absence of clear direction from government and regulators”, according to report released by University College London’s Centre for Sustainable Governance and Law and alternative lender Puma Property Finance on 6 October. The report said the pace at which green loans have come to the market has been curtailed by a lack of policy consensus and lenders’ fears over allegations of greenwashing. It added that while large organisations, such as banks and pension funds, had been able to respond to the increased public focus on ESG by diverting funding to impact funds and improving the detail of their reporting, smaller property lenders could struggle to do the same due to lack of skills, knowledge, and time to understand and adapt to the new operating and reporting environment.

Data snapshot

Debt difficulties

Higher interest rates have made residential investors rethink their debt strategies, with some looking at the possibility of transacting without leverage, according to UK and South Africa-headquartered bank Investec. In its research, which surveyed investors in the living sector in the UK, it found that 71 percent of respondents said that it will be more difficult to access senior debt over the next 12 months.

Loan in Focus

Equalizer: a new office scheme for Berlin. (Source: DIE AG)

The great Equalizer

German bank Hamburger Sparkasse has provided an €80 million senior loan to Berlin-headquartered developer DIE to refinance the purchase of land on which the new Equalizer office building will be constructed in Berlin. The project is in the Berlin-Charlottenburg area and will provide a gross floor area of 166,410 square feet of rental space. The office complex has already received the DGNB Gold sustainability certification and is scheduled for completion in early 2026.

“We are taking on this financing with full conviction. The DGNB Gold certified ensemble is a valuable new component of our loan portfolio,” said Jens Ole Heitmann, head of commercial real estate at Hamburger Sparkasse.

The financing was arranged for the borrower by real estate investment management firm Empira Group’s debt and advisory team. The deal is the largest on which it has advised since it began offering financing advice to third-party clients around the middle of this year.


Today’s Term Sheet was prepared by Daniel Cunningham, with Lucy Scott,, Mark Mwaungulu, and Evelyn Lee contributing