1Q15 EUROPEAN CRE FINANCE REPORT

OVERVIEW 2 UK LOANS 3 LOANS 4 NETHERLANDS LOANS 4 DEALS IN FOCUS 5 SOUTHERN EUROPE LOANS 6 LOAN PORTFOLIO SALES 7 LOAN PORTFOLIOS FOR SALE 9 IRISH CRE ANALYSIS 10 CRE FINANCING INDEX 11 EUROPEAN CRE FINANCE REPORT 1Q15

“We are seeing a variety of interesting capital in the [CRE] debt market,” said Huepfl. “More OVERVIEW investors are agnostic about whether they invest in the equity or debt, and are actively seeking complex transactions, or stress in the capital structure where they can use their flexibility of capital to gain enhanced yield.” he strong positive momentum seen in European commercial real estate lending throughout

2014 showed no signs of abating during the first quarter of 2015. In a sector characterised T Lenders’ search for returns has led them into peripheral markets such as the Netherlands, by a high volume of investment deals, debt was widely available from a variety of lenders Spain, Italy and Ireland. In the Irish market, for instance, assets acquired through private equity Including banks, institutional investors and private equity funds. loan-to-own strategies started to come back for refinancing, with some domestic sponsors also Tight pricing was the key talking point of the quarter. In March, the Tight pricing seeking finance opportunities. CBRE Capital Advisors’ Four Quadrants report showed that prime The market for distressed debt continued to provide opportunities for new loan origination. lending margins were as low as 130 basis points and had arguably was the key Loan-on-loan finance was increasingly available, market players said. For example, during the reached a point of stabilisation, partly as a result of capital talking point first quarter, Citi provided a GBP 500m senior loan to Cerberus Capital Management for its adequecy regulations. Borrowers entered 2015 in a favourable purchase of the GBP 1bn face-value Project Carlisle UK loan book from Nationwide for GBP position, the research found, with the total cost of debt falling by of the 680m. The three-year loan (with two one-year extensions) carried a circa 300 bps margin. In a 29% during 2014, due to margin compression and a decrease in quarter February 2014 loan market report, Cushman & Wakefield said that loan-on-loan margins during swap rates. 2013 had tightened to between 400 bps and 600 bps, with 300 bps seen in some instances. UK senior debt margins for prime property reached a low of 110 bps during the first quarter and Despite the competitive nature of the debt market with more lenders than ever to choose from, as tight as 60 bps in Germany, according to Debtwire’s pricing index. Lenders polled by this existing lenders remained best positioned. “Incumbent lenders are in a good position to retain news service said LTVs for UK senior debt were found at 60-65%, while in Germany senior LTVs business,” said one market participant, speaking in private. “We see a lot of deals go out to the could go as high as 80%, at the end of the quarter. debt market, only to be refinanced by existing lenders. From a borrower’s perspective, it is often The rise in bank lending against property was partially fuelled by low interest rates and partly by easier to stay with a lender rather than have to start the documentation all over again with a quantitative easing. “QE has produced a swathe of global investors in the prime real estate new party. Of course the lender still has to prove it is able to match the most competitive markets worldwide, in both equity and debt, who reference returns on real assets to corporate terms.” bonds, and see value where there is a yield uplift which they consider a sufficient illiquidity The syndication market was also active. The GBP 365m loan wrote by ING to finance the Safra premium,” said Emma Huepfl, head of capital management for investment management firm Group’s purchase of the Gherkin in the City of London was successfully placed with a number of Laxfield Capital. “The secondary property market reflects property fundamentals more closely, banks including three from Japan GBP 230m which in turn is more reflective of the local rather than international economy.” UK & German loan margins on prime property was sold down to three of the banks, while a fourth slice of less than GBP 50m was also “We are seeing gradually increasing numbers of requests for finance for secondary assets, and Margin syndicated. In addition, Lloyds and Citigroup lenders are getting more comfortable with lending in the better locations, where rents are ris- Sector LTV (%)* (bps)* went out to the market to sell down a portion ing, and we are still a good way off [from] over-supply,” Huepfl continued. Secondary margins UK senior 60-65 110-225 have come down significantly, to as low as 175 bps, according to one market source. of the GBP 277m loan which they wrote to UK mezz 60-80 500-900 The Peel Group and Legal & General, secured CBRE said that the proportion of debt in investment transactions remained far below the long- Germany senior 60-80 60-175 by the MediaCityUK estate in Greater term average. The percentage of investment turnover funded by debt was 34% during 2014; a Germany mezz 75-80 650-850 . long way from the 69% seen in 2007, the market peak. *Figures are informal estimates by five European

bankers polled by Debtwire

2 EUROPEAN CRE FINANCE REPORT 1Q15

UK loan origination Lenders also Elsewhere, Barclays provided a GBP 96m whole loan to a Harbert Management Corporation subsidiary in January to sought exposure finance 807,000 sq ft of UK business park properties. The 70% LTV loan was backed by properties bought from Arlington t the prime end of the spectrum, the UK commercial real estate finance market remained to the London Business Parks and located in places such as Oxford, Leicester, busy and very competitive during the first quarter of 2015. Tight pricing continued to be a A Sunderland and . major theme during the quarter, as it was during 2014 when prime margin compression was market by

