With ‘a massive opportunity’ and potential liquidity crunch looming, we asked market participants which firms they tip to play a significant role in key transactions in European real estate
Ten investment managers and three advisors have been named by market participants as ‘movers and shakers’ in the new unfolding European real estate investment market.
Conditions could create a ‘once in a decade’ investment opportunity, say experts, driven by the quick-fire succession of interest rate rises across Europe and the world.
The 10 firms named as movers and shakers are typically those which have started to be active in the new investment era and are expected to further ramp up activity. This comes at a time when volumes of equity deals across Europe are down 60% on last year, something attributed to economic uncertainty, declining values, greater difficulty in securing finance, and above all a continued gap in price expectations between sellers and potential buyers of real estate assets.
However, a new opportunity is arising particularly for those firms capable of participating in both equity and credit transactions. Refinancing is currently the busiest segment as three- and five-year loans are reaching maturity at a time when traditional banks are retreating from the sector.
Ralph Rosenberg, global head of real estate at KKR, recently wrote: ‘In our view, the dislocation may create a once-in-a-decade investing opportunity in real estate, but investors should also be prepared to weather the storm.’
He points to the second and third-order effects of banks pulling back and a potential looming credit crunch due to the sudden rise in interest rates. He wrote that this ‘creates the potential for a credit crunch impacting certain owners and asset types that will no longer have the same access to debt capital’.
Aref Lahham, founding managing director at European private equity real estate firm, Orion Capital Managers, said: ‘The funding gap will certainly be where the first deals will be coming from.’
Those that can provide real estate finance as well as equity are suddenly in a prime spot to capitalise on special opportunities. And, some investment firms have already agreed large-cap transactions in what could become a new wave of deals.
Apollo Global Management for example - one of the 10 named by market participants as a mover and shaker - has struck a €1 bn deal to invest in a portfolio of high-quality real estate assets controlled by Vonovia. That deal, announced in April, is pointed to by market players as an example of listed property companies being unable to access the usual lending channels and bond markets. Proceeds from the investment are being used to support Vonovia’s capital allocation plans, with Vonovia CEO Rolf Buch saying the transaction with Apollo would bolster the company’s liquidity position.
As well as investment firms, several advisors are tipped to play a larger role than others, especially those who can offer a range of ‘investment banking’ type services alongside structured credit, debt finance and traditional property advice. They will be among the winners at the centre of significant transactions.
One of advisors named, JLL, told PropertyEU how it had kept busy advising on debt mandates for both acquisitions and refinancings. But Brad Greenway, co-head of debt & structured finance EMEA, explained that the type of transaction in JLL’s active mandates had been shifting.
‘When measuring how active the market is, I think you have to differentiate between activity in the acquisition finance market and the refinance market,’ he said. ‘The acquisition financing activity is much more challenging because of the bid-ask gap and the math often isn’t making sense. But refinancings are continuing to move at a very quick pace and there’s a huge wall of loan maturities coming that borrowers are trying to solve without going to the sales market.’
‘Maturing loans are not just going to extend because of the current market conditions. Combine that with Basel 3 and new capital risk regulations, and lenders wanting to get repaid and shift some risk off their books, trades are happening.’
Orion’s Lahham said he felt that debt advisors would struggle to help clients refinance and will switch to trying to get the funding gap closed. He also feels some mezzanine lenders of the past will have a harder time as they will be fighting fires in their own portfolios, thus creating an opportunity for others to jump in, including his firm.
JLL’s Greenway stressed there are still pockets of acquisition activity for the right sectors and leverage requests. He highlighted the Build-to-Rent space, life sciences, self-storage, and other alternatives sectors for which there is a lot of liquidity and where recent acquisition activity has taken place.
But he estimates that 90% of the €15 bn of JLL’s current financing mandates in Europe are refinancings.
A similar percentage figure is being reported by investment firms which are active in real estate finance, underlining just how important refinance is at present.
Philip Moore, head of European real estate debt at Ares Management – also designated a mover and shaker - spoke to PropertyEU in June, hot on the heels of providing a £300 mln senior debt facility to refinance a portfolio of two marquee central London assets – Burberry’s global flagship store in Bond Street currently undergoing a transformative refurbishment, and the Hilton London Kensington hotel. JLL advised the borrower.
Said Moore: ‘It’s representative of what we see happening in the market in terms of non-banks filling a void as banks retrench because this was effectively a financing that ordinarily the sponsor would look to utilise a bank for. We currently see difficulties for sponsors and banks to put together deals of this size on these types of assets given banks appear to be issuing loans for smaller amounts and at LTVs of approximately 45-50%.’
