Victory Group closes €249m Brussels office refinancing

The transaction, on which JLL advised, was completed at a time when banks increasingly scrutinise office loans.

Manhattan building, Brussels

One of the most significant office refinancing transactions in the Benelux region so far this year has closed, with real estate firm Victory Group sourcing €248.5 million of senior and mezzanine debt for the Manhattan building in Brussels.

Victory, which was founded in 2009 by former Blackstone managing director Erik Moresco, completed a major refurbishment of the asset last summer, and appointed property consultant JLL to source fresh financing to replace transitional debt. The refinancing was completed last month.

The identity of the lenders has not been confirmed. However, in February, 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.

According to Claudio Sgobba, senior director in the EMEA debt and structured finance team at JLL, low cost of capital bank financing in Belgium is challenging to source in general. “Banks are open for business, albeit with a focus on high calibre sponsorship and asset quality. It is a smaller market, and commercial banks in the Benelux typically focus most of their balance sheets on Amsterdam, The Hague, and Rotterdam, with up to 30 percent allocated to Antwerp and Brussels, so there is less liquidity available, compared to the Netherlands,” Sgobba said.

“Debt funds provide financing in Belgium, and there are over 35 of them, but it is an entirely different cost of capital,” he added.

Sgobba noted an increased focus on dissecting occupancy from lenders amid negative sentiment towards the office market. “Lenders are now focused more than ever on the details. They are not just focusing on the percentage of occupancy. They want to know how mission-critical the location is to the tenant. A new key aspect for the lender is to stress test subleasing risk and rollover exposure at lease expiration.”

He added: “Leverage, debt yield, interest coverage, occupancy levels are the questions every lender asks. But for the first time, we were being asked about location or physical attributes that will retain and attract important employees, whether the tenants’ C-level suite or senior decision-makers are based in the building, whether the space is for front or back-office functions.”

JLL explored various financing structures, including a whole loan solution, and a senior and mezzanine debt structure, which Sgobba said was the most efficient option due to the size of the financing and the pricing on offer from lenders.

Lender interest, he said, was strong. “If this office building was in London, it would have probably received a similar amount of term sheets. There were three factors here which attracted lenders: first, the sponsor track record. Second, the prospect of financing its future pipeline. Third, this is one of the best buildings in Brussels, from a quality perspective.”

Following its comprehensive refurbishment, Manhattan comprises 646,000 square feet of space across six basement levels, a ground floor and 29 upper floors. Offices account for 506,000 square feet, with a data centre, amenities space and storage accounting for the remainder. Office tenants account for more than 75 percent of the building’s income.

The asset has a weighted average unexpired lease term of around 11 years, with current leases signed with tenants including Ageas, Baker McKenzie, Citi and Yara Belgium, at the highest rents ever achieved in the submarket.

In a statement, Victory’s Moresco recognised more challenging financing conditions. “The lower availability of finance across the market has been well-publicised, but the refinancing of Manhattan demonstrates that best-in-class assets like Manhattan buck this trend. Buildings like this, that offer outstanding working environments with a world-class selection of amenities in the best locations, are exactly the type of asset we want to own,” he said.

Before the covid-19 pandemic, it was estimated a bank debt process in Belgium took 12-16 weeks from start to finish. However, due to lenders’ capacity and the complexity of deals resulting from wider macro-economic factors, it is important to allow for a longer debt process, Sgobba explained. Balance sheet lenders are taking more time to close as they are becoming much more rigid around covenants and hedging requirements.

According to JLL’s Q1 2023 Brussels office market report, total office investment volume was €137 million in the first quarter. The total for 2022 was €3.62 billion, up from €2.5 billion in 2021. Prime yields in Q1 were 4.5 percent, up from 4 percent in 2022.

Occupier take-up for the first quarter was 775,000 square feet. The total for 2022 was 3.2 million square feet. The Q1 vacancy rate stood at 7.6 percent, up from 7.4 percent at the end of 2022.