Barclays’ loan will part-finance the £50m acquisition cost of the 0.8-acre Alpha Place site, a former electricity sub-station with extensive frontage to Chelsea Manor Street, London SW3.

The loan-to-cost ratio for the development finance is thought to be around 60% and the term longer than two years to allow for completion of sales after the target Spring 2014 building completion.

Brendan Jarvis, head of Barclays Real Estate, said: “It’s a great location and a great sponsor. It shows where we like to lend if the risk is right”.

The site has taken more than two years to sell with at least one other accepted bid – from a private investor – falling through in 2010. It was put on the market in September 2009 by fixed charge receivers Jon Gershinson and Simon Davidson of Allsops.

Grosvenor and Native Land were selected as buyer a year ago. The pair, which have four other central London joint residential projects underway including Neo Bankside next to Tate Modern, will build 25 private and 13 on-site affordable flats on the Chelsea site, totalling 100,000 sq ft.

Jane Roberts, editor

Merry Hill, Deutsche Bank’s second new CMBS since the credit crunch, has priced and closed – at a loss.

The three tranches of £210m DECO 2012 MHILL were launched at 300 basis points over Libor for the £145m class A AAA tranche, and at 450bps and 550bps for the £30m class B and £35m class C double and single A tranches.

This equates to a 3.6% blended return to the noteholders.

The loan, a refinancing of a £260m loan to borrower Queensland Investment Corporation (QIC) for its 50% interest in the Merry Hill West Midlands shopping mall, was made at a 2.45% margin.

The AAA bonds sold at 97.04; the AA tranche at 91.27 and the A at 87.47.

Securitisation specialist, Chalkhill Partners, commented: “Given the 2.45% loan margin and estimated senior expenses of 18bp, the notes had to print at 2.27% and sell at a discount to achieve the returns required by investors (3.6% blended).

“The gap reflects wider return expectations relative to last summer but also the risk in underwriting loans for CMBS issuance”.

Deutsche Bank refinanced the loan for QIC last summer when the 2m sq ft asset was valued at £845m. The loan was previously in the DECO 12 – UK 4 CMBS. It is secured by a charge over the Australian investor’s 50% interest in Merry Hill Partnerships rather than via a mortgage over the asset.

Westfield owns the other 50%.

Unlike Deutsche Bank’s first post-crash CMBS, which financed Blackstone’s Chiswick Park in west London last June, DECO 2012 MHILL has no class X – the excess spread which banks used to carve out for themselves from deals as profit, and which ranked ahead of class A noteholders.

Although the five-year term loan has no amortisation, the CMBS has a long tail period, to

July 2021, and a low LTV, of 50%.

Jane Roberts, editor

This will be LNR’s first mandate of this nature, and it is still building a team in this capacity.

Hatfield is acting as servicer on behalf of the bondholders, while Rothschild is advising Four Seasons on the refinancing of £720.8m of debt. Some £595.3m of this is securitized in Titan Europe 2006-4 (FS), with the loans set to mature in September 2012 following the expiry of a two-year extension.

The company is looking at a range of options including a potential equity injection. Last month Four Seasons passed on the option to prepay at least £100m after taking possession of properties which had previously been let to failed operator Southern Cross – rather than selling them to fund the prepayment.

Lauren Parr, news editor

His job is to seek new mandates, of which Capita is understood to have been successful on two counts lately, and is particularly looking to work with investors that are interested in buying loan portfolios.

After buying Barclays Capital’s loan servicing business last year, managing director Robbie Hughes said he expected servicers to win steady income streams from private equity firms like Apollo which would seek platforms to support the portfolios they have and will buy.

Before BTG, a division of Begbies Traynor, where Walker worked for one year, he worked for Ron Roark’s Crown Northcorp as well as Crown Mortgage Management.

Capita has also hired Martin Barnwell to add to its senior primary servicing team.

Jim O’Leary remains head of primary servicing at Capita (which is contracted to act as master servicer to NAMA), while Andy Wilcox remains head of special servicing. Hughes, based in Ireland, oversees the business.

