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Audience

Real estate debt finance

The opportunity in European commercial real estate (CRE) debt has garnered considerable institutional interest since the Global Financial Crisis. Today, CRE lending offers higher returns at lower risk levels than pre-Crisis while borrower demand for non-bank capital looks set to remain firm. For Asian institutions, European CRE debt has the potential to deliver strong relative value, stable and secured cashflows and diversification.

Real estate finance overview

Secured Lending Backed by Real Estate

  • Loans secured against commercial real estate
  • Lenders generally benefit from hard asset security with recourse to the underlying property only
  • Fixed or floating rate, with typical term of 5-7 years
  • Loan interest paid from rental income generated by the real estate
  • Illiquid market with limited secondary trading

Loan Comparison with Traditional Bonds

Loan Comparison with Traditional Bonds

Our investment philosophy

A unique platform which provides a premium for an origination focused whole loan strategy

M&G’s capability of underwriting large, directly originated whole loans which we hold until maturity allows us to stand in a unique position by offering a one-stop-shop solution to borrowers, which in return are likely to pay a premium.

Investment-philosophy-HK

Case studies

Residential development, central London1

London-case-study-HK 

In October 2017 we provided a £517 million whole loan to support a new residential development of 48 “super prime” units and related amenities located in central London’s Grosvenor Square.

The project is amongst the capital’s most-high profile residential developments. It is being undertaken by an experienced real estate sponsor, which contributed a significant amount of equity to the transaction. A tier-one main contractor is in place, supported by a best-in-class development team.

The debt financing has a low basis relative to market prices for the finished units. We set the £250 million senior debt at a conservative 27.2% loan-to-value2; this was supplemented by a stretch senior tranche of £138.2 million reaching 42.2% LTV, with a mezzanine tranche of £128.8 million taking the total LTV to 56.2%. The debt finance has a funding term of 3.5 years.

Retail park, Scotland1

Scotland-case-study-HK 

In March 2017 we provided a £68.1 million whole loan secured against a retail park close to Glasgow in Scotland. The retail park is based in a location served by few food and retail stores, so is perfectly positioned to cater for demand from the affluent Glasgow area.

Supermarket chain Sainsbury’s is the park’s main tenant, accounting for 38% of income, and it has 21 years remaining on the lease. Other tenants include Next, M&S Foodhall, TK Maxx, Nike, Boots, Argos, Mothercare, Homebase and Halfords.

M&G divided the loan into £52.7 million senior debt at a 58.5% loan-to-value. This is complemented by stretch senior debt of £9 million to reach 68.5% LTV, and £6.4 million mezzanine debt taking the total LTV to 75.7%.

The debt finance has a four-year tenor with the option for a one-year extension and importantly offers two and a half years of prepayment protection to protect lenders should the borrower seek early refinancing.

The retail park also benefits from a weighted average lease term of 11.4 years, with a weighted average lease break of 10.4 years, due to the long-term lease commitment of Sainsbury’s.  

Distribution portfolio, France1

France-case-study-HK 

In October 2016 we provided a €93 million whole loan to finance a portfolio of 14 distribution warehouses located across France. The portfolio is 100% occupied and primarily let on triple-net leases to a BBB+ corporate credit tenant.

The loan comprised a €64.5 million senior tranche at 52.2% loan-to-value; €11.6 million of stretch senior, up to 61.6% LTV and a €16.9 million mezzanine tranche at 72.3% LTV. All were priced relative to EURIBOR and had three-year terms.

At the time of the transaction the lead tenant re-signed leases on 13 of the assets in the portfolio, while the remaining property was sub-let.

Senior lenders benefit from full cash sweep amortisation on the loan, while junior lenders are backed by multiple protections.

1 All metrics as at origination date
2 Loan balances and LTV ratios include fees and accrued interest to date 3 months after expected completion.

Our investment team

M&G Real Estate Finance Team combines 3 core skill sets from the Real Estate, Real Estate Finance and Fixed Income Teams to create a unique platform to put your investments to work.

MG Real Estate Finance A Unique Platform

Team members:

John Barakat

John Barakat, Head of Real Estate Finance

  • Over 30 years of real estate experience.
  • Started the Real Estate Debt Fund business at M&G in 2008 and built the team to its present scale of 20+ professionals with overall responsibility for management of investment activity.
  • Spent 17 years at Goldman Sachs. Roles included Head of the Commercial Property Finance Group in London and Co-Head of the Real Estate Department and member of Whitehall Investment Committee.
  • Has been involved in all aspects of real estate including lending, investment, M&A, development, securitisation and restructuring.
  • Graduated cum laude from Georgetown University and received an MBA with honours from Columbia University.

 

Paul Foldvari

Peter Foldvari, Director, Real Estate Finance

  • Over 16 years of real estate and secured lending experience.
  • Joined M&G in 2009 with a principal focus on sourcing and executing investments on behalf of the junior funds. Has led many of our investments across geographies and asset classes. Together with Jamil, Peter is responsible for managing the junior real estate debt business.
  • Previously worked in the Commercial Property Finance Group at Goldman Sachs with John Barakat, focused on originating, structuring, executing and selling real estate debt products.
  • Holds a Masters Degree in Economics and Finance from Budapest University of Economic Sciences.

 

Jamil Farooqi

Jamil Farooqi, Director, Real Estate Finance

  • Over 18 years of real estate and secured lending experience.
  • Joined M&G Investments in January 2010 and along with Peter co-head of junior real estate debt at M&G. Focused on investing on behalf of a series of pan-European junior debt funds. Invested in excess of £850m of capital across more than 36 transactions.
  • Previously Executive Director in the Real Estate Structured Finance Group at JPMorgan for 9 years covering origination, underwriting, structuring and execution of real estate related debt products across Europe.
  • Holds a Masters Degree in Engineering from Imperial College, London.

 

The information on this website is for Institutional Investors only. Specifically, the information on these pages should not be used or relied upon by the public of Hong Kong or any other type of investor from any other jurisdiction.