April 2015 Issue

German real estate debt funds, while relatively new on the scene, are starting to build loan books and market relationships. Germany’s first debt fund under German investment law, Deka Realkredit Klassik, launched in 2009, has amassed a €470m portfolio of 24 top-quality loans by buying the senior slice of some loans originated by Deka Bank. A stipulation of the agreement is that Deka Bank must hold at least 50% of Deka Realkredit Klassik’s share in any loan. Germany’s first debt fund under German investment law, Deka Realkredit Klassik, launched in 2009, has amassed a €470m portfolio of 24 top-quality loans by buying the senior slice of some loans originated by Deka Bank. A stipulation of the agreement is that Deka Bank must hold at least 50% of Deka Realkredit Klassik’s share in any loan.

Real Estate Capital market commentary: Morgan Stanley has had an active start to 2015, agreeing to underwrite a €294m loan for REIT Starwood Property Trust’s acquisition of 12 offices and one residential investment in Dublin from Lone Star, for €452m. The US bank also refinanced another high-profile Irish investment, Green Property’s 1.5m sq ft Blanchardstown town centre on the edge of Dublin, with a €750m whole loan comprising €587m of senior and €163m of mezzanine.

Literally and metaphorically, the music was playing at Europe’s largest property festival this year. In fact, at MIPIM’s parties such as the ones thrown by Tristan Capital and Legal & General, it went on well into the night. A slew of agents’ deal-volume surveys out for MIPIM week showed how vigorously it played last year – Knight Frank’s, for example, had deals up 44.6% in the Netherlands, 89% in Ireland and 144% in Spain, while Savills logged a 36% jump overall to €200bn in Europe’s 15 largest markets. Though sadly there are no such statistics for the level of lending fuelling this wall of sound, we can be sure debt was helping to turn up the volume.

Fortress is now in pole position to absorb Italian banks’ legacy debt sales, after buying the bad loans unit of one of the country’s top three banks, UniCredit. The US private equity firm also picked up a non-performing loans portfolio from the bank, in one of Italy’s biggest distressed debt deals in several years. In February, a consortium led by the US firm agreed to pay €300m for UniCredit Credit Management Bank (UCCMB), which manages more than €35bn of non-performing loans (not all belonging to UniCredit) and €230m for a separate NPL book with a €2.4bn nominal value.

Aareal Bank’s announcement in February of its agreement to buy real estate lender WestImmo had been widely anticipated, with the consensus being a “thumbs up” on the deal, says one German-based adviser. “Analysts and market participants speak positively about the transaction, as Aareal got a good price and the footprint of both banks allows for high synergies,” he adds. Aareal, headquartered in Wiesbaden, a handy 10 minutes across the Rhein from WestImmo, trumped private equity competitors, including Apollo Global Management, with a €350m offer. The vendor was bad bank Erste Abwicklungsanstalt, to which WestImmo was transferred by its parent company, West LB, in 2012.

The commercial real estate bridge lending market has grown exponentially in the past year as lenders new and old seek higher yields amid less lucrative alternatives. Bridge loans, which typically stretch up to three years or until permanent financing is obtained, accounted for just 11% of total loan closings in Q1 2013, but that figure had doubled by Q3, based on a representative sample of deals arranged by CBRE.

Lending to senior housing and healthcare centres is shooting up in the US, with growing demand for accommodation leading to a record-breaking fourth quarter last year. A Mortgage Bankers Association preliminary estimate shows that senior housing and medical facility loan origination leapt 92% from Q3 to Q4, compared to a 27% jump for all commercial and multi-family mortgage properties.

M7 Real Estate is a company of our time. The pan-European industrial property specialist was born out of an outfit that crashed in the global financial crisis. Its key protagonists re-invented themselves with remarkable speed and its move from the London property industry’s traditional West End base to funky new offices in the more in-vogue Southwark last August encapsulates the firm’s approach. Independently owned and set up by 10 former GPT Halverton senior managers following its 2009 collapse at the market’s nadir, M7 soon formed crucial joint ventures with the likes of Westbrook Partners and Europa Capital, helping propel the business.

Islamic banking is one of the fastest-growing parts of the world’s financial system, accounting for an estimated $1.6trn of assets in 2014. However, in Europe and North America, it is still at an embryonic stage. According to the EU, the UK is the most advanced Islamic finance market in the west and a “key destination for foreign, Shariah-compliant institutions”.

The year started so well for Greece. ULI’s and PwC’s Emerging Trends survey placed Athens among Europe’s top five cities for investment in 2015, rising 23 places to join Berlin, Hamburg, Dublin and Madrid. After several barren years, 2014 had seen the NBG Pangaea REIC deal and big disposals by the Hellenic Republic Asset Development Fund. Tentative optimism was returning to the battered Greek economy and to the real estate industry. With interest in Ireland and Spain having an impact on values, the risk/return offered in Greece finally started to make sense. Then came January’s election, Syriza and Yanis Varoufakis became household names outside Greece, and everything stopped.

As Europe’s real estate securitisation market comes back to life, our panel of industry experts discuss its chances of a return to pre-crash health and whether issuers have learned from the mistakes of CMBS 1.0. David Hatcher reports Europe’s CMBS market is gradually reawakening, with the number of active banks and borrowers using this part of the debt capital markets slowly increasing, in line with broader investment volumes. There is healthy demand from a select pool of investors set up to buy what is a labour-intensive product to underwrite, attracted by CMBS yields’ relative value. But a number of obstacles still stand in the way of Europe’s market becoming anywhere near as efficient and effective as that of the US.

Real Estate Capital market commentary • British Land put together a club of seven banks that provided a new, £485m revolving credit facility at a record low margin for this cycle of 90bps — even skinnier than the 105bps revolving credit facility arranged by Great Portland Estates in October last year • Citi continued its loan-on-loan push with a £500m financing for Cerberus’s purchase of Nationwide’s £1bn Project Carlisle nonperforming loans. It was Citi’s first deal for Cerberus in Europe’s NPL market, as it looks to land new clients, having previously arranged NPL finance for Lone Star and Oaktree.

Prime UK yields have stabilised but secondary yields are still compressing, according to this latest Colliers International and Real Estate Capital Pricing Survey. Having called total returns almost bang on in the last survey, at 18.6%, respondents raised their 2015 predictions to 13.6%, driven by more capital and rental growth. Single-figure total returns are expected in 2016.

PERE Research and Analytics’ monitoring shows 74 real estate debt funds in the market this month, seeking $36.8bn