Term Sheet: RBC and Aareal lead major financings, Starz wins Middle Eastern commitment, ECB reiterates warnings on commercial property

Major lending deals led by Royal Bank of Canada and Aareal Bank demonstrate there is liquidity for the right assets; Starz Real Estate’s latest commitment hints at investor appetite for real estate debt; the European Central Bank remains mindful of banks’ exposure to commercial real estate; and more in today's briefing, exclusively for our valued subscribers.

They said it

“If you have to carry a whole portfolio, that used to cost next to nothing, at 6 percent, [owners] need to sell things… so, we’re seeing some very, very good buys”

Stephen Schwarzman, chief executive of US manager Blackstone, speaking to Bloomberg, says higher rates are forcing owners of European real estate to sell assets, leading to opportunities in sectors such as data centres, warehouses and student accommodation. Watch the full interview here.

What’s happening?

Ground-up: RBC and Otera’s loan will fund 5 million square feet of development. (Source: Getty)

Interesting development

Large-scale fresh financing is a relatively rare sight these days. However, investment bank Royal Bank of Canada and Otera Capital, the real estate lending subsidiary of Canadian pension fund Caisse de dépôt et placement du Québec, announced on Tuesday a £525 million (€605 million) loan. The five-year loan is to UK logistics and industrial investor and developer St Modwen for 5 million square feet of development. It was arranged by the Canadian bank’s RBC Capital Markets business and was structured as a hybrid development and investment loan, with a higher margin at the outset and a margin reduction as the portfolio leases up.

Axel Brinkmann, European head – real estate capital partners and real estate corporate banking for RBC, told Real Estate Capital Europe that the Toronto-headquartered bank was seeking similar opportunities alongside Otera, for which this loan is its maiden real estate debt investment.

In an interview with REC Europe, he said: “This type of approach is always in demand from borrowers but not every lender – especially debt funds – can provide it because some do not like offering the margin step-down element. But in today’s market you need to be innovative.”

Another hospitality refinancing

German lender Aareal Bank has increased its presence in the European hospitality sector by arranging and participating in a €566 million refinancing loan to The Social Hub, a hotel chain founded by Scottish businessman Charlie MacGregor. The loan was provided alongside Dutch lender Rabobank and an unidentified third lender. Aareal has remained confident in the asset class, even during the covid-19 period, and currently has €11 billion secured against the hospitality sector.

In September, Aareal issued a €210 million senior loan to refinance manager Henderson Park’s ownership of the four-star Le Méridien Etoile, located in Paris. Stand-out hotel lending deals have also included the €762 million global refinancing of the Generator Group portfolio by owner Queensgate Investments this month.

WeWork-anchored city office loan for the chop

A combination of a maligned sector and a faltering tenant has led the lender on one of London’s most recognisable buildings to wave a white flag. A loan secured against the WeWork-anchored 1 Poultry London office building is being sold at a discount amid hiked interest rates and the flexible office provider’s filing for bankruptcy, according to Bloomberg.

The news and data service reported how the loan’s originator, Dublin-based Bank of Ireland, is seeking bids for a £104 million (€120 million) loan to Hana Alternative Asset Management, the South Korean investment firm that owns the building. It is understood the bank has appointed adviser Eastdil Secured to lead the offload process. Hana acquired the asset in 2018 for £182 million, but the asset was valued at £142.4 million in 2020, breaching the terms of the bank’s loan and forcing Hana to inject fresh capital. The valuation has since fallen further, Bloomberg wrote.

Aiming for the Starz 

Despite 2023 proving tricky for managers with credit strategies to plug the refinancing gap, one opinion gaining traction as the year rounds out is that banks, in light of more clarity on interest rates, are starting to apply pressure on borrowers to find new lenders or sell assets. With this in mind, news on 22 November that Abu Dhabi’s sovereign wealth fund Mubadala Investment Company has contributed an undisclosed amount of anchor capital to mid-market lender Starz Real Estate’s latest debt fund looks timely.

The Starz Orion Capital fund will be used to target senior, mezzanine, bridge and non-performing loan opportunities. Loans of between €30 million and €60 million in size are expected to be issued from the vehicle. The London-headquartered manager will top up Mubadala’s commitment, giving it total funds of €300 million to deploy.

Describing the opportunity ahead, Starz’ director Alexandre Bretz told REC Europe in October: “Valuers are lowering values by 10 percent but on certain assets that should be between 25-30 percent, and that is not just down to interest rate rises but because of dramatic changes in the way real estate is used.”

People moves

Aufmkolk: new European head of real estate lending at DekaBank. (Source: DekaBank)

DekaBank appoints lending boss

German lender DekaBank has appointed Ina-Teresa Aufmkolk as European head of real estate lending, taking over from Aren Wegner, who is retiring after more than a 20-year stint at the bank. She will begin her role on 1 January 2024. DekaBank’s real estate financing division originates loans secured against offices, logistics, retail and hotel segments, and focuses on both the European and North American markets.

