Term Sheet: NREP’s ambitions in real estate credit, Octopus’s largest property debt fund yet, JLL’s non-performing loans prediction

Nordic private real estate manager NREP views its expansion into Europe’s credit market as a way to influence the improvement of the built environment; UK specialist lender Octopus Real Estate sees a continued need for flexible finance as it closes its largest lending fund to date; consultant JLL predicts a rise in European non-performing loans; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“We’re in that sweet spot of a cycle where there’s abundant capital. [Borrowers] are getting a little bit more aggressive and feel very good about the competitive environment.”

Brian Stoffers, global president of debt and structured finance at CBRE tells affiliate title Real Estate Capital USA the US commercial real estate debt market is experiencing a rare period where borrowers’ expectations are being met, lenders are being compensated for risk, and ample liquidity is preventing widespread distress. [Read here].

What’s happening?

Influence through debt
Private real estate managers are increasingly adding debt products to their repertoires. Today, Real Estate Capital Europe revealed the Nordics’ largest private real estate manager, NREP, is entering the European real estate credit market through the purchase of a Germany-focused platform, boosting its assets under management by €1 billion to €14 billion. Read the full story here.

NREP’s ambition is to grow the platform to around €2 billion in the next two years. According to NREP chief executive Claus Mathisen, real estate credit represents another way for the company to influence the improvement of the built environment, to complement its other activities including equity investment and venture capital. He told Real Estate Capital Europe: “We think providing the right type of capital to finance [like-minded sponsors’] projects creates a ripple effect for what we are trying to do in the market.”

Octopus raises again
In the UK, specialist lender Octopus Real Estate closed its largest commercial real estate debt fund to date last week, on £462 million (€549 million). Although the fund is double the size of its predecessor, and the firm can now write loans up to £100 million, Ludo Mackenzie, head of commercial property at Octopus Real Estate, told Real Estate Capital Europe the firm would be sticking to its tried and tested lending strategy – short-term loans beginning from as small as £500,000. According to Mackenzie, there is plenty of demand from borrowers including property companies, private equity firms, and high-net-worth individuals for flexible finance that enables them to add value to depreciated assets. Read more on Octopus’s plans for the fund here.

NPL surge
So far during this pandemic crisis, distress in European real estate markets has remained in check as lenders and borrowers have worked collaboratively to resolve stressed situations. However, JLL predicts a rise in non-performing loans across Europe as governments scale back programmes and supports that have helped property owners and tenants. The winding down of moratoria, coupled with the worsening financial position of many borrowers could lead to a significant deterioration in credit risk, the consultant wrote in a new report on European NPLs [find it here]. JLL added that it has seen worsening financial conditions in non-essential retail, hospitality and “other contact-intensive services”.

Europe’s Top 50 Lenders 2021

Leaders of the pack
Real Estate Capital Europe’s annual list of those making the biggest impact on Europe’s real estate lending markets is back – and it is bigger than ever. Europe’s Top 50 Lenders has been expanded from 40 entries in previous years, to better capture the leading organisations in a growing industry. While the pandemic suppressed activity in the property lending market in 2020, debt providers have got back to business this year as the markets began to recover. This list contains those our editorial team viewed as the most active, based on the evidence. It appears in our winter print edition, published today, and will be serialised online at recapitalnews.com in installments starting this week. You can read the first of four, here.

Data snapshot

UK rebound
Total UK commercial real estate investment volumes reached £44.7 billion (€52.5 billion) to the end of October, 15 percent up on the same point in 2019 and 29 percent up on the same point in 2020, according to Savills. The consultant noted a strong performance by the industrial sector and alternative real estate.

Loan in focus

ASK, OakNorth renew backing of London scheme
Specialist lender ASK Partners and London-based challenger bank OakNorth Bank have provided fresh finance to the developer of a mixed-use scheme in the Cricklewood area of northwest London. In 2019, the two lenders provided £35.2 million (€41.4 million) to Montreaux to fund the acquisition of a 6.8-acre site, which houses a B&Q retail warehouse, and fund its planning process. Planning for 1,049 flats and some commercial space was obtained in September. ASK and OakNorth have now provided a £55 million loan to refinance the scheme. The lenders said the loan recognises the uplift in the value of the site and provides Montreaux time to secure detailed planning consent before either selling or beginning development. It serves as an example of lenders getting behind sponsors’ plans to revamp sites with higher value uses.

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