They said it

“Once there is a general consensus, usually it’s too late for investors like us”

John Grayken, chairman of private equity firm Lone Star Funds, tells affiliate title PERE it is important to place capital before interest rates settle. Read the interview here.

What’s happening?

Nous aussi
Today’s lending market, it is frequently remarked, is great for those with capital. Paris-headquartered manager Tikehau Capital and French developer/investor Altarea want to be among them. The pair have launched a real estate credit platform, for which they are targeting €1 billion, with €200 million so far provided by the two organisations. The goal, the pair said, is to close a “liquidity deficit” by providing asset-backed and corporate finance, with an emphasis on mezzanine and whole loans. Tikehau has experience in real assets investing and private credit and has done around €500 million of real estate credit deals through its special opportunities franchise. Tikehau co-founder Antoine Flamarion said the firm sees potentially attractive opportunities throughout Europe, while Altarea executive chairman Alain Taravella added real estate companies are “still adjusting to the new environment with higher interest rates, more difficult refinancing ahead and progressive price discovery on asset values across all asset classes”.

Heavy contest for Brookfield
Canadian investment giant Brookfield has sourced a £300 million (€348 million) loan from a consortium of lenders comprising Deutsche Bank, BNP Paribas and AXA Investment Managers to fund improvements and an expansion of its Harwell Science and Innovation campus in Oxford, UK, according to real estate news service React News. The loan is one of the biggest in the UK market so far this year and demonstrates lender appetite for the life sciences sector. It is understood the financing was heavily contested with around 15 term sheets provided in April from potential finance providers. The Harwell campus is one of the UK’s best known science and innovation hubs. Brookfield acquired a 50 percent stake in the campus in 2020 from UK property company U+I. The remaining stake is owned by the UK Government.

Lights, camera, action
French manager AXA IM Alts has entered the film studio market with the acquisition of a 12-hectare plot of land in Paris from French property manager Nexity, including one of France’s largest film and series studios. AXA’s investment is in the order of €150 million, which includes the purchase price and the refurbishment of the property. French banks have supported the deal with a loan understood to be in the 30 to 40 percent loan-to-value range. The loan was provided by a club comprising Caisse D’Epargne Île de France, Banque Palatine and Banque Postale. The asset class is gradually attracting real estate managers. In 2021, in a significant deal for the content creation sector, US managers Blackstone and Hudson Pacific Properties acquired a 91-acre site in Broxbourne, north of London, in a £700 million project to create a new studio.

Brussels’ doubts 
According to Claudio Sgobba, senior director in the EMEA debt and structured finance team at consultant JLL, lenders are scrutinising all aspects of potential office lending deals in today’s market: “They are not just focusing on the percentage of occupancy. They want to know how mission-critical the location is to the tenant.” Sgobba advised real estate firm Victory Group on the €248.5 million refinancing of its Manhattan office building in Brussels. JLL did not identify the lenders, although, in February, real estate news and data service CoStar News reported Dutch bank ING was on course to complete a refinancing of the building in a deal it said would reduce the size of a mezzanine loan from London-based manager DRC Savills Investment Management to around €40 million. The transaction is a highly significant one for the Belgian market at a time when lenders are cautious on offices. Read more about it here.

Trending

Turning negative
The tightening of credit conditions in Europe, alongside the rising cost of capital and declining property values is increasing risks for real estate companies’ credit quality in the next 12-18 months, according to a note issued by Moody’s last week. The credit ratings agency changed its outlook for the global real estate sector to negative. Weak operating conditions will make it difficult for companies to offset increases in higher funding costs, Moody’s said. Predicting rental income growth of between 1 and 3 percent between now and 2025, the company added: “[This] typically reflects a stable outlook. But rental growth will not be sufficient to offset the negative impact on higher interest rates on the sector, which relies heavily on external capital access and transaction markets.”

Debt ceiling relief 
In the US, the House of Representatives last Wednesday night passed a bill that allows for an extension to the country’s debt ceiling before its 5 June deadline, paving the way for its advancement to the Senate and averting a potential default on US sovereign debt. “In the short-term, a resolution will bring benchmark Treasury yields down slightly, especially on the short end of the curve,” Nitin Chexal, chief executive of Austin-based manager Palladius Capital Management, told affiliate title Real Estate Capital USA last Wednesday. Chexal noted a deal on the debt ceiling does not negate other issues the market is facing. “The majority of institutional real estate market participants continue to focus on economic growth, inflation and employment data, which will ultimately drive the Federal Reserve’s next move – skip, pause, or hike rates,” he added.

Data snapshot

Rental uplift
UK industry body the Investment Property Forum reported an uplift in the rental growth forecast for UK commercial real estate following its latest survey of its members. Its 2023 and 2024 forecasts have increased, leading to a 40-basis-points improvement in the five-year annualised figure to 1.8 percent per year. See the full Spring 2023 report here.

Loan in focus

Tristan’s educational loan
London-based manager Tristan Capital Partners has provided a senior loan of up to €80 million to French developer GDG Investissements to fund the conversion of an historic townhouse in Paris into an educational campus including student accommodation. The financing will support the conversion of the Renaissance-style Hôtel Scipion in the city’s 5th arrondissement into an urban campus with educational facilities in addition to private and social student housing across five floors. The hotel is located near universities including Panthéon-Sorbonne. Dan Pottorff, head of debt investment at Tristan, described the delivery of an educational campus at Hôtel Scipion as a scheme “in a sector which has showed particular resilience in Paris in recent times”. The firm provided the loan through its debt fund TIPS One. Tristan is aiming to launch a successor fund in Q3.

Today’s Term Sheet was prepared by Daniel Cunningham, with Mark Mwaungulu contributing