He explained a major difference between the GFC of 15 years ago and the present opportunity was that in the aftermath of the GFC banks were able to ignore the LTV. But that is impossible now, so borrowers have to do something.
Chris Gow, head of debt & structured finance, CBRE UK, said: 'We’re seeing the start of a wave of refinancings across Europe. These are currently predominately focused on the office market but this is going to spread into the other asset classes and will continue well into next year. The problems are driven initially by falls in valuations and exacerbated by increases in the all-in cost of debt with pricing in Europe going from 2% to 5%.'
Brad Hyler, head of Europe at Brookfield Asset Management – another on the movers and shakers list - said at a conference recently that financing was available for large asset classes but that the lending environment was tighter, and investors needed to ‘look a little harder’.
One expert noted that certain non-bank lenders were offering 8.5% fixed rate loans at the large-cap end of the market. When rates were near zero, that cost would have been seen as very expensive but 8.5% fixed today for taking development risk now seems relatively attractive.
France’s Tikehau Capital, a listed global alternatives asset manager with around €40 bn in private credit, private equity, and real estate, has just created a new real estate debt platform. Maxime Laurent-Bellue, head of tactical strategies, said the firm had a growing deal pipeline building up in France, Italy, and Benelux. For now, the focus is on refinancing rather than new deals. ‘Deal flow has been relatively quiet recently due to lack of transactions, but there is a massive opportunity opening up in the near term with a likely liquidity crunch ahead.’
Asset and loan sales
While there is much activity around refinancing, there is also speculation that sales could begin to materialise in situations where financing cannot be achieved.
At present, borrowers are running numbers past their advisors to see which option might work to refinance an investment, whether that be a combination of senior financing with some equity, a senior loan with mezzanine, or a whole loan while keeping things cash neutral, or preferred equity which can cost 12-15% as a solution. But if none of those stack up, many may finally opt to sell the investment, thus triggering a new wave of opportunity for investors who stand to be rewarded for having buckets of capital for both debt and distressed/opportunistic equity investing.
The other shoe waiting to drop is banks starting to sell loans. Some experts say in theory this might happen, in which case a group of NPL specialists will ignite such as Fortress, Lone Star, Cerberus, Davidson Kempner, new entrant Arrow Global and those like Tikehau to name a few. For the moment, however, this is a ‘wait and see’ scenario, which explains why NPL specialists have not been named as movers and shakers yet.
It is the same story for other types of capital, notably sovereign wealth funds such as GIC, ADIA, and PIF which are more than capable of entering large-cap transactions. GIC, for one, has been very active in recent years. But these don’t make the 10 to watch although at the same time they are tipped by some to become more active once price points become clearer.
There are certainly other types of transaction expected to fill investment pipelines. Investors say ESG opportunities will attract funds prone to developing green buildings, however this might come much later as land and building prices still have a way to go on price as well as construction costs and indeed the cost of development finance.
10 firms to watch
We present 10 investment firms tipped to go into overdrive in what has been described as a ‘once-in-a-decade’ investing opportunity. We also name three main advisors, plus notable other firms
1 Cale Street Partners
London-based Cale Street typically focuses on a small number of very large lending deals. Target transactions for debt and/or equity deals are from €200 mln all the way to €1 bn. Go-to professionals at the firm are said to be Sameer Dalamal and Ramón Camiña. The company was founded by former Goldman Sachs global head of real estate, Ed Siskind. The capital comes from the Kuwaiti Investment Authority, which initially backed it with $1.5 bn in 2014. Dalamal has been with the company since 2019, having joined from Och-Ziff where he was head of European commercial real estate credit. Prior to that he was with Deutsche Bank in its European commercial real estate group for six years. Camiña has been with the company since inception. He was formerly with Goldman Sachs at the same time as Siskind.
2 Ares Management
The global firm has a very longstanding real estate equity investing history in the US and Europe, but only entered European real estate credit relatively recently. Philip Moore was hired in 2021 having served as head of European real estate debt at Carlyle’s flagship credit opportunities fund where he headed real estate within the firm’s opportunistic credit business. The team has completed €1.1 bn of lending in the last 15 months since launching in January 2022 and all in the whole loan/senior space. The team is seeing significant demand and opportunity in refinancings.
