They said it
“It is not our goal to make customers sweat. We try to find solutions together”
Jochen Kloesges, chief executive officer of German lender Aareal Bank, tells the International Club of Frankfurt Business Journalists, it is trying to find constructive solutions to keep loans across its portfolio from souring.
World’s local bank to change locality
HSBC has decided the City of London is the best location for its business as the firm embraces hybrid working. Its move from 8 Canada Square, Canary Wharf, has been expected but it is now in the process of negotiating a lease in the heart of the City. Panorama St Paul’s, at 81 Newgate Street – where the bank has said it is negotiating a lease – is around half the size of the 1.1 million square feet it currently occupies in Canary Wharf, further embedding the reality of widescale office space shrinkages. This is also evident in the details of law firm Dentons’ new lease at London’s One Liverpool Street, which represents a net reduction of 32,500 square feet on its current tenancy.
The news of HSBC’s relocation is also pertinent for the future of Canary Wharf. The space HSBC will move to at 81 Newgate Street, owned by manager Orion Capital Managers, is not so different from the newer office stock on offer in Canary Wharf, with flexible floorplates and outstanding environmental ratings. But London’s historic, more bustling location has the edge now. The challenge ahead for landlords at Canary Wharf is to successfully transform the district from being a hub for banks, to being a genuinely mixed-use location that appeals to a range of occupiers, as well as residential tenants.
Meanwhile in Paris
With the office market experiencing a dearth of sales, the €460 million sale and leaseback of the Sequana Tower in Paris by hospitality firm Accor to London-headquartered manager Valesco Group was always going to turn heads. The trade was the biggest in the sector in both France and continental Europe since 2022, the hospitality firm said in a statement. To part-fund it, Valesco restructured an existing long-term debt package with five lenders from France and Germany. For Valesco, the deal constitutes a contrarian bet when put into the context of wider market inactivity. Valesco has bought other trophy towers in Europe in recent years – and attracted lender support for them. In 2020, it bought the Finance Tower in Brussels from Dutch property firms Breevast and ZBG for €1.2 billion, with two European insurers and two banks providing a €723.9 million loan. In 2019, it bought Twin City Tower in Slovakia with Korean financial services firm AIP Asset Management in a deal valued at €120 million.
Bright side of life (sciences)
As Brookfield discovered with its £300 million (€349 million) refinancing of Harwell Science and Innovation Campus in Oxford this month [read more here], there is lender appetite for life sciences. This week, Life Sciences REIT, the real estate investment trust focused on UK life sciences properties, announced the refinancing of debt secured on its portfolio including Oxford Technology Park. Existing lender HSBC provided the new financing, with an additional lender – Bank of Ireland. The replacement facilities include a £100 million term loan, up from £75 million, and a £50 million revolving credit facility, until March 2026, and with two extra year-long extension options. The facilities carry a cost of SONIA plus 2.5 percent, with SONIA capped at 2 percent until March 2025. The company repaid a development debt facility from 2023 with a “significantly higher” interest rate.
Quick fire Ares
US private equity firm Ares Management has quickly ramped up its real estate lending activities in Europe. It launched its European property debt business in January 2022 and has since completed £1.1 billion (€1.3 billion) of loans. They included the team’s biggest yet, which was announced last week – a £300 million senior loan to refinance two central London assets. The loan refinanced Burberry’s store in New Bond Street, one of London’s most exclusive shopping locations, and the Hilton London Kensington, a four-star hotel. Philip Moore, head of European real estate debt at Ares Real Estate, said the deal highlights demand for creative financing at a time of rising rates and a pullback from traditional lenders. Keep an eye out for further coverage on Real Estate Capital Europe.
Fresh debt in the east
A common theme in current lending activity is borrowers refinancing loans with existing lenders. But Eastern European property investor CPI Property Group has scooped almost €500 million of fresh proceeds from different organisations to their incumbent lenders. Germany’s Aareal Bank has provided a €288 million, five-year loan for three Warsaw offices properties including the Warsaw Financial Centre, a 1998-built skyscraper in the city’s central business district. Austrian lender Raiffeisen Bank International issued two loans of €58 million each for residential assets in the Czech Republic and retail in Slovakia, while Prague-headquartered lender CSOB provided €85 million of capital for retail and logistics, also in the Czech Republic.