Lauren Parr, news editor

Europe’s property elite huddled together at the Urban Land Institute’s annual Parisian conference this week, hoping to get some clarity on what they might expect this year. “None of us know what’s going to happen”, the European Investment Bank’s senior economist Brian Field, told them. So what we suspected is true: it’s the blind leading the blind.

The keynote speakers laid on some scary scenarios: lost decades of Japanese-style stagnation, financial ruin because of the unsustainable promises governments made on pensions and healthcare, and much of Bangladesh, plus my brother’s house in Florida going undersea because of climate change.

Fortunately, Oxford Prof Andreas Boltho doesn’t think we’re heading for the Japanese scenario, rather another, shallower recession which could get ugly if the Euro breaks down – which he doesn’t expect to happen “because of the political capital invested”.  Credit Suisse’s global demographer Dr Amian Roy had some solutions and helpful tips on investment sectors: pharma/bio, financial services, leisure & luxury, infrastructure and natural resources. And Prof Dr Ernst von Weizsacker, who co-chairs the international panel for sustainable resource management, also outlined how we might avoid going underwater.  Interestingly, all three agree that higher energy taxes and a Tobin tax on financial transactions are good ideas.

Getting back down to the real estate, unsurprisingly, debt loomed large in the discussions. Alan Patterson, AXA Real Estate’s European head of research & strategy, dared to ask whether we need debt – is it helping investments (the evidence is that over a cycle it adds little to performance) or increasing volatility?  A brave suggestion, since AXA not only uses gearing in its funds but is big on buying property debt.  Patterson’s fund manager panelists – Christian Delaire, AEW’s CEO, John Barakat of M&G,  and Max Barclay of Newsec aren’t going to go cold turkey.

And while the banks might be out of action, debt is the plat du jour for investors – there’s good money to be made providing it.  Insurers and others with money are all eyeing this arena and talking of setting up funds, etc. Don’t hold your breath, it’s going to be a slow process. And, as John Barakat pointed out (he should know, having lent and bought ₤ 5bn of the stuff) “if you aggregate all the so-called new players, they will not replace the reduction of debt that RBS will undertake by itself”.

On equity, nothing new. It’s out there, but scared or waiting for the stock to start flowing. ULI’s Emerging Trends survey found 59% expecting more distressed sales by lenders this year, but we’ve been expecting this since 2009. And there’s pricing. “Secondary has to correct by 20%-30% for it to become attractive”, said Patterson.

This year, the conference’s billing was “The Only Problems Left are the Big Ones”.  There weren’t many answers, though Prof Boltho did have a novel and cheap solution to the debt problem. Germans are much less indebted than most other Europeans, he pointed out.  In German, the word for debt, “Schulde”, sounds like the one for sin “Sünde”, so for Germans, borrowing is subconsciously sinful.  Rename debt and we profligate Europeans will virtuously de-gear.

Alex Catalano, consultant editor

The final commitment was made by Finnish financial group Pohjola, who was introduced to Corestate by CBRE.  Corestate’s typical clients are international institutional investors and family offices.

CGC has €45m of that total equity left to deploy, including Pohjola’s contribution, and could invest in up to €250m of deals with leverage. The fund targets a 15% internal rate of return net after gearing, and has invested the existing equity to acquire €300m worth of assets.

CGC recently agreed to inject up to €10m of equity into the recapitalisation of a high street portfolio comprised of 20 mixed-use properties across 16 German cities, valued at €55m. In a separate deal for the same fund, the company bought a government-let office building in Stuttgart from a private German owner; Corestate also bought a €230m portfolio comprising 3,000 apartments in Berlin from the same vendor.

CGC primarily targets office and retail properties in western Germany, Switzerland and Austria. It can buy direct property, share deals of real estate holding companies, and can also invest in distressed corporate situations including preferred equity and mezzanine investments. The remaining capital will be spent in Germany by the middle of this year.

Next, Corestate will look at one-off deals as well as the potential to raise a further fund, although there is nothing concrete in the pipeline at the moment.

Lauren Parr, news editor

Alex Jeffrey of private equity real estate fund manager MGPA is the new head of PRUPIM, succeeding Martin Moore.