3 Apollo Management
The New York-headquartered company is an active real estate investor and lender throughout Europe, across the risk-return spectrum. Apollo’s perpetual, balance sheet capital from the company’s retirement services business gives the firm flexibility and creativity when structuring and underwriting transactions. Its capabilities extend through its special situations vehicles to a series of different businesses including commercial real estate debt and core-plus strategies each able to create and take on idiosyncratic solutions. The London group is led by Skardon Baker as head of its large European Principal Finance (EPF) special situations funds and its European RE platform. Other notable names are partners who report to Baker such as Ed Jones, Ivo Kolev, Samuele Cappelletti and Seb Zillas. Ben Eppley leads the CRE debt business, while Boris Olujic and Frederick Neske lead the core-plus RE business. The European real estate team collaborates closely with their credit and equity colleagues around the globe, including Jamshid Ehsani, a partner in Apollo’s credit franchise that originated the Vonovia transaction. Baker said Apollo had ‘unique and flexible capital’, helping it capitalise on the illiquidity and market distress currently underway in many European markets.
4 The Blackstone Group
No prizes for guessing Blackstone makes it onto the list given its track record, vast financial investing resources, and ability to play in both large cap equity and debt spaces. Samir Amichi, head of European acquisitions, and David Gorleku, a Blackstone MD in its debt business called ‘outstanding’ and a ‘future star’ by those who know him, are tipped by insiders to be among key players to watch in the unfolding new investment climate. The firm is a perennial dealmaker, making it to Number One spot in the annual PropertyEU Top 100 Dealmakers ranking with a combined €21.1 bn worth of transactions for the year 2022. There will be no slacking off. Head of Europe real estate, James Seppala, told PropertyEU in a recent interview that Europe was providing ‘compelling investment opportunities.’ He added: ‘In fact, Europe is the most active area for capital deployment on a global basis at the moment.’ The firm is working towards a first close of its latest Europe opportunistic fund, Blackstone Real Estate Partners Europe VII (BREP Europe VII), seeking $10 bn (€9.2 bn) of equity commitments.
5 Cheyne Capital Real Estate
One of the most active credit firms out there, this firm is certainly one to watch. Since launching in 2000, Cheyne Capital has become one of Europe’s leading alternative investment managers. Headquartered in London, it invests across the capital structure from the senior debt to equity of corporates and real estate. Real estate investments account for approximately half of the firm’s €10 bn under management and span direct real estate lending, securitised European real estate debt and selective special situations, including impact real estate investing in affordable and specialist housing. In real estate lending, it has carved out a niche for specialised non-bank loans to borrowers in select European markets, staying flexible to invest into all parts of the capital stack. Market participants say Arron Taggart, head of UK investment, along with Raphael Smadja and Daniel Schuldes, co-heads of Europe, are key people to know.
6 Starwood Capital Group
More typically, the US group is known as an opportunistic equity investor, but it also combines this with credit. In Europe, the firm continues to be very active and is expected by many to play a part in the unfolding dislocation in the region. The company has been working credit situations in the US for over 30 years and has deployed almost $100 bn in commercial real estate lending globally since 2009. But Europe is becoming a major focus according to Lorcain Egan, MD and co-head of Europe responsible for the group’s lending platform. He said in an interview that its international lending business is now nine times bigger than it was in 2018. He confirmed Europe was a ‘huge growth area’ and the dynamics were ‘as good as the firm has seen for at least a decade.’ He joined the company in 2013, having been a VP at Barclays Bank in its structured property debt finance team in London. The big push in Europe began in 2018 when the company saw the potential for non-bank lenders to fill a gap left by banks.
KKR is another of the US private equity & alternatives firms expected to play a greater part in matters going forward. Global head of real estate, Ralph Rosenberg, wrote in his second-quarter review recently: ‘In our view, the dislocation may create a once-in-a-decade investing opportunity in real estate, but investors should also be prepared to weather the storm.’ He points to the second and third-order effects of banks pulling back and a potential looming credit crunch due to the sudden rise in interest rates. He wrote that this ‘creates the potential for a credit crunch impacting certain owners and asset types that will no longer have the same access to debt capital’. Market participants say in Europe Ali Imraan is one to watch as head of European real estate credit. He joined KKR in January 2022 having previously been at Citi bank, Royal Bank of Scotland, and most recently MD of debt investments and special situations at LaSalle Investment Management. KKR launched a European real estate debt platform last year. On the equity side, it is currently raising KKR Real Estate Partners Europe III. Its second fund closed on $2.2 bn (€2 bn).
8 Brookfield Asset Management
With its long-term investment focus, the Canadian firm will always be found where there is an opportunity to be had. In recent years, it has invested significantly across Europe, with over €45 bn of assets in nine different countries and across a number of different sectors, including alternative real estate segments where it has been building platforms. Transactions of particular note include the establishment of a life sciences platform, ARC, and the acquisitions of Hibernia REIT and Befimmo. One has to expect it will continue to find big new opportunities to create value, in some cases driven by credit issues or public companies finding it more challenging to raise money. The company has plenty of firepower at its disposal and is said most recently to be seeking $15 bn of equity for its flagship strategy. Brad Hyler is managing partner and head of Brookfield’s real estate business in the region.