Another day, another debt strategy
Real estate debt continues to be a hot topic in the property world as managers seek ways to capitalise on the European refinancing gap. Frankfurt-based investment management firm DWS is readying its first whole loan strategy with the aim of raising up to €1 billion. DWS has within its arsenal senior and junior products, but sees demand for loans thatcombine both elements. The firm aims to launch the vehicle in the second half of the year. Meanwhile, UK real estate investor Grosvenor is aiming to set up a joint venture with a European investment manager worth £100 million (€116 million) to target commercial real estate refinancing opportunities in the UK. This follows its expansion into credit in April, when it launched a £120 million residential development lending platform.
Urban Partners’ mezzanine target
Another company currently tapping the fundraising market is Urban Partners – the group created in May by senior executives of Nordic manager NREP. The group’s alternative credit arm, Velo Capital, has held a €136 million first close on a mezzanine debt fund, for which it is aiming to corral €600 million in total in the coming 12 months. In line with the sustainability-focused ethos of Urban Partners, Velo plans to use the capital to finance projects including brown-to-green developments and refurbishments. Emanuele Bena, Velo’s managing partner, said the fundraising environment has become more difficult, but investors are being convinced by the attractive returns for lower risk that real estate debt currently offers. Read more here.
Oaktree expressed strong sentiments about real estate debt in a paper issued last week with the top takeaways from its quarterly letters. The US private equity firm said the real estate debt market has undergone a fundamental shift in the past year, mainly due to interest rate rises. The resulting retreat of traditional lenders, sinking valuations, and wall of debt maturities has, Oaktree said, created an “extremely attractive opportunity for non-bank real estate lenders prepared to fill this funding void”. While Oaktree mainly referenced the US market in its comments, it highlighted conditions applicable in Europe, saying those with capital to deploy are increasingly able to land at elevated yields against high quality assets, on lender friendly terms. It went on to call this the “most attractive environment for real estate debt investors since the global financial crisis”.
More trouble in China
After defaulting on interest payments on senior notes, due in 2024, Hong Kong-listed Chinese housebuilder Central China Real Estate said in a filing on 23 June it would cease to repay its offshore creditors. Deteriorating monthly residential sales and increasing pressure on its overseas payments were constraining liquidity, CCRE said. While its share price leapt 9.4 percent, this will be little comfort for international bondholders. Some are due repayment of $600 million in bonds before November 2023. But they are not the first to find themselves at the mercy of China’s faltering property market. Highly indebted Evergrande Group was forced to reach agreement with its foreign bondholders over $19.15 billion of debt in March. This followed a lawsuit initiated by one of its investors forcing it to co-operate after defaulting on US dollar bonds and missing self-imposed deadlines to restructure.
Demand for the best
Real estate consultant Savills expects to see sustained take-up for the City of London’s best-in-class offices. In research released this week, it said 70 percent of space currently under offer is in recently redeveloped or refurbished offices, or buildings still under construction. The consultant’s pipeline data showed refurbishment outstrips new development for 2023 and 2024. In total, 45 percent of this year’s pipeline is pre-let.
Loan in focus
Ten banks, one €835m green loan
A consortium of 10 banks has provided a €835 million sustainability-linked revolving credit facility to real estate investment firm Société Foncière Lyonnaise, the French subsidiary of Spain’s Colonial Group. Among the lenders, French bank BNP Paribas and Spain’s CaixaBank acted as sustainability co-ordinators – the first time CaixaBank has taken on this role in France. The facility has a maturity of five years, including two one-year extension options. It partially replaces an existing credit line and provides the group with additional liquidity. A feature of the facility is a margin adjustment mechanism based on three ESG performance indicators – carbon emissions reduction, asset certification, and its rating awarded by Amsterdam-based GRESB.