Term Sheet: Starwood’s Stateside default, Goldman Sachs’ real estate write-downs, Evergrande’s potential resolution

Starwood’s US office default adds another high-profile name to those that have not met debt deadlines this year; Goldman Sachs reveals real estate write-downs across its portfolio; a conclusion to the Evergrande saga appears closer; and more in today's briefing, exclusively for our valued subscribers.

They said it

“Today, the area we’re most active in is actually European real estate, particularly in logistics, because the sentiment around European real estate is so negative”

Jon Gray, Blackstone’s president and chief operating officer, on the US manager’s Q2 earnings call last week, says a closer look at parts of the European market, such as UK logistics rental growth, reveals a strong story. Read more on affiliate title PERE.

What’s happening?

Atlanta: Starwood has defaulted on a loan secured by an office tower in the US city (Image: Getty)

More trouble Stateside
High-profile loan defaults remain rare in the European market. However, there was a further signal in the US in the past week that some of the industry’s major players are not meeting debt deadlines. Starwood Capital Group, the Miami-based investment manager, failed to refinance or pay off $212.5 million of debt linked to the 29-storey Tower Place 100 office building in Atlanta, according to a July 18 report from Bloomberg. A filing from Melbourne-based data service company Computershare noted Starwood was unable to pay off the Goldman Sachs-originated loan at maturity and that the lenders have hired counsel to negotiate an agreement. The Starwood office default places the investment manager in similar company to Blackstone and Brookfield Asset Management, which have both defaulted on select office loans in recent months as a result of sustained volatility in the US office market.

All that glitters is not Gold(man)
Goldman Sachs is the latest firm to be dragged into real estate-related troubles. The New York-based investment banking giant, which has property holdings held primarily on its balance sheet, has seen $305 million-worth of losses in its private portfolio, primarily due to write-downs of office properties, chief financial officer Denis Coleman told investors on last week’s earnings call. Debt investment revenues also declined year-on-year because of weaker performance in real estate markets, he added. The firm did well to stave off complete negativity, however. Goldman added a slide to its earnings presentation for the first time highlighting its $178 billion loan book. It noted that only 15 percent, or $28 billion, of the loans were exposed to commercial real estate, with only 1 percent of that to office, the market’s least favourite asset class currently. That percentage is down from just over 18 percent at the same time last year.

Banking on BTR
In Europe, lenders remain keen on residential financing opportunities – where they can find them. And stable returns are attracting debt providers to the UK build-to-rent sector. This week, it was announced UK bank NatWest and Dublin-headquartered Allied Irish Bank have provided £100 million (€116 million) to finance the Smith’s Garden BTR scheme in Birmingham, being developed by Goodstone Living, the residential platform of Australian manager Macquarie. Goodstone said the 550-unit scheme is the largest in the UK to be built using modular construction methods. The UK BTR sector is outperforming equities, bonds and other real estate investment vehicles; seeing a 7.1 percent annual total returns over the course of the last 10 years compared with -0.1 percent in bonds and 5.8 percent in equities, according to Cushman and Wakefield’s latest UK BTR report. The consultant said this highlights its appeal to institutional investors.

Moment of truth for Evergrande
A resolution to one of the world’s biggest real estate debt stories is closer. A Hong Kong court said on Monday it will decide in September on a debt restructuring plan for troubled Chinese real estate developer Evergrande, according to a Reuters report. Evergrande, which announced a debt restructuring plan in March, reported a combined loss of $81 billion between 2021 and 2022 in its earnings results last week. With total liabilities of over $330 billion, the developer is seeking to swap its existing debt with new bonds and equity-linked instruments in the proposed plan, Reuters previously reported. Evergrande first defaulted in December 2021 as it missed two coupon payments. Since then, more developers have defaulted due to the Chinese government’s push to deleverage the country’s property sector.


Paris: French lenders predict tighter terms (Image: Getty)

French lenders get defensive
According to French real estate lenders polled by broker CBRE, lending terms going forward will be tighter, costlier and greener. In total, 80 percent of lenders that took part in the property consultant’s first French lender intentions survey said they expect a moderate to significant increase in margins for loans against core assets, with almost a third anticipating a 20-basis-points-plus increase. On lending terms more broadly, 78 percent said they planned to be stricter on requirements towards borrowers. However, sustainability remains a major consideration and a third of respondents said borrowers meeting the right standards could receive a higher loan-to-value, and around half said they are open to a step-down in margins over the loan term for sustainable properties. CBRE said the survey reflects concerns over rising interest rates, the fear of recession, and uncertainty about real estate valuations. Read full coverage of the results here.

Data snapshot

Fewer new bums on seats
London’s office sector is a key indicator of occupier demand in post-covid Europe. This week, consultant JLL published figures that showed Q2 central London office leasing activity was down 27 percent on the same period in 2022. Despite the industry focus on best-in-class offices, second-hand space attracted was most popular among movers. Access the full report here.

Loan in focus

Amsterdam: More than half of the properties refinanced by Aukera are in the city (Image: Getty)

Aukera’s landmark Dutch loan
Three-year old German real estate debt manager Aukera Real Estate has continued to grow its loan book with a senior refinancing facility of more than €150 million for a mixed-use portfolio in the Netherlands. The loan was provided to Amsterdam-based investment firm Metroprop for a portfolio of around 65 assets, including residential and commercial properties, of which more than half are in Amsterdam. The loan will also finance sustainability upgrades across the portfolio. Jos van de Mortel, founder of Metroprop, said the firm was pleased to have secured the financing “without any negative cashflow impact”. Lars Armgart, chief executive of Aukera, said the stable performance of the portfolio during recent testing times convinced the manager to make the loan. Aukera, which has lent through mandates, has lent more than €1.3 billion since inception and is now planning its first pooled fund.

Today’s Term Sheet was prepared by Daniel Cunningham, with Mark Mwaungulu, Samantha Rowan, Evelyn Lee, and Christie Ou contributing.