evident. However, some market participants argued that margins have reached a point of Barclays also financed Oaktree and Patrizia’s GBP 127m stabilisation, with no significant downward shift during the quarter. Borrowers did not seek financing less purchase of the Citrus portfolio of UK properties, with a circa higher LTVs, with potential interest rate rises and refinance risk limiting day-one leverage. core properties GBP 70m four-year loan alongside DRC Capital which provided Lenders were holding on tight on covenants too. GBP 24m of mezzanine debt. The collateral was 24 properties

located across the UK ranging from offices in the City of London to a distribution warehouse in Finance was widely available for buyers of prime Haverhill. London commercial property, with banks and alterna- Finance was widely tive lenders alike providing significant loans to finance Lenders also sought exposure to the London market, by financing less core properties. German major deals during the first three months. One example available for bank LBBW provided GBP 97m to refinance CLS’s Spring Gardens property, located in the was Lloyds Bank Commercial Banking’s GBP 200m-plus buyers of prime loan to finance the purchase of the Tower Place office Vauxhall area of the city, south of the River Thames. Lenders also looked to finance value-add. A building in the City of London. The deal was an example London commercial good example is BNP Paribas’s GBP 90.4m loan to Tishman Speyer for 100 New Oxford Street. of a major clearing bank providing debt for a well- The building is in the process of being bought by Tishman Speyer and is a scheme in the heart of heeled core buyer – in this case Chinese insurance firm property London with significant uplift potential (see deals in Focus). Ping An – backed by a prime London office property.

However, the quarter also saw several instances of lenders looking outside the prime space and into the regional and value-add sectors of the market to source deals. For some, this meant writing loans against some of the country’s prime regional office stock. In March, Lloyds and Citi provided GBP 277m, reflecting a 55% LTV, to the owners of the MediaCityUK scheme in – The Peel Group and Legal & General. The 37-acre MediaCityUK is one of the country’s flagship developments of the last decade and is exactly the type of prime regional stock banks are eager to finance. But such opportunities do not appear too often.

Regional portfolio transactions provided opportunities for lenders to gain exposure to UK prop- erty during the quarter. Wells Fargo and Royal Bank of Canada provided senior debt to Lone Star for its GBP 1bn purchase of retail, office, hotel, and residential property as well as student accommodation from two Moorfield funds. The circa GBP 600m five-year deal carried a margin in the high 200 bps, as reported.

Another portfolio deal was Aviva Commercial Finance’s GBP 325.3m vendor finance to Kennedy Wilson Europe Real Estate to facilitate the GBP 503m sale of 180 mixed-use UK properties by Aviva. The 70% LTV deal was split into three tranches paying a weighted average margin of 207bps.

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German loan origination Netherlands loan origination

he German property lending market has traditionally been one of the most competitive in omestic lenders are making a comeback in the Netherlands. While FGH and SNS Propertize T Europe, both in terms of pricing and LTVs. The simple reason is that the country has too D remain burdened by their legacy loans, ABN Amro and ING are stepping up their lending many banks – from local savings banks to Landesbanken – willing to finance property. Plus the activities, albeit on a selective basis. However, ABN Amro recently noted that foreign financiers Pfandbrief market remains an easy and cheap way to refinance. Domestic banks have always retain a dominant position in major deals. It listed Royal Bank of Canada and Deutsche Hypo as preferred core properties. However, core properties accounted for only 40% of new business well as non-banks such as debt funds, as the main players. last year compared with 60% in 2013, according to the German property lenders index (Difi). The index rose by 10.2 points from the fourth quarter to 39.1 points, its highest level ever. In January, ING provided EUR 140m of debt to a secondary office portfolio bought by Valad on behalf of an unidentified investor. The five-year senior loan was made at around 210 basis German banks stretching further into non-core is potentially bad news for foreign banks. Non- points, and 60% LTV. The portfolio, sold by Unibail-Rodamco, consists of three buildings in core assets have normally been their preserve. For example, in the first quarter, both Bank of Rotterdam, one in Almere, one in Delft and one in Zoetermeer. The biggest building in the America Merrill Lynch and SEB wrote big tickets against non-prime assets. portfolio is the 33,442 sq m Central Plaza in Rotterdam, which also has 480 parking spaces.