9 LaSalle Investment Management
Michael Zerda is the go-to professional here for debt, equity, and everything in between. As co-CIO for Europe and head of debt and private equity strategies, he oversees a business regarded as much more than just lending but tapping into the team’s hybrid opportunistic equity and special situations roots in this market. He helped create LaSalle’s debt and special situations business after the global financial crisis, left in 2015 to join Blackstone as head of Europe real estate debt strategies, and rejoined LaSalle in 2021 in a new elevated role. LaSalle’s lending business has become very active recently across whole loans and mezzanine, recently providing a €325 mln mezzanine loan to refinance a large Iberian hotel portfolio, among others. The equity business has been active in non-traditional, counter-cyclical sectors, including designer outlets and education hubs, as well as partnering with numa, a tech-enabled hybrid hotel operator to aggregate urban accommodation in gateway European cities. Zerda brought on board David White to head LaSalle’s real estate debt strategies in Europe and Blake Loveless to lead its European private equity division.
10 BentallGreenOak (BGO)
BGO is a very active lender in Europe and has a sizeable equity capability via large funds. In the UK it provides senior, whole loans and mezzanine debt. The bulk of the lending revolves around transitional real estate and core plus. Its website says the UK and European Lending Program is able to advance loans for acquisition finance, refinance, finance of discounted payoffs and redevelopment/capex loans from €5 mln to over €200 mln for up to 7-year terms. GreenOak Europe Secured Lending Fund III beat its €800 mln target by closing on €869 mln in Q1 2021. Its third UK Secured Lending Fund closed on £ 1.43 bn last year. The business is part of SLC Management owned by Sun Life of Canada. Martin Sheridan is MD for BGO’s UK debt business. Laura Manthe is MD, pan European lending. Both report to Jim Blakemore.
Other notable players in the market
They may not be household names in European real estate, but several other firms are being watched by market participants
This company is mentioned for having access to very significant capital and remains one to watch. In August it announced the full acquisition of Maslow Capital, a provider of real estate finance, following the purchase of a significant minority stake in December 2021. Other recent acquisitions include Eagle Street Partners, a real estate asset manager and developer mainly focused on the UK and Ireland, and Blue Current Capital, an ESG-focused real estate asset manager dedicated to developing electric vehicle charging hubs across the UK and Europe. In March, the UK-based group reached a hard cap of €2.75 bn for Arrow Credit Opportunities (ACO) II Fund. Headquartered in London and with a further 13 offices in Europe, it is a European alternative asset manager specialising in private credit and real estate. Davide Stecchi is one to follow. The MD of underwriting joined in 2021, having worked at two special servicing companies for many years: Hudson Advisors owned by Lone Star, and Archon Groupe (France) owned by Goldman Sachs. Marc Fuhrmann, former European real estate boss at Fortress Investment Group, is overall head of real estate investments at Arrow.
KSL Capital Partners
Not an obvious name, but market players mention Denver, Colorado-based KSL because of its pedigree in a super-specialised theme – luxury hospitality, global travel, business, and leisure resorts at a time when such assets are in vogue. As access to traditional financing has become more challenging, observers say KSL has emerged as a much-needed capital provider to borrowers across the hospitality and leisure subsectors and building on the firm’s reputation in the US. It invests in credit, equity, and special situations. In addition to its US offices, KSL has an international hub in London. It has a dedicated European Capital Solutions (ECS) platform that was launched five years ago. The firm is thought to be out raising KSL Capital Partners Credit Opportunities Fund IV. The predecessor Fund III collected $750 mln (€670 mln) in 2021. Coley Brenan and Hal Shaw are the go-to people as partner and head of Europe, and partner and head of European capital solutions, respectively. Brenan joined KSL in 2005, and Shaw has been with the company ever since being a summer associate in Denver in 2007.
France’s Tikehau Capital, the listed global alternative asset manager with around €40 bn in private credit, private equity, and real estate, is arousing interest with its new real estate debt platform. In July, the firm revealed it was teaming with French property company Altarea, with both partners contributing €100 mln and aiming for €1 bn of deals across western Europe. The company has said it will target loan to value ratios of 50%-75% and the loans may be originated in the primary market as well as acquired as secondary facilities and portfolios from existing lenders. Maxime Laurent-Bellue is one to watch as head of tactical strategies. He said the firm had a growing deal pipeline building up in France, Italy, and Benelux. For now, the focus is on refinancing rather than new deals. He said: ‘Deal flow has been relatively quiet recently due to lack of transactions, but there is a massive opportunity opening up in the near term with a likely liquidity crunch ahead.’ Frédéric Jariel is co-head of real estate activity. He was previously at Archon Group France, a subsidiary of Goldman Sachs, which he joined in 1996.
