Real estate debt deals closed so far in Q1 2021 have included major bets on the UK’s domestic leisure market, as well as prime office property. In addition, sponsors are said to be looking for speculative development finance in the increasingly hot logistics sector. Here, we examine key recent deals, and other major talking points for the property lending market.
Starwood gets into the holiday mood:
One of the most noteworthy property deals of 2021 so far saw US investor Blackstone buy UK holiday company Bourne Leisure, owner of the iconic Butlin’s brand as well as Haven and Warner Leisure Hotels, in January for a reported circa £3 billion (€3.5 billion). With covid-19 curtailing foreign holiday plans for many, the deal looks like a bet on an increase in domestic ‘staycations’ for UK holidaymakers.
On 1 March, private equity firm Starwood Capital announced its involvement in a £1.8 billion loan to finance the acquisition. Lorcain Egan, head of international loan originations at Starwood, was clear about the rationale behind the loan: “We expect to see a resurgence in the UK domestic leisure sector in the post-covid lockdown environment and are thrilled to participate in an investment that not only benefits our investors, but also supports the recovery of a covid-impacted industry.”
A tower of capital for prime real estate:
The 110 Bishopsgate skyscraper in the City of London is the type of asset that banks want to finance in these uncertain times. Yes, it is comprised of 46 floors of mainly office space – a property type which has a far from settled future. But the tower, owned by a consortium including Heron International, is still regarded a prime asset, which sits in the heart of London’s finance district close to major transport links.
According to the bankers at ING and LBBW that refinanced an existing loan – also provided by them – with a £400 million, five-year facility, there is significant financial liquidity for properties of 110 Bishopsgate’s standard. The syndication of a slice of the loan to banks from Europe and Asia suggests bank lenders are ready to pounce when prime product comes up for financing.
Sponsors seek speculative logistics finance:
According to Conduit Real Estate, the London-based debt advisor, the pandemic is changing patterns of demand, including in the sheds space. In a research note, the firm cited a major global investor that reported several developers currently seeking finance for speculative logistics developments, due to strong, location-dependent occupier demand.
The advisor said those in the property sector need to consider what assuming a higher risk profile looks like in today’s environment, suggesting it might mean sticking with the in-demand logistics sector, but engaging in speculative development.
DWS says recovery is on the cards:
According to investment manager DWS, which runs a real estate lending business, a European real estate recovery could be due. In a research piece, it said the market is well-positioned to enter a period of recovery, initially led by yield compression, supported by the weight of global capital, before being supplemented with the return of rental growth in 2022.
Although it said the “rising tide” ought to benefit all sectors, DWS added that it expects to see a marked divergence between sectors in the coming years, with logistics and residential rising to the top of the pile. Lenders are already clamouring for exposure to these in-demand sectors – it looks like competition will only get stiffer.