BAML provided German property company IVG Immobilien The Dutch residential sector saw plenty of lending activity Core properties with a EUR 470m loan for the SQUAIRE property outside in the first quarter. Investors see potential upside from a Domestic lenders . The loan represented a 70% LTV, with the margin liberalization of social housing sector and increasing are making a accounted for coming in at less than 250 basis points. The refinancing of the demand for houses due to a continuing fall in home prices. only 40% of new property came after IVG failed to sell the asset following In February, ING took part in a consortium of three banks comeback in the heavy marketing by CBRE. IVG sought around EUR 700m, to provide a EUR 331m loan for the EUR 578m purchase of Netherlands business last year compared with a book value of EUR 800m, but serious bids 5,500 residential units in the Netherlands by German did not go beyond EUR 600m. It is suspended above the Investor PATRIZIA Immobilien for its Wohnmodul I vehicle. The three banks are each taking a railway tracks at Frankfurt airport, with KPMG as the main tenant. The big question is whether third of the debt, paying an all-in interest rate of 2%. Deutsche Hypo acted as mandated lead KPMG will remain in situ, its employees are rumoured to be unhappy about the location. arranger, agent and bookrunner, ING Real Estate Finance as MLA and pbb as co-arranger. Interestingly, the loan came out of ING Germany as the Dutch bank’s cost of capital is lower SEB financed another difficult Frankfurt property. The Swedish bank provided a five-year loan to there. ING’s retail savings services have been successful in Germany, leading to a surplus of cash Blackstone for its purchase of the 257m tall Messeturm office tower for around EUR 250m. The to allocate. 62,000 sq m property suffers from small floor plates and has a vacancy rate of around 30%. More importantly, the tower’s location is not prime sitting outside Frankfurt’s banking district. Dutch residential is also on ABN Amro’s menu. The bank financed two acquisitions by Round Hill SEB syndicated parts of the loan to two other unnamed banks. Blackstone bought the Capital. The private equity firm completed on two Dutch residential portfolios totalling 958 units MesseTurm around the same time as Pollux, a vacant office tower in Frankfurt’s banking district. across approximately 84,600 sq m for a combined value of approximately EUR 98m. It has also Deutsche Bank financed that one. completed on a 976 unit Propertize portfolio that Round Hill which it agreed to acquire for EUR

89m in December. Round Hill is currently looking for debt for its EUR 365m purchase of the WIF portfolio. Although the deal was agreed last year, it still has not closed as the Dutch interior minister needs to give his approval. Meanwhile, a number of social housing corporations – which sold their stock to WIF in return for a stake in the fund – are objecting to the deal, arguing refinancing is a better alternative than an outright sale.

4 EUROPEAN CRE FINANCE REPORT 1Q15 DEALS IN FOCUS

BNP Paribas backs London value-add

BNP Paribas took what most observers would probably agree was a calculated gamble on the West End of London during Loan size GBP 90.4m the quarter. The French bank wrote a GBP 90.4m, six-year senior loan to property investor Tishman Speyer for the purchase BNP Paribas Corporate and Institutional of 100 New Oxford Street; a mixed-use office and retail block close to the Centre Point tower on the eastern edge of the Lender West End. Banking The deal was a good example of a lender gaining exposure to value-add opportunities in the increasingly tight London market. The 103,500 sq ft 100 New Oxford Street building is a bit of a fixer-upper. Sold by Canada Pension Plan Investment Borrower Tishman Speyer Board and Hermes Real Estate in a deal expected to close in May, Hermes is in the process of refurbishing elements of the building before it changes hands. Three floors are currently being revamped. Vacancy in the building – which Tishman stated Term 6 years was around 50% back in January - is also being tackled, with office and retail space under offer when Debtwire reported the loan in February. The associated financing reflected the asset management potential of the building. BNP Paribas’s loan was structured pre- Acquisition price c. GBP 130.00m dominantly as acquisition finance, alongside a GBP 5m tranche intended to cover costs while the existing vacancy is filled up. The pricing of the loan reflected the value-add status. The margin was written at 175bps over Libor from day one, although Margin 175 bps (to reduce to sub-150bps) it is due to reduce to below 150bps once the majority of the building is leased.

V&D refinancing target missed

Dutch department store V&D is causing financiers a headache. The ailing retail chain just about survived in the first quarter Loan size EUR 1bn thanks to a rescue package in which landlords, banks and the owner, Sun Capital, pulled together. Sun Capital desperately needs a new formula to bring customers back to the former icon of the Dutch high street. V&D’s concept of offering Lender Leo Mesdag CMBS everything to anybody no longer works. Retail spending is sluggish, an increasing number of consumers are buying online. Meanwhile, landlord IEF Capital missed a February refinancing target of around EUR 200m due to the problems at V&D. IEF Capital is gradually refinancing a EUR 1bn retail property portfolio whose loan – securitised in Leo Mesdag – matures in Borrower IEF Capital 2016. In addition to V&D stores, the portfolio contains stores let to loss-making Hema, a Dutch version of M&S, and upmarket department store Bijenkorf. The latter is the only one out of the three doing well after adopting the shop-in-shop Country Netherlands concept. To avoid balloon risk at maturity, last year IEF asked CMBS noteholders for permission for a staged refinancing. The bondholders reluctantly agreed after IEF Capital promised to inject EUR 40m of fresh equity. But that was before problems Asset type Retail with V&D came to a head. V&D accounts for 18% of rental income in the Leo Mesdag CMBS. Under the refinancing deal, IEF Capital agreed that V&D should not account for more than 25% of the property pool to be refinanced at any one time. This could be more problematic at the next refinancing date in August, when IEF has to refinance EUR 400m or more.