Aufmkolk joined DekaBank in 2009 from German lender Eurohypo and worked within its real estate lending division until 2016. Since then, she has been responsible for various projects unrelated to DekaBank’s property business. Most recently, she was head of its innovation lab Open Digital Factory, a division solely focused on creating synergies between the firm’s IT department and other departments.

Silbury bulks up

Silbury Finance, the residential development lender backed by US private equity firm Oaktree Capital Management, this week announced two senior hires. Matt Taylor (his LinkedIn here) has joined the London-based firm as chief financial and operating officer, and Andrew Fairley (his LinkedIn here) has joined as head of credit.

Silbury said the newly created roles formalise the creation of a dedicated credit, portfolio and finance team as the firm aims to “significantly scale” its platform in 2024.

Taylor was previously chief financial officer at two Oaktree-backed development businesses, and Fairley previously held roles at lender Paragon Development Finance, equity investor Housing Growth Partnership, and UK bank Lloyds.

LBP AM’s next debt head

La Banque Postale Asset Management, the investment management arm of French bank La Banque Postale, has hired Christophe Murciani, previously of Sienna Investment Managers, as head of real estate debt funds. Murciani announced on LinkedIn that he had joined the Parisian asset manager to oversee its real estate debt team.

The role was previously held by Pierre Saeli, founder of the firm’s real estate debt business, who left in October 2022 to join French firm SCOR Investment Partners, the asset management company of the SCOR group. Murciani will lead a team that includes fund manager Bruno Rodrigues Saco and investment director Alexandre Nedjar.

Enter Karis Capital

A former managing director of specialist debt advisory firm Sirius Property Finance, Nicholas Christofi, has launched a property development finance advisory firm called Karis Capital, according to trade publication Bridging and Commercial. The London-based firm will offer advice on debt and equity including development funding, short-term lending, investment finance, commercial mortgages, high-net-worth mortgages, asset finance and commercial insurance.


ECB: reiterated concerns about banks’ real estate exposure. (Source: Getty)

ECB gets real on real estate

Fears of contagion in the banking system from a collapse in real estate values, which have been rumbling for most of this year, have been stoked yet again by the European Central Bank’s latest assessment. In its twice-yearly Financial Stability Review, published last week, the ECB wrote that “real estate firms are vulnerable to losses in the current environment, with consequences for the resilience of banks’ loan books”.

Large losses for real estate firms could also “significantly amplify an adverse scenario” and lead to “systemically relevant losses being incurred in the banking system”. Investment funds and insurers could subsequently be impacted, wrote the bank.

But the grave tone of the ECB’s announcement contrasts with the Bank of England’s assessment last month, which focused more on problems in China’s property market than in the UK. It also suggests a fear greater than real estate firms themselves may be feeling.

Indeed, when speaking with Real Estate Capital Europe in the summer, industry commentators were keen to draw a distinct line between the possibility of contagion in the US, where regional banks are highly exposed to commercial real estate and office vacancy rates are disproportionately high, and Europe, where the real estate lending pool is more nuanced and diversified among institution types.

Puncture hazard

Providing another viewpoint on the state of Europe’s banks, rating agency DBRS Morningstar, in its European Banking Outlook for 2024, sees commercial real estate as an ongoing puncture hazard. Against a backdrop of a “tremendous increase in profitability” in 2023, it expects banks’ earnings to remain strong.

However, it highlights real estate as one of several sectors presenting corporate credit risks, alongside retail, construction and energy-intensive manufacturing. The company calls out particular operators of the real estate market as especially concerning.

Highly leveraged private equity sponsors could be a nail in the road. DBRS said it saw “rising vulnerabilities” as such companies are finding it harder to service debt in the context of higher interest rates. “Most at risk are those companies that have weaker business profiles that limit their cash generation capacity,” the note concluded.

Data snapshot

Offices in European cities show resilience

The return of employees to the office is a bifurcated affair. In European CBDs, office vacancy rates are considerably lower than in key US cities, as shown in manager M&G’s latest Global Real Estate Outlook report.

Loan in focus

Logistics: Pbb provided a €120m loan to GLP. (Source: Getty)

Pbb lends in CEE

German bank pbb Deutsche Pfandbriefbank has provided a €120 million investment loan facility to a logistics fund, managed by logistics specialist GLP Capital Partners. The loan will be used by GLP to refinance the development of a logistics portfolio in the Czech Republic, Poland and Hungary. Pbb acted as arranger and sole lender on the facility.

The portfolio consists of eight assets amounting to more than 2 million square feet of lettable logistics space. All properties included in the portfolio are newly built class A warehouse assets in established industrial locations with direct access to expressways and motorways.

Today’s Term Sheet was prepared by Daniel Cunningham, with Lucy Scott, Mark Mwaungulu, Jonathan Brasse and Charlotte D’Souza contributing.