PRUPIM’s parent, M&G Investments announced Jeffrey’s appointment this morning after more than a year’s search for a replacement for Moore.

Jeffrey will join PRUPIM in July as chief executive of PRUPIM and a main board member of M&G, reporting to Michael McLintock, M&G’s chief executive.

The appointment of a chief executive with an international private equity-style background may be a surprise to some, and signal a push for PRUPIM in newer directions.

MGPA runs pan-European and Asian value-added funds for international investors; the majority of PRUPIM’s £15bn assets under management are retail and life fund money invested in the UK in mainly core strategies.

Although PRUPIM came through the property crash of the last few years well, one source described the business as “a sleeping giant”. The property business is smaller than UK rival Aviva Investors, which had €27bn under management at December 2010.

In December, Moore told Real Estate Capital: “We have less institutional money under management in the UK than Aviva and we think it is an area of significant opportunity for us”.

Both Aviva and PRUPIM face the challenge of expanding outside their core UK market and competing with other large international investment managers.

Jeffrey was most recently chief investment officer at MGPA, based in Singapore. The fact he has pan-European and Asian experience and contacts with large international investors is a likely indication of M&G’s ambitions although probably not a change in risk style.

Michael McLintock said Jeffrey had “an impressive record of leadership roles in the international real estate investment” and was “extremely well-qualified to lead the next phase of PRUPIM’s growth”.

Jeffrey could also work more closely with M&G Investments which invests in real estate debt.

Moore, who had given advance notice of his wish to retire after 2012, will stay on as chairman of PRUPIM for a short handover period after Jeffrey joins.

MGPA said Jeffrey’s duties will be split between group chief financial officer Tom Lee, who will become chief operating officer and group chief executive Simon Treacy who will take on Jeffrey’s capital markets function.

Current chief operating officer Neil Jones will take on a new role as head of group business development.

Jane Roberts, editor

IPF Blog

The Scots are not known for their optimism and neither are journalists, but the speech served up by journalist, broadcaster and Scot, Andrew Neil at last Friday’s annual London IPF lunch was pretty strong stuff.

Zooming straight in on the eurozone crisis, Neil said the recent action by “super Mario” Draghi, the new president of the European Central Bank, to pump half a trillion euros into the European banking system “has given Europe some breathing space”, as well as its banks the opportunity to turn a profit by borrowing at 1% and buying periphery eurozone bonds at 5%-6% . But Europe’s problems were “coming back with a vengeance”.

While German chancellor Merkel and French president Sarkozy – “I will call them ‘Merkozy’” – continued to meet every 10 days, this week at the eighth crisis summit of the eurozone in as many months, the region’s fundamental problems remained unresolved.

Top of the list, he said, is admitting that Greece, probably Portugal, and maybe, but maybe not, Ireland, are “insolvent”, not merely “illiquid” like Italy and Spain.

To sort out the mess, the politicians needed “to put a big enough firewall” around the illiquid countries “so that the bond vigilantes don’t get there” and recognise that Greece is bust.

Neil believes the latter is coming close.  “The Greek economy declined by 6% last year and is set to do the same this year” he asserted. In other words, however big a haircut the banks take on Greek debt, it remains stubbornly high as a percentage of GDP as economic output keeps falling. It was significant that Merkel hinted publicly this month for the first time that the idea of a Greek default is not impossible “and I’m told it is being talked about at the highest level in the German government, although I don’t know if Greece defaults does it necessarily have to leave the Euro? Merkel wants to be re-elected in 18 months time, but a Greek default is rising up the agenda. Portugal would probably follow”, Neil said.

However, regarding the 2nd point, on putting a firewall around Italy in particular, the politicians had made almost no progress.  “And it is the uncertainty that means people aren’t spending or investing and it is dragging Europe into recession.”

Where does that leave Britain? Largely on the sidelines, but the importance is the impact on our economy. And there wasn’t any cheer here either, with a private acceptance inside government that the UK economy will not grow much in the foreseeable future “until Britain discovers something new to do.”

Alas, don’t hold your breath on this score, as according to Neil, a cabinet minister last week admitted to him privately that the government doesn’t know how to stimulate growth.