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During the quarter Allianz Real Estate wrote a EUR 133.6m ten-year loan to Spanish SOCIMI Southern Europe loan origination Merlin Properties to finance its acquisition of the Marineda Shopping Centre in A Coruña. It is he search for returns has led lenders outside of the core European markets of the UK, Spain’s second largest commercial and leisure complex and the borrower is one of the country’s T France and Germany and into peripheral geographies including Spain and Italy. However, most active real estate investment trusts. each country has its individual challenges and market participants said that it can be difficult to source the right deals. Italy – a fertile ground for securitisation Italy is a geography During the first quarter of 2015, there were a few The arbitrage between CMBS and bilateral lending is most pronounced in jurisdictions where examples of banks providing debt finance outside which almost every finance is not readily available, or in size. Italy is proving to be one of these geographies and was core Europe. Italy is a geography which almost every the setting for two new deals during the quarter. market player claims to be looking at, although a market player claims limited number seemed to be closing deals. to be looking at Bank of America Merrill Lynch launched its Taurus 2015-IT in January, which investors welcomed due to its straightforward structure and strong sponsors. The EUR 286.39m deal In March, Debtwire reported that Bank of America Merrill Lynch (BAML) was lined up by securitised three loans and featured three tranches. All the notes have a February 2020 Cerberus Capital Management to finance its EUR 230m purchase of a portfolio of seven public- expected maturity. sector leased buildings in Italy from the Fondo Immobili Pubblici (FIP) fund. Once the deal clos- es, BAML will provide a loan with a circa 65% LTV with a margin of just less than 300 basis The multi-borrower deal read like a roll-call of some of the most active private equity investors points. in the Italian sector. It comprised the EUR 101m Calvino loan sponsored by Cerberus, the EUR 85m Fashion District loan sponsored by Blackstone and the EUR 115m Globe loan, sponsored by It seems that the lender’s relationship with, or confidence in, the sponsor is paramount in Italian Orion Capital Managers. deals. In BAML’s case it is lending to a borrower with a strong track record in opportunistic European investment. Previous deals in the country have included Deutsche Bank financing The EUR 206m A-class priced at 150bps (from initial price thoughts around 140bps), while the Blackstone’s acquisition drive, providing loans that were subsequently securitised. EUR 23m B-class priced at 190bps (from IPTs at 180bps), and the EUR 34.3m C tranche priced at 250bps, in line with the IPTs. During the quarter, ING provided a EUR 63m five-year loan secured by Credit Suisse’s Milan offices. In this case, the loan was written to a holding company incorporated in the Qatar More than 20 investors bought into the deal, of which 79% went to the UK. Dutch investors took Financial Centre. The property securing the facility is an 11,000 sq m prime office building locat- 10%, Italians 6% and investors in other jurisdictions took the remaining 5%. Asset managers ed in Via Santa Margherita 3 in Milan, bought by Qatar Investment Authority in the second were the largest group with 80%, insurance companies and pension funds took up 10% and quarter of last year from Tishman Speyer for EUR 108m, according to ’s Milan Office hedge funds and banks the remaining 10%. Market Outlook research. Using that purchase price, ING’s loan reflected circa 58% loan-to- value. Just two investors bought the privately placed TIBET CMBS backed by super prime retail space in Milan. The EUR 203m deal — launched by Banca IMI and Cairn Capital — refinances an existing The Spanish market looks set to provide lenders with significant opportunities during 2015. syndicated loan for sponsor Giuseppe Statuto and consists of four rated tranches. The EUR According to ’ Spain Investment Market Report in February 2015, the retail investment 105m A, EUR 27m B and EUR 10m C notes were placed with one investor while class D went to a volume for 2014 was more than EUR 2.3bn, in line with 2006’s figures. Offices were in the second. The margins ranged from 165bps for the A tranche to 415bps for the BB rated D tranche. region of EUR 2.8bn. SOCIMIs were lauded as one of the main factors in the market upturn, accounting for almost a third of total investment volume last year.

6 EUROPEAN CRE FINANCE REPORT 1Q15

The Southern 10 German nursing homes to Bank of America Merrill Loan portfolio sales Lynch. European market he first quarter of 2015 was relatively quiet in the European loan portfolio space, following was quiet in terms Commerzbank is launching a EUR 800m sale of loans made T a frenzy of business at the tail end of 2014. Cushman & Wakefield’s corporate finance team by Eurohypo, and Helaba has started to market a EUR said that a record-breaking EUR 80.6bn of CRE loans and real estate-owned (REO) properties of loan sales 500m loan sale under the name Project Aurora. Contrary to were sold last year across Europe. This year is tipped to be huge once again for loan sales (C&W their European peers, German banks resisted large loan predicts EUR 60-70bn of CRE loan and REO transactions), suggesting the first quarter may be the sales so as to avoid painful write-downs. But with the market improving and investors hungrier calm before the storm. for riskier assets in Germany, they may have been proven right to wait after all.

