How green is your lending?
While the majority of Europe’s real estate property requires upgrading to the latest environmental standards, least of all to avoid obsolescence, there is not yet an industry-wide approach to valuing assets in relation to how fit-for-purpose they are in this context. However, a group of large UK commercial lenders has this week attempted to build one with the publication of a draft ESG framework, designed to help valuers and lenders fulfil their sustainability obligations.

The guidance, which was released on 3 July in collaboration with the UK professional standards association, the Royal Institute of Chartered Surveyors, is a list of what the RICS calls the “key considerations” valuers should consider in a valuation report, and includes factors such as green certification and leases, flood risk and an energy-inefficient property’s suitability for secured lending. Describing this as a “useful starting point”, the RICS wants feedback from lenders and valuers on how to further develop its ideas.

Earlier this month, the ULI published guidelines on how to incorporate the costs of transitioning assets into property valuations, having warned of a “carbon bubble” in pricing.

Don’t forget the social
The social component of the ESG agenda is a tricky one for real estate lenders to get to grips with. However, expectations for debt providers to go about their business in a way that benefits society, or at least does it no harm, are growing.

This week, Berlin Hyp unveiled its efforts to tackle the social part of ESG. The German bank announced a social loan product designed to finance affordable housing in Germany and the Netherlands. The bank described the housing shortage in major European cities as one of the greatest challenges of our time and described the lending product as its first designed to promote social sustainability.

The product is being offered to municipal housing companies and housing construction cooperatives, as well as private housebuilders and developers that have committed to the provision of affordable housing. To secure a social loan, eligibility criteria must be met, including a maximum gross ‘cold rent’, excluding heat but including ancillary costs. “With its social loan, Berlin Hyp is once again highlighting the fact that ESG doesn’t end with green products,” said Teresa Dreo-Tempsch, chief market officer at the bank.

Drama as police raid Adler
Luxembourg-headquartered property company Adler Group – which operates in Germany – is under investigation by the Frankfurt Public Prosecutor’s Office and Germany’s Federal Criminal Police Office, which on 28 June searched 21 properties, including business premises, apartments, and a law firm – in Germany, Austria, the Netherlands, Portugal, Monaco, Luxembourg, and the UK.

In a statement, Adler said the investigations related to the accounting of a 2019 transaction, known as the ‘Gerresheim’ project, and that it was “cooperating with the authorities”. The Financial Times reported that, according to German financial supervisory authority BAFIN, the project was booked at roughly double its fair valuation, inflating Adler’s accounts by up to €233 million. The investigation is a distraction for the company which is trying to refinance billions of euros of maturing debt in the next few years, as its ICR sinks to 0.8x against a required level of at least 1.8x. Most of its borrowings are held in corporate bonds, with unsecured lending accounting for 67 percent of its overall debt pile.

EDR’s big ambition
Geneva-based asset management firm Edmond de Rothschild Real Estate Investment Management is seeking €600 million of capital for the next vintage of its real estate lending strategy, in an indication of the opportunity perceived by non-bank lenders in the European property market. Real Estate Capital Europe first reported its upcoming plans for its strategy in February.

If it manages to raise €600 million, the firm will have raised significantly more than for its first vintage. EDR launched its maiden debt fund in 2020 with a target raise of €300 million. The firm’s debt strategy was eventually split into two vehicles – a fund and a separate account. Collectively, the firm raised €350 million. The firm will also now look to broaden its investor base outside of Germany to target institutions in the Middle East and North America, after having previously being restricted to raising in Germany due to the covid-19 pandemic.

Borrowing to grow
Rising interest rates have placed pressure on real estate companies that use debt financing to support their strategies. However, some continue to see the benefit of borrowing in today’s market. Among them is Trei Real Estate, a Düsseldorf-based developer and asset manager of residential and retail property.

Trei has sourced a €73.5 million financing from Germany’s pbb Deutsche Pfandbriefbank to fund upcoming development projects in Poland. The loan is collateralised by 61 retail properties in Poland. The financing brings Trei’s company-level LTV ratio to 33 percent. The company’s chief financial officer, Matthias Schultz, said the firm is planning to take on additional loans this year, taking its LTV to 40 percent, below its maximum 50 percent. “While borrowing costs have gone up significantly over the past year and a half, we have not revised our expansion strategy,” he said.

Another backer for LendInvest
UK challenger bank Chetwood Financial is the latest lender to give its backing to London-based specialist property finance provider LendInvest. The bank has provided £500 million (€584 million) of funding to support LendInvest’s buy-to-let and residential mortgage products. The loan will be used to grow LendInvest’s BTL business, through which it lends to professional landlords, as well as its newly launched residential mortgage range, which it said has been developed to support customers who are underserved by high street mortgage providers.

Rod Lockhart, chief executive officer at LendInvest said: “This funding follows our recent sale of a portfolio of residential buy-to-let mortgages to Chetwood for £243 million, and further strengthens our partnership with the business.” In addition to Chetwood, LendInvest has sourced funding from lenders including Barclays, BNP Paribas, Citi, HSBC and JPMorgan.

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