Term Sheet: The first post-crisis CRE CLO for Europe, Evergrande contagion fears grow, SCOR focuses on sustainability for its latest debt fund

Loans originated by Starz Real Estate are to be securitised in Europe’s first post-crisis CRE CLO; Missed debt payments at two Chinese development firms spark fears of a spread of the Evergrande crisis; France’s SCOR Investment Partners says sustainability is crucial to delivering for investors in its €629 million latest debt fund; and more in today’s briefing, exclusively for our valued subscribers.

They said it

“It is essential for the long-term success of our business that we take meaningful action to reduce our carbon footprint and create a blueprint for integrating these buildings into communities. This is both a moral and commercial imperative.”

Natali Cooper, newly appointed to lead the ESG activities in Europe for industrial giant GLP, says the logistics sector’s stratospheric growth has placed it into the sustainability spotlight.

What’s happening?

Written in the Starz
In the US, commercial real estate collateralised loan obligations are big business. Data firm Trepp says $30 billion of CRE CLOs have been issued in the US this year. However, Europe had not seen a broadly distributed CRE CLO since the financial crisis – until now. On 1 October, KBRA assigned preliminary ratings to Starz Mortgage Securities 2021-1 DAC – which securitised nine whole loans written by mid-market lender Starz Real Estate for a range of property types in the UK, Ireland, Spain and the Netherlands [read more here].

In the US, CRE CLOs typically feature transitional loans and comprise recourse debt, which relies on the borrower. More about how they differ to commercial mortgage-backed securities issuances can be found here.

Trepp’s head of EMEA and APAC, Vivek-Anand Dattani, told Real Estate Capital the Starz deal is a significant milestone for the European commercial real estate market, especially in the context of a comeback for European CMBS. “This deal gives the manager flexibility of servicing and managing the pool of loans. This characteristic, for example, has served the US CRE CLO market through the pandemic well. It will be interesting to see the route of financing that is chosen over the coming year on this side of the Atlantic.”

China crisis
Evergrande’s creditors continue to watch and wait as the crisis at the Chinese development giant plays out. At the time of publication, stakeholders in the debt-laden company were awaiting an announcement about a possible sale of a large stake in its property services business [see coverage here]. The trading of shares in Evergrande and Evergrande Property Services were halted on Monday ahead of a “major transaction”.

Separately, in an alarming development, two other Chinese developers have hit the headlines due to problems servicing debt. On Monday, Chinese developer Fantasia Holdings missed a $206 million debt payment [see here] and on Tuesday Fitch Ratings downgraded Sinic Holdings after it missed interest payments. Although smaller companies than Evergrande, the news has prompted fears that a wider crisis in the Chinese real estate sector is emerging.

Tomorrow’s properties
SCOR Investment Partners, the asset management arm of French reinsurance group SCOR, has raised almost €2 billion for its real estate debt strategies since 2013, including €629 million for its SCOR Real Estate Loans IV fund – the final close of which was announced last week. Half of the capital, which was raised from French institutional investors, has already been deployed. According to SCOR, it has two clear aims for the fund: First, to target value-add opportunities in its hunt for returns; Second, to lend according to a new sustainable investment charter, to ensure the projects it finances are subject to energy, environmental and wellbeing aspirations.

The focus, SCOR said, is financing “the office buildings of tomorrow, along with new uses and lifestyles”. Ultimately, explained François de Varenne, chief executive of SCOR Investment Partners, financing buildings that use less energy, are more environmentally friendly, and are adapted to new uses, creates value for investors.

‘Like-minded sponsors’
Tristan Capital Partners says a convincing business plan was behind its decision to finance its first value-add project in the UK retail sector. The London-based manager, which itself has a history of buying properties and adding value to them, told Real Estate Capital in September that its recently launched debt strategy enables it to finance ‘like-minded sponsors’. Last week, the firm announced it had provided a £44 million (€52 million) loan to support Invesco Real Estate’s acquisition of The Fort Shopping Park in Birmingham, UK. According to Dan Pottorff, Tristan’s head of debt investment, the sponsor’s determination to improve the asset’s value over the life of the loan, as well as its thinking around potential changes of use if the initial plan fails, were key considerations when underwriting the loan.

Last chance

Europe’s Top Lenders 2021 – the submissions deadline looms
Time is running out to let us know why your organisation deserves a place on our annual list of the lenders making the biggest impact on Europe’s real estate finance market. The 2021 list will be published in the winter edition of Real Estate Capital, and online at recapitalnews.com on 1 December. If you think your organisation deserves to be considered for a place on it, we want to hear from you. To make a submission, please fill in the dedicated form, which you can find HERE, by midday, UK time, Friday 8 October.

Europe’s Top Lenders is among our most-read items each year. Since it was launched in 2014, it has become a bellwether of the organisations doing the most to provide liquidity in Europe’s real estate markets. In case you missed it, the 2020 edition can be read here.

Data snapshot

A bounce back year
Real estate consultancy Knight Frank has compiled its projections for cross-border activity in 2022. It expects a banner year for international investment.

Loan in focus

A rare Italian green loan
Green real estate loans have only been seen in Italy in the last two years, and they are rare. However, Generali Real Estate – a subsidiary of Italian insurer Generali – has sourced its first in the country. The €162.5 million loan was provided to Rubens, a fund managed by Generali Real Estate, and is secured against the Libeskind Tower in Milan – a 34-storey curved office building designed by architect Daniel Libeskind, which is home to PwC in Italy.

Italian banks Intesa Sanpaolo and UniCredit, alongside the Italian subsidiaries of French banks Crédit Agricole CIB and BNP Paribas, provided the loan. It was structured according to the Loan Market Association’s Green Loan Principles, and the asset is LEED Gold certified. Completed in October 2020, the tower was built, according to Generali, “with cutting-edge solutions in the design of new generation workspaces, where layout efficiency is combined with attention to sustainability and to the wellbeing of employees”.

Today’s Term Sheet was prepared by Daniel Cunningham, with Eugenia Jiménez and Kyle Campbell contributing.