Advisors in the spotlight
The three big houses that are seen playing key advisory roles are JLL, Eastdil Secured, and CBRE. After that come the likes of Knight Frank, Cushman &Wakefield, Savills, KPMG, and Deloitte
JLL has always been an influential advisor, however the firm has seen a rise to the top in the debt and structured finance as well as investment banking advisory space post its strategic merger with HFF in 2019 and the recent hiring of Wenceslao Bunge and Jaime Riera from Credit Suisse. Former HFF colleagues Brad Greenway and Edward Daubeney are co-leading JLL’s EMEA debt & structured finance team that has completed in excess of €45 bn of financing mandates across 20 different countries in EMEA since opening the HFF office in early 2018, including recent completed financings such as a €680 mln financing for Blackstone’s Spanish hotel platform, HIP; a £300 mln (€350 mln) financing for Brookfield’s Harwell Campus; and a £300 mln financing for two marquee London assets on behalf of a private family. Bunge is a Credit Suisse veteran having been with the bank for 29 years while Riera was at Credit Suisse for 20 years – they have been joined by 10 other former Credit Suisse colleagues. With the enhancement of JLL’s debt & structured finance and investment banking offerings, market experts believe JLL is the go-to advisor to help borrowers navigate current market conditions.
The US investment bank has muscled it way to become an established force in European real estate advisory. As such it is well positioned to remain at the centre of the action. The firm started making a name for itself in Europe from 2011 onwards when it advised Anglo Irish on the sale of a $10.5 bn loan book in the aftermath of the GFC and began advising Irish bad bank, Nama, thereafter. Assisting Blackstone with the sale of an interest in the Broadgate office estate also helped Eastdil with its brand. In 2013, Ian Marcus, formerly of Credit Suisse real estate investment banking, was hired as advisor in London to help open more doors. It is now one of the big three go-to advisors. James (Jim) McCaffrey, a Boston-born former college basketball star whose daughter became a professional soccer player in the US, heads up the European real estate practice as senior managing director in London. Its team members are delineated on an asset class basis with specialists for each type of real estate. Among those cited as particular ones to watch are Riaz Azadi, MD for debt placement, loan sales, office, logistics, and hospitality; Max von Hunter, former Lazard real estate advisor who joined the firm’s M&A and large corporate deals team in 2018. He used to work with Marcus at Credit Suisse. Juergen Fenk joined in May in the Frankfurt office, having served as CEO of France-based Primonial. Sue-Lin Heng, a former JLL hospitality professional, is listed as a specialist in multi-housing and hospitality.
There has been a changing of the guard in debt advisory at CBRE, but it still remains a powerhouse advisory firm expected to remain active in European deals in the new era. Its capital advisors business is led by Richard Dakin and go-to people are Chris Gow, head of debt & structured finance since December 2022, and Andrew Antoniades, head of lending who joined in 2013 from Savills Capital Advisors. Before that he was at Deloitte. Gow joined from JLL in 2020 where he was head of EMEA debt advisory for its hotel and hospitality group. He also worked at Bank of Scotland for 20 years and Lloyds Bank for four years in a credit-focused investment business.
This boutique powerhouse launched in 2009 and has since become a trusted advisor active in debt arranging, restructuring and special situations. Following the GFC the firm built a reputation as the go-to advisor for providing solutions to the largest and most complex situations, completing over €30 bn of restructuring and special sits transactions. It recently restructured the £320 mln (€373 mln) Magenta hotel transaction secured on 17 UK hotels and is the firm Blackstone is said to have recently turned to as advisor regarding bondholders in Sponda, Finland.
In debt arranging it is one of the few firms active in the loan, CMBS and corporate bond markets. It helped raise over €2 bn of debt for Pinewood Film Studios (including the recent acquisition of Pinewood Toronto Studios) which is one of the most profitable European real estate investments of the cycle. The key people here are founder Nassar Hussain, formerly of Merrill Lynch and partner, Georghios Parson. Hussain is about to become chair of CREFC, the influential trade association for the real estate finance market. Whilst well positioned to assist with the current challenges facing the real estate world, it is strongly rumoured that Brookland is looking to launch its first real estate credit fund with a punchy target equity figure.