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Term Sheet: NatWest’s landmark loan sale, Tristan’s first loan for its lending strategy, Cain’s latest office development in London

NatWest's sale of a portfolio of UK shopping centre loans proves interest in retail; Debt newcomer Tristan Capital Partners provides its first loan; Cain International provides £109 million to support the development of a London office scheme; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“One lesson is to follow structural trends. No matter how good an investor is at stock picking, or market timing, it is a lot easier to swim with the tide than against it.”

Sophie Van Oosterom, global head of real estate at Schroders Capital, discussing lessons the manager has learned in the 50 years since it launched its real estate business, says property investors are not at the mercy of the economic cycle and need to consider the long-term factors driving individual sector performance. Read more of her thoughts here.

What’s happening?

NatWest sells off UK retail loans
The long-awaited close of UK bank NatWest’s sale of a portfolio of retail loans was announced on 6 September. Project Mercatus, as the portfolio was codenamed, contained more than £400 million (€466 million) of debt linked to institution-owned shopping centres across the UK and was sold to a partnership between private equity firm Attestor, alternative lender Octane Capital Partners and asset manager Ellandi.

The Mercatus deal is highly significant. It is the first high-profile sale by a UK bank of distressed loans written this cycle, rather than loans originated in the heady days before the 2007-08 crash, and is a result of stress in recent years in the UK retail sector. It also suggests there are buyers in the market keen to take ownership of problematic retail loans in a bid to resolve distressed situations. Read more about why property debt specialists believe Mercatus is a significant deal in our recent article on the transaction. It will be fascinating to see whether other banks follow NatWest’s lead in packaging up for sale troubled retail loans.

Tristan gets off the mark
The London-based manager Tristan Capital Partners is a prime example of an equity-focused property investor turning its hand to lending. Last week, it announced the closing of the first loan for its new real estate debt strategy – a £22.5 million (€26.2 million) facility provided to Singaporean investor Shorea Capital to support the acquisition of a 186-188 City Road multi-let office building, located close to London’s Old Street ‘Silicon’ roundabout. The financing includes a capex facility to support the new owner’s plans for a sustainability-focused refurbishment of the asset.

In Real Estate Capital’s autumn edition [subscribers can download here] and online on last week, we published an in-depth interview with Dan Pottorff, who was hired by Tristan this year to run the debt strategy, and the company’s chief executive Ian Laming, to discuss why Tristan has turned to lending [read the full piece here]. The ultimate driver, Laming argued, was demand for access to credit strategies by Tristan’s investor clients. As we recently argued, debt is becoming a must-have strategy for real estate managers to be able to offer their clients.

Back in the market
Last week, the European Association for Investors in Non-Listed Real Estate, known as INREV, published a report that may provide some cheer to lenders. Its latest Funds Termination Study [which can be accessed here], revealed that 35 European closed-end and non-listed real estate funds are due to terminate between 2021 and 2023, releasing a potential €10.4 billion in gross asset value back into the market. Longer term, by 2030, 85 funds are expected to have terminated, representing €31.3 billion GAV. In 2020, lenders were frustrated by a lack of investment deals, resulting in fewer financing mandates. The transactional market has picked up in 2021, as economic and market forecasts have improved. INREV’s data suggests real estate fund terminations will contribute to the flow of property deals and subsequent demand for debt financing in the coming years.

Allianz gives medical attention
In the US market, Allianz Real Estate made a splash in August with a $234 million loan to Nuveen Real Estate’s US Cities Office Fund and a third-party institutional capital partner, secured by a portfolio of 27 medical office properties [read more about it here]. Speaking to Real Estate Capital about the deal, Mike Cale, co-head of US debt at Allianz Real Estate, said the decision to write the loan was, in part, driven by a belief in the long-term performance of the medical offices sector. Cale believes the pandemic has highlighted the need for improved efficiency and ease of access to healthcare and more demand for outpatient facilities. “We look to invest through the cycle,” Cale said, explaining that he sees the sector as a long-term opportunity. Read more of his thoughts on the US real estate market here.

Trending topic

And DEI benchmarking for all
What do you get when you combine seven real estate industry associations and an executive search firm? The launch of the industry’s first global diversity, equity and inclusion survey of course. Associations INREV, ANREV, NAREIM, NCREIF, PREA, REALPAC and the ULI have teamed up with recruiter Ferguson Partners to launch the Global Real Estate DEI Survey. The survey, to be conducted by Ferguson, is expected to offer a corporate benchmark of gender, ethnicity and nationality across seniority and job functions across real estate markets around the world. Data will be collected until 22 October with the results published in December. The survey is a progression of a compensation study conducted by the recruiter and NAREIM from 2017, which was turned into a survey three years later. In NCREIF’s announcement on the launch of the enhanced effort, it said: “The survey’s expansion geographically and in terms of eligible participants is a response to the growing prioritisation of DEI within CRE organisations, and the need among organisations to benchmark not only their own internal DEI policies, but also that of partners and vendors.”

Data snapshot

Real estate lenders can expect to see more financing mandates emerge from Europe’s logistics investment market during the remainder of this year. Savills recorded a record €22.5 billion of investment activity in H1 2021, 60 percent up on the H1 five-year average. The consultancy added that record volumes of capital are being raised and allocated to sheds each month. Read the report here.

Loan in focus

Cain backs London offices
Office workers are gradually coming back to the UK capital, to the relief of those property companies invested in the sector. One such organisation is the private real estate company Cain International, which this week announced it has provided a £109 million (€127 million) loan to support the creation of a new office building on the south bank of the River Thames. The development facility was provided to Barings and LBS Properties for a 146,334-square-foot scheme at 135 Park Street, close to the city’s Bankside business estate. Barings and LBS plan to knock down the existing buildings and replace them with 11 floors of grade A offices and ground floor retail. They are targeting a BREEAM ‘Excellent’ environmental accreditation.

Such credentials will be crucial to the success of the project, said Matteo Milan, principal at Cain: “We believe that offices which place an emphasis on sustainability like 135 Park Street are extremely important and will play a critical role in the future success of leading organisations and cities.”

Today’s Term Sheet was prepared by Daniel Cunningham, with Jonathan Brasse contributing.