Last year saw huge volumes traded in Ireland, but the first quarter was quieter. In March, Per- Dutch banks were also slow to sell down their loan books, but the few deals have generated a manent TSB said it had sold EUR 1.5bn of non-core loans – known in the market as Projects lot of investor interest. FGH and HSH sold a loan secured against an office portfolio, called Munster and Leinster – to a vehicle funded by Deutsche Project Omega, to Archon and Valad. The properties were bought at the top of the market by Bank and funds affiliated with Apollo Global This year is also Dutch investor and asset manager Ping Properties. Management. The loans were sold for EUR 800m, a 47% discount to face value. Permanent TSB is preparing for sale tipped to be a ING sold a loan secured against another Ping Properties portfolio, Project Ogon. ING sold Ogon the final portion of its non-core Irish loans; the EUR 900m for around EUR 60m to Apollo Global Management compared with a face value of EUR 100m Project Connacht containing buy-to-let mortgages and CRE huge one for loan and a EUR 70m guide price. Although the loans involve the same borrower, the sales were loans, the Irish Independent recently reported. sales different. There was no longer a role for Ping Properties following the sale of Omega, whereas it continues to be the owner and asset manager of Ogon. Meanwhile, FGH is still touting around a The National Asset Management Agency (NAMA) closed the sale of Project Boyne to Deutsche EUR 250m Dutch loan portfolio through PWC. The portfolio consists of loans secured by office Bank. The portfolio with a face value of EUR 287m sold for around EUR 95m. Boyne was not a properties bought by German fund manager Wölbern Invest. huge portfolio by Irish loan market standards, but was typical of the mid-sized single borrower Southern Europe was quiet for loan sales in the first quarter. Just before year-end SAREB portfolios that NAMA is expected to bring to the market in the coming months. Boyne related to confirmed loan sales with a combined face value of EUR 847m had been sold to various buyers the entrepreneur William Smyth and contained debt secured by property including serviced including Cerberus and Hayfin Capital Management. offices in Dublin.

Attention in Spain in the first quarter was mostly fixated on Project Gaudi, a circa EUR 750m NAMA spent the quarter preparing new portfolios, including the EUR 8bn-plus Project Arrow, a portfolio held by German bad bank FMS Wertmanagement. As this report went to press, Colony granular portfolio to contain loans written to in the region of 500 borrowers. Other banks such Capital and Oaktree Capital Management were the final two parties shortlisted to buy the as Lloyds Banking Group and Ulster Bank, the Irish arm of Royal Bank of Scotland, still have the portfolio for between 60 and 70 cents in the Euro. remainder of their Irish loan books to offload, and more sales are expected. As one debt special- ist told this news service recently: “If you are a bank and have a tail, it’s worth getting it into the The UK had a quiet quarter. In February, Kennedy Wilson Europe Real Estate bought eight loans market now. Good assets will appreciate. The tail won’t”. secured by Park Inn hotels leased to Rezidor Hotel Group and located across the UK for GBP 61.5m. Market observers do not expect the UK market to be a major focus of NPL sales during Loan sales have been thin on the ground in Germany. Last year, they fell 45% compared with the course of 2015. the year before, according to Cushman & Wakefield. But there are signs the flow is increasing once again. In the first quarter, Goldman Sachs and Wells Fargo sold two loan portfolios. Goldman Sachs’ asset manager, Archon, sold Project Wagner, a EUR 650m portfolio of 600 loans to EOS Group for around EUR 100m. Wells Fargo sold a EUR 60m loan portfolio secured against

7 EUROPEAN CRE FINANCE REPORT 1Q15 LOAN PORTFOLIO SALES

Seller’s Date Portfolio Sale price Property No. of Original face Seller(s) Buyer(s) CUR Country financial Notes reported name (m) type properties value (m) advisor

The property transaction had FGH Bank, HSH a volume of EUR 109m, ac- 09-Jan-15 Project Omega Goldman Sachs EUR Office 24 Netherlands Nordbank cording to an entry in the Dutch land registry

National Asset Office, The purchase price reflects a 13-Jan-15 Project Boyne Management Deutsche Bank EUR 95.00 retail, Ireland 287.00 JLL discount to par value of Agency residential around 67%

The collateral is located in National Asset Invel Real Estate Retail, , South East 14-Jan-15 Management GBP UK, Italy c.140.00 Partners residential London and the Italian island Agency of Sardinia

Project 16-Jan-15 Archon Group EOS Group EUR c. 100.00 Real estate Germany 650.00 KPMG Wagner

BAML bought the loans at an Bank of America 11% to 12% discount to the 16-Jan-15 Project Helios Wells Fargo EUR 60.00 Care home 10 Germany 80.00 Ernst & Young Merrill Lynch outstanding balance of EUR 60m

EUR 100m outstanding bal- Apollo Global 11-Mar-15 Project Ogon ING EUR 60.00 Office Netherlands Cofiton ance, the bank had sought a Management price of around EUR 70m

Projects Deutsche Bank/ CRE and Morgan PTSB confirmed the buyer on 11-Mar-15 Munster and Permanent TSB Apollo Global EUR 800.00 buy-to-let c.1,600 Ireland 1500 Stanley 26 March. Leinster Management residential

