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Term Sheet: Starz’s Middle Eastern capital, pbb’s green lending momentum, Beaufort and Pollen Street’s UK beds sector strategy

Starz Real Estate’s CEO says the pandemic has created lending opportunities in Europe as it agrees a new lending mandate; pbb Deutsche Pfandbriefbank’s green lending programme gains momentum; Beaufort Capital and Pollen Street’s partnership highlights the draw towards UK beds sector lending; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“It’s the whole power of the platform really coming together and delivering for each of our different types of investors”

Kathleen McCarthy, co-head of Blackstone’s global real estate platform, tells affiliate title PERE the closing of three major transactions last week totalling $38 billion – including the recapitalisation of European logistics platform Mileway – demonstrates the firm’s capabilities across geographies, sectors and types of capital. Read her thoughts here.

What’s happening?

Starz increases its firepower
Starz Real Estate, the London-based alternative lender focused on the mid-market lending space, last week announced a new mandate through which it will aim to originate as much as €900 million of commercial real estate loans over the next two years. Its fund – Starz Zenith Capital – is anchored by a Middle Eastern sovereign wealth fund and will provide loans for the acquisition and recapitalisation of high-quality, value-add property across the UK and the eurozone, with target returns of 10-12 percent.

According to David Arzi, CEO of Starz, opportunities in Europe are ripe for attracting investor capital to the market. “While the pandemic has created a challenging commercial landscape, it has also brought with it significant new opportunities as assets change hands and need recapitalising or updating to suit new requirements,” he explained.

Pbb’s green drive
Lenders are increasingly likely to offer sponsors green and sustainability-linked loan products. Among them is German lender pbb Deutsche Pfandfbriefbank. The bank launched a green lending programme in October 2021 and this week updated on its progress.

According to pbb, around €685 million of green loans have been written since the launch, including to finance offices in Berlin and Frankfurt, as well as in the Paris region. To craft the loans, pbb has developed an in-house scoring model, based partly on the EU taxonomy, which takes into account 10 criteria in three categories – energy efficiency, building certification and other sustainability factors.

More capital for UK beds
In last week’s Term Sheet, we explored NatWest and Leumi UK’s financing of EQT Exeter and Sigma Capital Group’s UK build-to-rent apartment development programme [see here]. This week brought more evidence of lender interest in financing UK developments, with a focus on ‘beds’ sectors. Beaufort Capital, a specialist development financier, and alternative investment manager Pollen Street Capital have joined forces with a joint venture aimed at providing finance to developers in sectors including housing, student accommodation and care homes.

Howard Garland, partner at Pollen Street, said the company’s real estate strategy is focused on bridging and development funding, through partnerships, in a market that is “increasingly underserved by mainstream banks”. The new partnership, he continued, fits the strategy.

Brookfield bets on scarcity value
In the equity market, Brookfield is the latest mega-manager looking to make a major real estate exit. The Toronto-based firm is reportedly exploring the sale of its $4.7 billion UK student accommodation business, Student Roost, which Brookfield began building in 2016 with the acquisition of a 13-property portfolio totalling 5,500 beds through its Brookfield Strategic Real Estate Partners II fund. Since then, Student Roast has grown to 20,500 units across more than 50 properties and is now the third-largest UK private student housing provider after Unite Students and Blackstone’s iQ Student Accommodation. It is one of the “only platforms that has reached scale and has been stabilized for a number of years”, in the UK sector, says Jamie Harris, head of student accommodation at London-based consultancy Harris Associates.

Brookfield declined to comment, but PERE understands that given Student Roost’s scarcity value, a private sale to a third party was considered the exit option that would maximize value for investors, in lieu of an initial public offering or a recapitalisation.

Motivated seller
In the US, Ares Management‘s real estate and alternative credit businesses have combined to purchase Capital Automotive, a car dealer net lease specialist, from a private fund managed by Brookfield. The Los Angeles-headquartered multi-asset manager used $3.8 billion of capital for the transaction with the split not disclosed for each business line [see the press release here]. Institutional interest in net lease platforms is piquing, with Starwood having just completed its own $3 billion acquisition of iStar’s net lease platform. In 2021, transactions in the space broke new records, totalling $95.5 billion in the single-tenant net lease space, according to property adviser Stan Johnson Company. The activity confirms appetite for a sector set to fare well during an inflationary environment, with long-term cashflow top of mind for investors.

Trending

Liquidity premium
US commercial lending activity continued its strong run in 2021, according to CBRE’s quarterly US lending report, reported affiliate title Real Estate Capital USA. The CBRE Lending Momentum index increased 10.3 percent between Q3 and Q4, now resting 42.2 percent higher than its pre-pandemic close in February 2020. Within that, the firm found banks increased their share of non-agency lending volume to 29 percent in Q4, compared with 24.5 percent a year ago and 23.1 percent last quarter. CMBS originations have enjoyed similar positive momentum, reaching 18.5 percent at the end of Q4, after reaching 17.6 percent in Q3 and 10.5 percent in Q4 2020. Finally, data showed the beleaguered CMBS market finished strong, with origination volumes more than doubling year-on-year.

Data snapshot

Real return squeeze
In a new report [which can be read here], research house Oxford Economics says conditions for strong real estate performance remain – despite inflation and the prospect of rising rates – with corporate and consumer balance sheets well positioned, economic growth likely to support rental growth, and continued investor demand. Near-term nominal returns are set to remain strong, it said, but real returns will be squeezed.

Loan in focus

Hines goes green in Spain
US real estate firm Hines, acting on behalf of German pension group Bayerische Versorgungskammer, opted for a green loan as part of the financing package for its Preciados 13 retail and hotel asset in Madrid, it announced this week. The company sourced the €50 million green loan from Spain’s CaixaBank. Hines acquired the mixed-use building, on behalf of a BVK company, in 2017, and has since undertaken a €12 million renovation.

The six-year loan is designed to promote ongoing efforts to improve energy efficiency and drive down carbon emissions. “Thanks to the quality of the refurbishment, we’ve managed to agree a green deal with our ongoing ESG strategy,” said Vanessa Gelado, senior managing director and country head of Hines in Spain.


Today’s Term Sheet was prepared by Daniel Cunningham, with Evelyn Lee, Samantha Rowan and Kyle Campbell contributing.

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