So this is a watershed: it’s the end of debt-financed socialism and of debt-fueled, turbo-charged capitalism. The euro has failed because far from making Europe more competitive, it is now less competitive, except for the Germans. And the price the “eurozone elite” is prepared to pay – and to make member states pay through austerity packages and rising unemployment – to keep the eurozone alive are “dangerous, when the needs of the people are so out of kilter.

“The disconnect between the needs of the people and the strategic elite of Europe has never been wider……So I think we are at a time of great risk”.

He even quoted WB Yeats: something has to give “the centre cannot hold”.

I told you it was strong stuff.

Jane Roberts, editor

Kaupthing Bank has appointed Internos to manage the €90m Celsius portfolio and maximise value from the properties for the bank’s shareholders.

The portfolio includes 11 logistics, office and industrial assets, at least half of them in Paris and the Ille de France.

Internos will be taking on the six-strong Invista REIM team in Paris who look after the assets, headed by Guilaume Masset. Masset becomes head of the French business.

Kaupthing took over the properties from the original joint venture partners, Invista and PropInvest. Invista REIM is winding down after the manager’s 55%-owner, Lloyds Banking Group, switched nearly half Invista’s £5.4bn funds under management to SWIP.

Two mandates, the Invista Foundation Property Trust and Equitable Life Assurance Society, transferred to Schroder Property last week.

Internos chairman, Jos Short, said: “The interest on the Celsius portfolio is covered but there are vacancies and our medium-term mandate is to drive income and improve the cashflow”.

Internos also took over the management of listed pan-European fund, Invista European Real Estate Trust last month. The staff did not transfer and the trust is now managed by Internos’s Ludovic Bernard.

EPRA and Nabarro’s Insight conference, held at Lloyds of London last night, was a packed affair. Unfortunately the same can’t be said for EPRA’s constituents, Europe’s listed property sector.  REITs and propcos are still a tiny part of the European equities market, and they’ve had a rough few years.  Currently they’re underperforming both the stock markets generally and US REITs. Most are trading at serious discounts.

Plus, last night John Lutzius of REIT researcher and consultant Green Street Advisors told Chris Grigg (British Land), David Atkins (Hammerson) and Andrew Cunningham (Grainger, a propco not a REIT) that they had it wrong: European REITs were using too much leverage – it should be 30%, or even 20%. They were “too aggressive” on development and it was capital allocation that drove relative performance – share buy-backs could trump acquisitions and purchases. Sell your buildings and buy back your shares! Not to mention that Lutzius also thinks that REIT managers are “cavalier and leading unexamined lives”. Just what every CEO wants to hear.

Atkins, Griggs and Cunningham admitted that leverage had been too high. But Griggs and Atkins are comfortable with their current 45% and low 30s%, respectively, while Cunningham is still deleveraging. “The challenge is to manage for the long term rather than deleverage in the short term and give value away. We’re managing the transition from an old-style property company to a REIT”, reposted Grigg. “If you sell to deleverage, you can destroy earnings in years ahead”, Atkins pointed out. Perhaps he was remembering the 2009 crisis, which forced Hammerson, British Land and others to offload chunks of stock at precisely the wrong time. Otherwise, the discussion circled around the usual truisms: look after your tenants, etc, etc.

One note of cheer: Patrick Sumner, Henderson Global Investors’ head of property equities, said their funds are seeing inflows. Investors like the yields, the loan-to-values and the focus on prime that European REITS/propcos offer, and many can’t find equivalents in their local markets.

European REITs are still wet behind the ears compared to their 20-year old cousins in the USA and they’ve had a baptism of fire. But it was nonetheless a bit startling to hear Atkins say that if the sector carried on at a huge discount and the market wasn’t providing enough liquidity, it might reach the point where they can’t go on
.
And those “unexamined lives”?  “As a CEO of a public company, I’m examined plenty”, said Cunningham.

Alex Catalano, consultant editor

See next Monday’s issue to find out what 2012 will bring:  British Land’s Chris Grigg, Hammerson’s David Atkins, Delancey’s Jamie Ritblat, Max Property’s Nick Leslau and Barclays’ Brendan Jarvis give Real Estate Capital their views.