Purchase price is based on 31-Mar-15 PVE Capital EUR c. 183.00 Residential Italy 408 information that portfolio sold for 45 cents in the Euro

8 EUROPEAN CRE FINANCE REPORT 1Q15 SELECTED LOAN PORTFOLIOS FOR SALE

 Project Arrow: Ireland’s National Asset Management Agency (NAMA) has instructed  Eurohypo loans: Commerzbank is selling a EUR 800m German portfolio and a EUR 3bn Cushman & Wakefield and partner firm Lisney to sell loans with a face value of EUR pan-European portfolio of loans, written by Eurohypo (now called Hypotheke 8.4bn, relating to up to 500 borrowers and secured by around 3,000 properties. Around bank Frankfurt). Four private equity firms (Cerberus, Colony, Oaktree and Lone Star) half of the collateral is residential, with the remainder made up of CRE (20%), land are thought to be through to the second round of the pan-European sale, with second (20%) and other types including hotels (10%). The portfolio was yet to be launched as round bids due by the end of April. The same parties are also thought to be in the race the report went to press. for the German book.

 Project Milner: NAMA, through Cushman & Wakefield, is aiming to sell a EUR 778m  Project Tristan: Goldman Sachs’ asset manager Archon has instructed KPMG to sell a face-value NPL portfolio relating to Irish entrepreneur Gerry Barrett, secured by ten circa EUR 800m loan portfolio consisting of around 700 loans, secured by CRE across properties including three Irish hotels, plus retail assets. Germany.

 Project Lee: The circa EUR 300m portfolio, which is being sold by NAMA, contains debt  FGH Bank loans: The Dutch bank is selling a circa EUR 250m loan portfolio backed by secured by the Mahon Retail Park in Mallow, County Cork, among other assets. The Dutch offices. PwC has been mandated to sell the loans. The portfolio comprises loans secured by office properties bought by German fund manager Wölbern Invest, which debt relates to Cork-based developer Owen O’Callaghan. filed for insolvency in 2013.

 Project Connacht: In March, the Irish Independent reported that Permanent TSB was preparing to sell its remaining EUR 900m of Irish non-core loans including buy-to-let  Project Aurora: Lazard is selling a EUR 500m NPL portfolio on behalf of an unidentified bank. Sources told Debtwire that the seller is believed to be Helaba. mortgages and CRE debt.

 Project Gaudi: German bad bank FMS Wertmanagement mandated Cushman & Wake- field to sell EUR 750m across 18 loans secured by Spanish (and some Portuguese) col- lateral. Notable properties include the Hotel Arts de Barcelona as well as the Penha Longa Hotel & Resort in Cascais, Portugal. The portfolio contains 18 loans, roughly equally divided between performing, sub-performing and non-performing. At the time of writing, Colony and Oaktree had been shortlisted.

9 EUROPEAN CRE FINANCE REPORT 1Q15

Irish CRE more domestic nature? It is hard to know where our normal level is.” An opportunistic market matures (This is an abridged version of a feature published by Debtwire on 4 March 2015) As occupier demand and rents in the prime Dublin market recover, core buyers including REITs, institutions and European funds are entering the fray. In February, NAMA sold the adjacent 4 and 5 Grand Canal Square office buildings – Facebook’s EMEA HQ – for EUR 232m, a net initial reland’s commercial real estate market is at an interesting Ireland can no yield of just more than 4%, hardly the type of return to attract opportunistic money. The buyer I juncture. Since 2012, US private equity firms have was Union Investment, the investment management arm of Germany’s DZ Bank. pounced upon loan portfolios secured by real estate. The longer be prime part of the market has experienced a significant Prime Dublin office rents increased by 36% to EUR 45 per sq ft during 2014, according to Lisney, recovery in the intervening years, putting Ireland on core classified as a and further growth to more than EUR 50 per sq ft is expected by many agents. Office yields in investors’ radar. distressed market the Irish capital have come in from 6% at the end of 2013 to 4.75% at the end of 2014.

