They said it
“There’s going to be a little bit of tightening and most of that will be around certain real estate things. You’ve heard it from real estate investors already”
Jamie Dimon, chief executive officer and chairman of JPMorgan Chase, speaking on the New York-based bank’s first quarter earnings call when asked if the industry could see a credit crunch because of present market volatility
Debt market conditions may be tougher as lenders exercise caution in a higher rates environment, but large-scale refinancing deals continue to be closed. Last week, UK property company LXi REIT finalised the refinancing of approximately £773 million (€876 million) of debt due to mature in the 2023-26 period. The final stage was a £565 million loan from three UK banks that had previously lent to LXi.
Simon Lee, partner and fund manager at LXi, admitted the company was relieved to get the deal done in the current climate. However, he argued, lender interest in LXi’s long income portfolio was strong and lenders did not backtrack on terms during the March crisis in the banking sector. Read more here.
Meanwhile, Canada’s Brookfield Asset Management is refinancing debt secured against its UK leisure company Center Parcs through a bond issue. This month, Center Parcs, which operates holiday villages, announced a subsidiary has priced £324 million of bonds due in 2047 at 5.876 percent, and £324 million of bonds due in 2047 at 6.136 percent.
A reprieve for Adler
The UK High Court has approved a restructuring plan put forward by German property company Adler Group to prevent its collapse into insolvency. As a result, amendments can now be made to terms of unsecured notes, which mature between 2024 and 2029, allowing the company to raise capital in order to help repay a loan held by Adler Real Estate. An interest payment holiday across the notes and a maturity date extension of notes due in 2024 to July 2025 has also been given the go ahead. Adler’s indebtedness has also been transferred to an English subsidiary, AGPS BondCo, which was established in December 2022.
Daniel Bayfield, AGPS BondCo’s lawyer, said in court filings that Adler Group faced “a critical liquidity shortage” and that its subsidiary Adler Real Estate was unable to pay a €500 million debt due later this month. He added that Adler Group, Adler Real Estate and other group companies were “likely to enter into formal insolvency proceedings by the end of April” if the plan was not approved, Reuters reported.
Aukera attracts capital
Market sources report economic uncertainty had led to more difficult fundraising conditions across real estate strategies. However, there is evidence of managers continuing to attract investor commitments. This week, German investment manager Aukera Real Estate announced a €150 million, seven-year mandate for its existing debt fund from an unidentified German insurer for a ‘super senior’ strategy to issue loans at below 50 percent loan-to-value. In addition, Aukera said it plans to launch its first ever pooled fund this year, with a target volume of €250 million. The €150 million mandate brings Aukera’s capital raised since its 2020 launch to €1.3 billion.
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Oxford’s debt hire
Canadian manager Oxford Properties Group has hired a former director in US lender Bank of America’s real estate structured debt team to manage its €3 billion of debt related to its European business. Tina Pristovsek (pictured) has been appointed vice-president for real estate finance and capital markets – Europe, where she will monitor and manage Oxford’s relationships with lenders in the region. Among Pristovsek’s portfolio of high-profile financing transactions during her career as a lender was the £1.25 billion (€1.4 billion) sustainability-linked financing of the 22 Bishopsgate London office tower in September 2022.
Arrow hires for Nordic expansion
Credit and real estate asset manager Arrow Global has appointed former Intermediate Capital Group capital raising specialist Gabi Cohen to anchor its client relations activities in the Nordics. Cohen has joined as managing director within the firm’s client and product team, which is responsible for setting Arrow’s capital formation strategy and broadening the firm’s investor base by building relationships with global capital providers.
The appointment follows a successful fundraising effort by Arrow which last month announced it had exceeded its €2.5 billion hard cap on its flagship strategy, Arrow Credit Opportunities II – raising €2.7 billion including a general partner commitment of €275 million.
There’s life (and money) in offices yet
There is an excess of pessimism around commercial property, wrote Financial Times columnist Stuart Kirk this week. In his article – ‘Everyone hates offices – I want to buy them’ – the former head of responsible investments at HSBC Global Asset Management, said he did not buy “the ubiquitous argument” that old buildings are obsolete, questioning whether employees really care about anything other than the quality of management and pay. While yields for office property – both in the UK and the US – now look attractive, he added: “A premium over 10-year gilts of 1.5 to 2 percentage points for UK commercial property, for example, is just shy of its average over the past three decades.”
Bloomberg Intelligence is not convinced, judging by a report that concludes prime offices in London and Paris are not as defensive as their owners claim, despite inspiring green credentials and amenities. Sue Munden, real estate analyst at BI, said: “A worry is that even in dense office districts designed to encourage networking, vacant space defeats that purpose and can trigger a knock-on negative effect for rents and demand. For now, migration to prime or serviced space is shoring up REITs, but waning spending on development and entrenched hybrid work that inevitably reduces the quality and quantity of offices is a trend to watch.”
Retail up in tough Q1 for Germany
Higher rates and a gap between buyer and seller price expectations resulted in relatively low investment in German real estate in Q1, according to CBRE. The consultant reported €7 billion of investment – down 71 percent on the same period in 2022. The steepest decline was seen in offices, which had dominated total investment in Q1 last year.
Residential was the most traded asset class overall. However, of the commercial property sectors, retail was the most popular segment, accounting for €1.3 billion of investment, albeit a decline of almost 36 percent compared with the same period in 2022. Thai retailer Harng Central’s purchase of a stake in the KaDeWe department store in Berlin was a significant contributor to the retail volume.
According to CBRE, there was a modest increase in UK commercial property values in March, following eight months of decline. The consultant’s CBRE Monthly Index showed all-property capital values increased 0.6 percent in March. However, it was not enough to offset decreases in January and February, meaning capital values declined 0.3 percent across Q1 2023.
Loan in focus
LBBW’s logistics loan
Last week’s Term Sheet highlighted German banks’ appetite for logistics lending. There was further evidence in the past week. Stuttgart-based bank LBBW wrote a €100 million loan to asset management firm DLE Group to finance its German logistics portfolio.
The five-year loan was written against a portfolio with almost 100 percent occupancy, DLE said. Kilian Mahler, managing partner of DLE Logistics, said the property type represents a good investment, because yields of around 6 percent enable a positive leverage effect. Mahler said indexing rental agreements offers protection against inflation.
Natalie Braun, head of real estate international investments at LBBW, added that DLE’s portfolio fits well into the bank’s credit risk strategy.
Today’s Term Sheet was prepared by Daniel Cunningham, with Lucy Scott, Mark Mwaungulu and Randy Plavajka contributing