Daniel Thomas
The Financial Times
GIC Real Estate, the sovereign wealth fund of the Singaporean government, has created a partnership with Deutsche Bank to provide debt finance to the European real estate market.
The move is a first step into European real estate lending by the sovereign wealth fund, which has more than £200bn ($315bn) of assets under management, and is a coup for Deutsche Bank, which can use the relationship to step up its property lending business in the region.
Estates Gazette, the UK trade magazine, will report tomorrow that the venture has already completed its first funding deal; it last week provided £140m in debt to finance the purchase of a £208m office block in Canary Wharf in London by a Saudi investor consortium.
Deutsche’s lending platform will continue to originate new debt and the bank is then expected to hold the senior tranches of the loan, typically where the loan-to-value ratio is less than 60 per cent. These are the very safe tranches of debt that will normally always be paid back should the property default, although typically the returns are lower.
GIC is expected to purchase junior parts of loans, although stopping before the higher-risk mezzanine level of debt that typically occurs at a loan-to-value ratio of more than 75 per cent. In return, it can ask for higher rates of return from the borrower.
There is no set amount that either party wants to commit to the sector, with new investments made on a case-by-case basis. It is thought that the pair will lend only to prime single assets or small portfolios with good cash flow.
Lending to the commercial property sector remains restricted, although this is beginning to ease given the attractive rates of interest and fees that can be levied on investors. However, there are still few banks willing to lend more than £100m on a single transaction. Loan-to-value ratios are also restricted, meaning more equity is needed for most acquisitions and giving a potential advantage to Deutsche Bank and GIC’s partnership.
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