Europe’s real estate lenders are highly selective about the standing properties they will finance in these troubled times. However, there is growing evidence that many of them are keen to back the continent’s best development projects, which they hope will open their doors in improved economic conditions.
One such scheme, Quartier Heidestrasse in Berlin, attracted a €296 million development financing package from a consortium led by German bank Deutsche Hypo in a deal announced this week. For more on that, and the rest of the past week’s noteworthy happenings, read on.
Building in Berlin:
Quartier Heidestrasse comprises seven interconnected buildings near Berlin’s main rail station, on the site of a former container railway station.
The two-year financing, for sponsor Aggregate Holdings, will fund four properties, comprising 779,000 square feet of residential, office, hotel and leisure space. The scheme is due to complete in 2023. Not all the sectors are top of lenders’ hit lists, but Andreas Rehfus, a board member at Deutsche Hypo, said the mix of uses makes the scheme attractive.
“A living space is being created here that allows plenty of room for meeting and exchanging ideas and optimally combines living and working,” he explained.
The financing consortium also includes German insurer ERGO Group, as well as German banks DZ HYP and Volksbank. Deutsche Hypo said the loan is its first project development to be closed alongside an insurance company.
QuadReal’s eye on European debt:
Before the covid-19 crisis, managers and investors viewed debt as an increasingly enticing opportunity in a late-cycle market. Since the onset of the pandemic, many believe the credit proposition has become even stronger, as banks limit their financing activities. Among them is QuadReal, the property arm of Canadian pension fund investor British Columbia Investment Management Corporation.
For its April edition, affiliate title PERE interviewed QuadReal’s chief executive, the former AXA global chief investment officer Dennis Lopez. His company is a real estate success story of the crisis, having doubled its assets during the pandemic.
The investor intends to further this success with big plans in debt. Lopez said QuadReal aims to invest in the four real estate quadrants – public and private debt and equity – and has so far amassed a C$7 billion (€4.6 billion) debt portfolio, with plans to double it in the coming years.
QuadReal’s debt focus is currently on North America. However, head of US real estate debt Prashant Raj said it also has an eye on European opportunities, including UK platforms.
Primonial opines on offices:
Property companies that are invested in the office sector, such as France’s Primonial Real Estate Investment Management, are unlikely to present too gloomy a view of the sector’s pandemic-influenced future. However, the company’s latest paper contains food for thought from an equity investor’s perspective.
Primonial said that, before covid, the office industry was already shifting from an “age of ownership” to an “age of access”, in which building owners were becoming the providers of a user experience. It also pointed out that remote working had already become a slow-burning trend across Europe, with 9.7 percent considered occasional remote workers in 2019, up from 5.8 percent in 2008.
Primonial argued that investor demand for offices has held up, albeit with a flight to quality. It said large office buildings had been the most resilient, for reasons including the scope to adapt them to co-working uses, more meeting spaces, and using buildings as a “social network”. It added that smart technology-enabled buildings were increasingly important to help monitor and control energy consumption and connect with users’ digital tools, such as smartphones.
Future demand for offices remains unclear, and although landlords like Primonial are not neutral commentators, lenders should take note of the company’s thoughts on what a good office investment looks like.
Hotel distress is the investment opportunity that many private real estate players have been waiting for. The covid-era fundraising numbers for vehicles targeting the sector attest to this: a total of 23 hotel funds seeking an aggregate $5.9 billion were in market as of 12 March, according to data from PERE. This represented increases of 28 percent and 47 percent, respectively, on the 18 funds targeting $4 billion as of 31 March 2020.
Yet the reality has fallen far short of expectations, as reported in PERE’s April issue. According to New York-based data provider Real Capital Analytics, distressed hotel sales totalled $771 million globally in 2020, far lower than the $2.2 billion recorded in 2019 or the $8.8 billion that closed in 2010, the peak year for hotel distress during the prior cycle. Proponents of hotel distress, however, maintain that most of the opportunities are still to come.
Quartier Heidestrasse image: TAURECON