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Term Sheet: SEGRO and Tritax announce green debt policies; Situs reports few defaults; Canada Life goes long on two world-famous shopping streets

SEGRO and Tritax publish green financing policies; Situs says European real estate loan defaults remain rare; Canada Life goes long with Bond Street and Madison Avenue financing; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“The natural fillers of the funding gap are the insurance companies and pension funds. It provides them with an opportunity to access a readily and easily accessible market, where there is plenty of product, with risk-return profiles for every investment appetite.”

Natalie Howard, who joined Schroders as head of real estate debt in November 2020, tells Real Estate Capital in an upcoming interview in our summer edition, why she believes institutional capital and real estate debt are a good fit.

What’s happening?

Borrower-side sustainability
Slowly, but surely, a sustainable property financing market is emerging in Europe. Lenders face increasing scrutiny over their provision of financing products that reward the environmental, social and governance performance of their sponsors. However, there is a growing focus from the borrower side of the equation on ensuring real estate debt deals factor in sustainability. This week, SEGRO, the logistics-focused real estate investment trust unveiled its Green Finance Framework, which identifies projects that can be financed through green bonds, loans, or other debt products. The framework was independently assessed by corporate sustainability advisor DNV and aligned to International Capital Markets Association and Loan Markets Association green loan principles. This week also saw European logistics owner Tritax Eurobox publish a Green Finance Framework, reviewed by ESG research and ratings company Sustainalytics, also designed to fit the ICMA and LMA principles. As sponsors like SEGRO and Tritax extend the focus of their ESG policies to cover their use of debt, sustainability will become more of a focus in the lending market.

A green bond for CEE
Sticking with sustainability, it has been a relatively busy start to the year for green bond issuance by real estate companies in Europe, with issuances by companies including manager CBRE Global Investors and UK landlord Canary Wharf Group. This week, MAS Real Estate, became the latest property company opting to raise finance through bond issues structured to comply with sustainability criteria. The central and eastern European investor, which focuses on the Romanian property market, priced a €300 million unsecured green five-year eurobond maturing in May 2026, and carrying a 4.25 percent fixed coupon. The bond issue, the proceeds of which will be used to finance and refinance green properties in Romania and the wider CEE region, is underpinned by a green financing framework aligned with the International Capital Market Association’s Green Bond Principles and the Loan Market Association’s Green Loan Principles. The issuance demonstrates that there is investor demand for green real estate bonds backed by collateral across European markets.

Few defaults
Loan servicer SitusAMC occupies a prime vantage point from which to monitor stress across European real estate loan books. And according to the company’s European loan servicing specialists, the covid crisis has not led to widespread loan delinquencies, defaults, or discounted asset sales across the UK and continental European real estate markets, as had been expected. In a paper published this week, Olga Delval, director of loan asset management, said many loans have been restructured, with extensions of maturities and waivers of covenants “in which lenders got something in return”. Delval added: “There have been some cases in which sponsors handed over the keys to lenders, but these were very limited and mainly within retail and leisure sectors. We are seeing re-evaluations with sponsors making lump-sum paydowns. So far, sponsors have been willing to provide more equity to correct positions and pay debt service.”

Canada Life goes long in luxury shopping hotspots
The £286 million (€322 million) loan, written by Canada Life Asset Management to an unnamed private client, secured against a diversified portfolio of prime real estate on London’s Bond Street and Manhattan’s Madison Avenue – two world-famous luxury shopping drags – demonstrates how insurance companies are seeking opportunities to finance prime property on both sides of the Atlantic. The asset management arm of the insurance and financial services firm Canada Life this week announced it had completed the loan, which was split across three co-terminus tranches, at a sub-50 percent loan-to-value. The loan’s duration – it is due to mature in 2034 – shows institutional lenders and investors are looking for long-term, stable income from core properties in the most sought-after locations.

SFR catching on
The single-family rental housing sector is buzzing in the US, where Toronto-based Tricon Residential announced a $1.5 billion joint venture last week with California-based Pacific Life Insurance Company and an unnamed global investor. But activity is picking up on the other side of the pond as well. Also last week, Apache Capital launched Present Made, a single-family housing for rent platform in the UK. The subsidiary has a £1.6 billion (€1.9 billion) development pipeline that will include more than 3,000 so-called smart homes in suburban locations in southern England. Other UK firms active in the sector include Packaged Living, a UK private rented sector specialist backed by Fiera Real Estate, and Legal & General, which launched suburban single-family rental platforms in October and November, respectively.

Data snapshot

A strong Q1 for banks, Stateside
The US commercial real estate market continued its recovery during Q1, according to consultant CBRE. After trailing life companies and alternative lenders in Q4 2020, banks accounted for the largest share of non-agency commercial mortgage originations in Q1.

Loan in focus

Aareal goes big on European sheds with €400m loan
The €400 million loan provided by German bank Aareal to the logistics giant GLP last week provides further evidence that real estate lenders across Europe remain keen to write big loans in the hot sector. The loan will be used to refinance the acquisition of 27 prime logistics properties located across the UK, Germany, France, the Netherlands and Belgium by GLP, whose operating portfolio in Europe is managed via four funds totalling over €10 billion in assets under management. High levels of competition in the logistics sector resulted in a compression of yields in almost all European countries. According to research published by consultancy BNP Paribas Real Estate in March, prime yields compressed during Q4 2020 to 3.35 percent in Germany, 3.5 percent in the UK, 3.8 percent in the Netherlands and 3.9 percent in France.

Today’s Term Sheet was prepared by Daniel Cunningham with Eugenia JiménezJonathan Brasse and Evelyn Lee contributing