Term Sheet: MIPIM returns, Ardian’s new debt strategy, Moody’s highlights top risks

MIPIM in Cannes brings the industry together after a two-year hiatus; French private equity firm Ardian sees real estate debt as its logical next step; ratings agency Moody’s highlights the top risks facing the real estate market; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“Hotels are a very specific asset class that requires careful consideration by both the investor and financier, particularly in the challenging environment of today”

Bettina Graef-Parker, managing director for special property finance at Germany’s Aareal Bank, on financing hotels in the current market. Her comments came as Aareal said it had refinanced the Nobu Hotel London Portman Square for sponsor London + Regional Hotels.

What’s happening?

MIPIM returns
MIPIM, the world’s largest real estate gathering, kicked off in Cannes on Tuesday after a two-year absence. Real Estate Capital Europe and affiliate titles Real Estate Capital USA and PERE are there. The organiser claims to be welcoming back the same number of exhibitors from Europe and the Middle East as in 2019 – minus the Russian contingent. While busy, the event is more sober than previously, with more evidence of networking than partying.

Here are three takeaways from our first day of meetings:

  1. People believe it is too early to have a clear view on the repercussions of the war in Ukraine. Most say the immediate impact on the industry is limited but many are braced for prolonged inflation. All agree it is a highly concerning situation.
  2. Debt professionals describe a liquid lending market, with plenty of institutional capital. However, lenders seem to be more selective, with a clear focus on the most resilient and sustainable assets. The pricing gap between prime and secondary assets is widening, according to reports.
  3. Some lenders are taking a second look at retail. While many are focused on logistics and residential, some say there are well-performing shopping assets which – if subject to business plans to improve the visitor experience – can represent financeable property again.

Ardian steps in
Ardian has added its weight to Europe’s alternative real estate lending market. Last week, the French private equity company announced the launch of a real estate debt business, to manage funds and mandates through which it will finance pan-European property. Ardian Real Estate Debt will be managed by Arnaud Chaléac, who has been co-head of group finance at the company since 2008. Sandrine Amsili, who joined last year from SCOR Investment Partners, will help to build the platform alongside him.

The focus will be senior debt, to lend alongside banks, in deals with an ESG angle. The strategy demonstrates the increased appetite among managers to add property financing to their capabilities. According to Dominique Senequier, founder and president of Ardian, the launch was the “logical next step” for the business’s ambitions in real estate. “Our ambition is for Ardian to become a key player in real estate debt management,” she said. Read our interview with Chaléac here.

Fundraising mode
Schroders Capital, the UK-based asset manager which launched a real estate debt business in 2021 [see our May 2021 interview here] is aiming to raise £1 billion (€1.2 billion) across its lending strategies, REC Europe revealed this week [read here]. The company has held a £100 million close for one of its three lending strategies – a UK senior loan fund. It also has a continental European senior loan fund and a pan-European high-yield strategy.

Kristina Foster, fund manager with Schroders, told REC Europe the company is close to completing its first two lending transactions, including one against a retail asset. She added the conditions need to be right for a retail lending deal: “With retail, we are really focused on the refinancing risk and the exit loan-to-value,” she said. “As retail is such a challenging environment, it is important the right environment is created for shoppers and that requires a focus on the ‘S’, the social part, of ESG, with the sponsor engaging with tenants.”

Stick to the target
In its results announcement last week [see here], Germany’s pbb Deutsche Pfandbriefbank announced €9 billion of new lending in 2021, up more than 20 percent on 2020. It also said it would stick to its profit target for 2022, despite geopolitical uncertainty. Last year’s pre-tax profit was €242 million, up 60 percent from 2020. The bank said that, due to higher expenses for expanding the business, it will aim for €200 million to 220 million of pre-tax profit this year.

“We currently see no immediate impact on pbb,” said CEO Andreas Arndt. “Therefore, we are sticking to our plans for 2022 and the following years despite the uncertainty regarding the general economic development. If the war continues or the situation worsens, new conditions will probably apply.”

London resi surge
Lenders are increasingly eager to deploy capital against residential development schemes. New research from CBRE will make for interesting reading for them. According to the commercial real estate brokerage firm, planning applications and permissions for prime central London residential property reached the highest level in 2021 since 2016. A total of 1,675 applications and permissions were submitted for such real estate in 2021 – a 140 percent increase from 2020. CBRE said restrictions on international travel during the pandemic limited overseas buyer demand, contributing to a slowdown in development. However, it seems lenders will be faced with more requests to fund schemes going forward.

High gear
In the US, after a record-setting 2021, single-asset/single-borrower CMBS issuance is on pace for an even bigger 2022. There has been $12.4 billion of new SASB issuance in January and February, more than double the volume during the same period last year when this part of the market was on the road to a $79 billion year. “We’re well ahead on issuance on a year-to-date basis and overall are looking at a pretty good issuance year,” Raj Aidsani, a senior analyst at New York-based industry group CREFC, told Real Estate Capital USA this week.

Trending

Credit quality risks
Moody’s published its report on EMEA real estate market conditions last week. These are the rating agency’s five main takes:

  1. Persistent inflation and low economic growth are the biggest risks to the sector’s stable credit quality. The cost of funding will increase as monetary policy tightens. Real estate will offer protection against inflation, though cashflow generation will weaken if rental growth lags cost inflation.
  2. Benchmark rates are rising but spreads remain attractive for investors. Yields and valuations are stable in core markets, although tighter spreads in Central and Eastern Europe suggest yields and values are more vulnerable to rising rates and geopolitical risks.
  3. Abundant liquidity will support real estate transactions, including mergers and acquisitions. The volume of capital into the sector is forecast to rise 5 percent in 2022. But higher debt levels raise risks, particularly if financial conditions tighten further.
  4. Structural changes continue to drive diverging rental and valuation outlooks. Logistics, multifamily, data centres and healthcare real estate will continue to outperform other asset classes.
  5. Rising regulation on carbon transition and housing affordability introduces credit risks. Companies will need to increase capital expenditure to upgrade properties, requiring external funding. Those with weaker credit quality and without environmental targets will face a greater risk of asset obsolescence and reduced access to capital.

Data snapshot

Where bums aren’t all back on seats
Research from BNP Paribas Real Estate [see here] showed office vacancy rates have stabilised following a sharp increase in 2020 and H1 2021. However, Europe’s overall vacancy rate increased by 50 basis points last year to 7.3 percent at year-end. The consultant’s data showed 15 city markets with a vacancy rate of more than 8 percent.

Loan in focus

ASK backs HIG’s life sciences expansion
ASK Partners, the London-based alternative lender, last week announced a £22.5 million (€26.8 million) loan to property investor HIG Realty Partners, to support the expansion of the portfolio of New Life Realty – HIG’s life sciences platform. The loan funds the acquisition of a site in the Whitechapel area of London, which the sponsor plans to develop as a lab-enabled life sciences building.

The site sits within the Whitechapel Life Sciences Masterplan, a partnership led by London’s Queen Mary University, Royal London Hospital and Barts Life Science, which encompasses one million square feet of lab-enabled space by 2030. Jérôme Fouillé, managing director at HIG Realty Partners, said there are further plans for New Life Realty. “We plan to further grow in the UK as well as across Europe, where key clusters and ecosystems are experiencing material shortfalls in purpose-built laboratory space,” he said. Debt Adviser BBS Capital acted for HIG in the deal.


Today’s Term Sheet was prepared by Daniel Cunningham, with Samantha Rowan and Anna-Marie Beal contributing.

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