“Ireland can no longer be classified as a distressed market. It has reached the point where “The office market has definitely shifted towards the core buyers, so a lot of the opportunistic private equity firms are not the leading bidders for single assets,” said Adrian Trueick, Irish in- players are looking at retail,” said Johnny Horgan, head of capital markets for CBRE in Ireland. vestment property director with Knight Frank. Central Dublin shops might yield 4%, but provincial shopping centres can provide investors with running yields of over 7%, Horgan added. Private equity funds are still keen to invest. Real estate loans with a face value of EUR 20bn were traded during 2014, according to research by Lisney. However, there has not yet been an The sell-off of Ireland’s CRE debt is not over yet. Cushman & Wakefield Corporate Finance said overwhelming volume of properties put back onto the market. in the last quarter of 2014 that it was tracking EUR 21.7bn of live loan sales, of which 21% were in Ireland. Market sources said that Ulster Bank is working up another large loan sale to follow “We sense that the key occupancy markets are still relatively early in the cycle,” said Peter the Projects Aran and Achill which were sold last year. NAMA is working up plans for the sale of Collins, Dublin-based managing director of Kennedy Wilson Europe. “By and large we are Project Arrow through Cushman & Wakefield and Lisney; a EUR 8.4bn face value portfolio of holders of property and we still see a lot of upside potential because we are essentially real loans predominantly secured by Irish property relating to around 500 borrowers. estate operators.” “In the NPL and debt arena there are still plenty of Although NPL buyers are not clambering for the exits, some higher quality properties have been The sell-off of opportunity funds looking for exposure. Some are express- sold. In February, Hibernia REIT bought the Garda headquarters at Dublin’s Harcourt Square for Ireland’s CRE ing the view that the market has become too expensive EUR 70m from a subsidiary of Starwood Capital. Starwood had acquired loans secured by the from a value perspective, but they keep bidding,” said one property through the purchase of NAMA’s Project Aspen loan portfolio in 2013. debt is not over agent. yet Local property consultants admit that it is difficult to guess what the Irish CRE investment The financing market provides opportunities for debt market will look like once the private equity frenzy has died down. Last year’s investment players eager for exposure to the Irish recovery, local volumes were unprecedented. Lisney recorded EUR 4.4bn of investment turnover, up from EUR agents argued. The Irish debt market is not functioning efficiently at the moment, although 180m just three years earlier. more banks and non-traditional lenders are looking for opportunities, sources said.

“The real question is will there be enough capital to deal with the unwinding of loans and assets which takes place in 2016 and 2017,” said John Moran, managing director of JLL’s Irish operation. “Who are the secondary buyers? Will the market remain international or revert to a

10 EUROPEAN CRE FINANCE REPORT 1Q15 CRE FINANCING INDEX

Loan Date Loan LTV Asset(s) Lender(s) Borrower(s) CUR Margin length Country Asset type Notes reported size (m) (%) (y)

Purchase made by Valad Europe on 05-Jan-15 Six Dutch offices ING Valad Europe EUR c.84.00 c. 60 c. 210bps 5 Netherlands Office behalf of an unidentified investor

The 331,000 sq ft building was Building 7 at BNP Paribas Corporate and Blackstone Real Estate 16-Jan-15 GBP 76.50 3 UK Office under construction at the time the Chiswick Park Industrial Banking Partners Europe III loan was closed

Silberturm, Korean Samsung SRA 20-Jan-15 ING Real Estate Finance EUR c. 450.00 <85bps Germany Office ING syndicated part of the loan Jurgen-Ponto-Platz 1 Management Group

Whole loan to finance 807,000 sq ft Harbert Management 23-Jan-15 Emperor Portfolio Barclays GBP 96.00 70 UK Office portfolio of business park Corporation properties

The 385,000 sq ft tower was sold to Lloyds Bank Commercial 23-Jan-15 Tower place Ping An Life Insurance GBP c.200.00 >60 5 UK Office Ping An by Deutsche Asset and Banking Wealth Management

The senior portion of the loan has DRC Capital, Standard Life been placed with Standard Life 28-Jan-15 Brettenham House Draco Property GBP 65.00 5 UK Office, retail Investments Investments. It refinanced existing debt

The refinancing comprises a EUR 206m corporate facility provided to 28-Jan-15 Residential units BNP Paribas Powerhouse France EUR 793.50 France Residential Powerhouse France and a EUR 588.5m senior mortgage facility provided to its subsidiary, SAFRAN Office, The loan is structured as a senior Oaktree Capital industrial/ and a mezzanine tranche, with 30-Jan-15 Citrus portfolio Barclays, DRC Capital Management, Patrizia GBP c. 94.00 c.75 4 UK logistics, Barclays providing the senior Immobilien leisure, mixed finance DRC provided EBP 24m it use confirmed.

11 EUROPEAN CRE FINANCE REPORT 1Q15 CRE FINANCING INDEX (cont’d)

Loan Date Loan LTV Asset(s) Lender(s) Borrower(s) CUR Margin length Country Asset type Notes reported size (m) (%) (y)

The senior vendor finance is split 3, 5 and 8 180 mixed-use UK Aviva Commercial Real Kennedy Wilson blended into three-year floating-rate (33%), 02-Feb-15 GBP 325.30 70 year UK Mixed use assets Estate Finance Europe Real Estate 207bps five-year fixed-rate (20%) and eight tranches -year fixed-rate (47%) tranches

Revolving Replaced a GBP 75m facility which 03-Feb-15 HSBC St Modwen GBP 100.00 5 UK credit facility was due to expire January 2016

Office, retail, Lone Star bought a UK portfolio UK-wide mixed use Wells Fargo, Royal Bank of hotels, 11-Feb-15 Lone Star GBP c.600.00 C.60 high 200bps 5 UK from two Moorfield funds for GBP portfolio Canada Capital Markets residential, 1bn. other

Deutsche Hypo, ING Real The three banks are each taking a 5,500 Dutch 12-Feb-15 Estate Finance, pbb PATRIZIA Immobilien EUR 331.00 Netherlands Residential third of the debt. All-in interest rate residential units Deutsche Pfandbriefbank of 20%

