AXA Real Estate Investment Managers will increasingly move up their risk curve for its senior debt lending programme this year as the insurance lender seeks to match last year’s €2.3bn lending tally.
The pace of change in market dynamics in Europe’s core senior debt market – UK, Germany and France – has been such that property lending slightly below “good secondary” territory now offers considerably better risk-adjusted returns on a relative basis.
Spreads on loans in London’s super-prime market are increasingly tight, driven by the weight of capital from banks and new lenders, with borrowers seeking inside 250 basis points, compared to margins of between 350 and 550 bps on assets with varying degrees of distress or lease risk.
While AXA Real Estate never commented on the transaction, CoStar News understands that this broadened lending ambition is typified in the syndicated purchase of around £100m of Goldman Sachs’ £220m five-year senior loan which financed Blackstone’s £325m Devonshire Square Estate acquisition last July.
With anchor tenant Aon moving moving its London headquarters to British Land and Oxford Properties’ Leadenhall “Cheesegrater Building” in a phased departure from the second half of 2014, Blackstone’s re-letting risk is reflected in the loan’s margin, which was priced at around 400 basis points over three-months LIBOR.
A current live deal in the market further exemplifies this increased risk in return for margin opportunity, Morgan Stanley’s five-year £190m senior loan financing Blackstone’s £265m acquisition of the Adelphi building in the West End.
Morgan Stanley is understood to be seeking to syndicate the loan, which is priced at around 400 bps given the re-letting risk and refurbishment period.
The punchy return to property lending by Morgan Stanley is exemplified in the nature of the financing package, which includes an additional £10m which will subsidise loan interest payments from this summer as substantial renovation works are carried out at the 292,122 sq ft trophy asset off the Strand.
In addition to the superior relative risk-adjusted margins, AXA Real Estate is understood to be attracted by the considerably lower level of competition higher up the risk-curve.
AXA Real Estate’s 2013 lending ambitions – which will increase the insurance property lender’s deployed capital in European senior debt from €3.5bn at the end of last year to €5.7bn if last year’s tally is matched – will reflect a blend of variables but could account for up to half of all its loans this year.
AXA Real Estate’s appetite to secure deals across a wider spectrum of super-prime to secondary deals will be reflected in the insurance lenders’ likely geographic weightings, with the current deployed loan book’s allocation – 46% in the UK, 36% in France and 9% in Germany – a reasonable guide as to this year’s geographic new lending blend.
The insurer, which has a total of €6.7bn in capital raised, will seek to raise this year a broadly similar amount of new equity to 2012‘s €2bn, from its mix of internal AXA insurance and third party clients.
AXA Real Estate will continue to lend against prime and even super prime real estate, based on a mix of risk variables – across asset location, physical condition, sponsor quality, tenant schedule, lease and cash flow profile over the life of the loan.
Six weeks ago, CoStar News reported that AXA Real Estate was in advanced talks to refinance one of the three pools of maturing Gagfah debt across the Germany multi-family investor’s €2.08bn refinancing requirements.