Term Sheet: Schroders’ team expansion, LBBW’s Berlin Hyp acquisition, Bank of America’s office warning

Schroders signals its continued real estate debt ambitions by adding Europa’s credit team; a major M&A deal in the German banking sector closes as LBBW buys Berlin Hyp; Bank of America goes bearish on offices in new research note; and more in today’s briefing, exclusively for our valued subscribers.

They said it

Banks have gotten more selective, more risk-averse… We’re expecting transaction volume to decelerate pretty significantly – it already has”

Brad Hyler, head of real estate in Europe for Canadian manager Brookfield, speaking to the Financial Times, says property dealmaking is set to plummet and values to fall as investors adapt to rising rates and economic volatility. Read the interview here [paywall].

What’s happening

Schroders grows its team
UK asset manager Schroders is making progress in its efforts to become a major real estate debt provider in European markets. Last week, the manager announced its real estate debt team had reached an agreement with London-based manager Europa Capital for the transfer of a team of four debt specialists. Mike Birch joined as lead investment manager, with Robert Game as portfolio manager, Louise Standring-Smith as investment manager, and Sunny Vaghela as analyst, boosting Schroders’ debt team, which has a 2022 target to raise £1 billion (€1.2 billion).

Schroders launched its European real estate debt strategy last year, with the hiring of Natalie Howard from debt fund manager DRC Savills Investment Management to run the team [read more here]. “Our team now consists of 10 specialists, making our platform comparable to the largest teams in the industry,” Howard said.

LBBW’s big acquisition
A big M&A deal in the German banking market closed this week. LBBW, the Stuttgart-based commercial bank, announced it has completed its acquisition – originally announced in January – of mortgage bank Berlin Hyp [see LBBW’s announcement here]. Our Top 50 Lenders 2021 list, published in December, showed Berlin Hyp had a European loan book of €26.4 billion at the end of Q3 2021. LBBW, meanwhile, had a European real estate loan book of €25.4 billion at that time. Berlin Hyp, which previously belonged to a group of German savings banks, will operate as an independent subsidiary in the LBBW Group with its established brand.

“With the highly profitable Berlin Hyp, we are significantly strengthening our position in commercial real estate finance,” said Rainer Neske, chairman of the board of managing directors of LBBW.

Supermarket sweep
Supermarket Income REIT this week announced it has closed a £412.1 million debt facility with a bank syndicate – comprising Barclays, Royal Bank of Canada, Wells Fargo and the Royal Bank of Scotland International. This is the first time the investor in UK grocery properties has sourced an unsecured credit facility, with fierce competition to provide the loan contributing to pricing of 1.5 percent over SONIA. “We had interest from UK and international lenders,” said Robert Abraham, managing director, fund management. “We are in a defensive, non-cyclical sector… and there is a huge amount of interest in the grocery sector from equity and debt investors.” The firm will use the capital to fund further acquisitions.


The office bear
Readers of Bank of America’s recent research note on European real estate equities would have been left in no doubt about where BofA Securities, the investment banking division of the US group, stands of the outlook for the region’s office sector. “Recession will likely lead office occupancy and market rental values to decline and property prices to fall apart,” it predicted in the 29 June note. Calling time on 12 years of continued yield compression, owing to higher funding costs, the bank declared: “Real estate’s glory days are numbered.”

Adding credit
It is a good time to allocate to real estate debt, according to CBRE Investment Management. The New York-headquartered manager, itself a lender, this week issued new report [see here] in which it explored the credit strategies on offer for investors with varying risk and return requirements. As part of it, CBREIM outlined its forecasts, made in May, which showed UK real estate debt was expected to deliver a higher return – as a proportion of equity return – than could usually be expected. In addition, report author Dominic Smith, senior director of credit research at CBRE IM, said increases in the SONIA rate since the forecasts were made means credit returns are now set to outperform equity returns on an absolute basis in parts of the market. “There are always good or bad entry points into markets, and tactically, right now is a really good entry point to credit,” he said. Read our analysis here.

Wearing thin
In the US, warehouse lenders are the latest capital source to feel the effect of rising rates, mismatched pricing and market volatility that is being seen across the real estate debt space, with Dan Lisser, a senior director at New York-based advisory Marcus & Millichap, explaining it is now more difficult for a lender reliant on a warehouse line to originate loans. “The whole securitised market – CMBS, conduit, single asset single borrower, and the CLO market, which is primarily the market that that we’re talking about – has seen a slowdown,” Lisser said in an interview with affiliate Real Estate Capital USA last week. Read the full story here.

Loan database

REC Europe’s deals database revamped!
Real Estate Capital Europe’s database of European property debt deals has become an essential source of weekly information for real estate credit professionals in part of the property industry that lacks readily available data. Since 2016, our editorial team has collected the real estate lending deals we see in the European market. The database is updated and republished each Monday morning.

Now, it has been relaunched in a new and improved format to make it more detailed and easier to filter. To find out more and access the database, click here. Also, we want to hear about your deals. If you have completed a transaction and would like it to be included in our database, please contact REC Europe editor Daniel Cunningham at daniel.c@peimedia.com with the details.

Data snapshot

Building a market
Investment in the UK build-to-rent market was up 11 percent in H1 2022, compared with the same period in 2021, according to data from CBRE. The property consultant expects this year’s volume to match or exceed 2021’s record £4.4 billion, based on completed and pipeline deals.

Loan in focus

London North Studios: Tristan has provided finance

Tristan’s studio debut
Studios are hot property for debt providers, and London-based manager Tristan Capital Partners has become the latest to secure its foothold in the market, providing a £35.4 million loan to UK property developer Zisler London. The three-to-five-year loan will refinance the 182,764-square-foot London North Studios, enabling the sponsor to focus on increasing occupancy at the complex. Dan Pottorff, head of debt investment at Tristan, said: “The studio market is currently structurally under-supplied and the shift towards content on demand is driving requirements for well-located filming production spaces and putting pressure on market rents.”

Today’s Term Sheet was prepared by Daniel Cunningham, with contributions from Lucy Scott and Samantha Rowan