The loan term can be increased by 100 New Oxford BNP Paribas Corporate and one year. The margin is due to 12-Feb-15 Tishman Speyer GBP 90.40 C.70 c.175bps 5 UK Office, retail Street, London Industrial Banking decrease to sub-150bps once the majority of the building is leased

Hotels are located at London’s 18-Feb-15 Five hotels Legal & General Private client GBP 75.00 78 20 UK Hotels Gatwick and Stanstead airports

Bank of China Limited, Barclays Bank Plc, Credit Agricole Corporate and Investment Bank, Unsecured revolving credit facility. 25-Feb-15 Unsecured Handelsbanken, Royal Bank GBP 485.00 90bps 5 UK The loan can be extended to a of Scotland Group Plc, maximum period of seven years Santander Global Banking and Markets, The Bank of Tokyo-Mitsubishi UFJ Ltd

The loan replaced a EUR 195.8m Marshes Shopping Kennedy Wilson 26-Feb-15 Bank of Ireland EUR 264.00 212.5bps Ireland Retail Bank of Ireland facility which had Centre Europe Real Estate been agreed in June 2014

12 EUROPEAN CRE FINANCE REPORT 1Q15 CRE FINANCING INDEX (cont’d)

Loan Date Loan LTV Asset(s) Lender(s) Borrower(s) CUR Margin length Country Asset type Notes reported size (m) (%) (y)

Project Carlisle loan Cerberus Capital Loan Loan on loan deal which can be 26-Feb-15 Citi GBP 500.00 75 c.300bps 3 UK purchase Management portfolio extended twice by another year

LTV based on EUR 108m purchase Via Santa price of the building by Qatar 02-Mar-15 ING Real Estate Finance SMG Real Estate EUR 63.00 c.58 5 Italy Office Margherita 3 Investment Auhtority in 2Q14 from Tishman Speyer

TIAA Henderson Real 02-Mar-15 Outlet mall Deutsche Hypo EUR 122.00 5 Netherlands Retail Estate

Spring Gardens, The deal refinances an office build- 06-Mar-15 LBBW CLS Holdings GBP 97.00 6 UK Office Vauxhall ing in London’s Vauxhall area

Bank of America Merrill Claridge’s, Lynch, Blackstone Group, The deal extended the debt held Maybourne Hotel 10-Mar-15 Connaught, Royal Bank of Canada, GBP 547.00 5 UK Hotels against the three hotels which was Group Berkeley hotels Starwood Capital Group, agreed in 2012 Wells Fargo

Loan is lined up to finance the Bank of America Merrill Cerberus Capital purchase once it completes. The 11-Mar-15 Seven Italian assets EUR C. 150.00 c.65 <300bps Italy Office, other Lynch Management sub-portfolio Is securitised in the EUR 1.24bn FIP Funding

Mixed Use The banks are aiming to syndicate Lloyds Bank Commercial Legal & General, The 16-Mar-15 MediaCityUK GBP 277.00 c.55 UK (mainly part of the facility in the coming Banking, Citi Global Markets Peel Group offices) weeks

13 EUROPEAN CRE FINANCE REPORT 1Q15 CRE FINANCING INDEX (cont’d)

Loan Date Loan LTV Asset(s) Lender(s) Borrower(s) CUR Margin length Country Asset type Notes reported size (m) (%) (y)

3.2% fixed Shaftesbury has cancelled a GBP 18-Mar-15 Unspecified Aviva Commercial Finance Shaftesbury GBP 130 interest 15 UK Unspecified 100m RCF with Nationwide. rate

Middlebrook Park, Retail, 26-Mar-15 TIAA Henderson Real Estate Orbit Developments GBP 100 20 UK Loan was provided in January. Bolton business park

Secured revolving credit facility. Lloyds, Santander, RBS, Stepped margin increases depends 30-Mar-15 Unspecified HSBC, Citi, Sabadell, Bank of Land Securities GBP 1255 75bps 5 UK Unspecified on utilisation amount. Facility China, UBS length can be extended for seven years.

14 EUROPEAN CRE FINANCE REPORT 1Q15

Debtwire ABS Research Debtwire ABS Editorial Managing Team

Ortenca Aliaj, CRE Database Manager Bert Erik ten Cate, Associate Editor, Chris Haffenden, Editor +44 (0)20 7010 6265, [email protected] Commercial Real Estate +44 (0)20 7059 6189, [email protected] +44 (0)20 7010 6249, [email protected] Chris Dammers, Deputy Editor Arijeet Das, ABS Analyst +44 (0)20 7010 6287, [email protected] +44 (0)20 7010 6328, [email protected] Daniel Cunningham, Senior Reporter, UK Property Finance

+44 (0)20 7010 5106, [email protected]

Disclaimer: We have obtained the information provided in this report in good faith from sources which we consider to be reliable, but we do not independently verify the information. The information is not intended to provide tax, legal or investment advice. We shall not be liable for any mistakes, errors, inaccuracies or omissions in, or incompleteness of, any information contained in this report. All such liability is excluded to the fullest extent permitted by law. Data has been derived from investor reports, press releases, presentations and DW intelligence.

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