INTERVIEW: 'Southern Europe offers best lending opportunities'

Despite increased competition, Southern Europe offers the ‘best lending opportunities’ in Europe, according to Mike Shields of ING Real Estate Finance.

Southern Europe remains hot, both for investors and lenders. In mid-November, ING Real Estate Finance provided €125 mln of debt financing to TIAA Henderson Real Estate to acquire the Islazul shopping centre in Madrid. Islazul is the second largest-shopping centre in Spain with a GLA of 90,000 m2. ‘Generally, I think that Southern Europe provides the best lending opportunities,’ said Shields, head of real estate finance in Western Europe, the UK and the US at ING Real Estate Finance, a unit of Dutch lender ING.

‘The risk/return proposition is more compelling. Even with the 2014 turnaround, there are less active lenders, loan terms are very conservative and loan margins are still attractive. Our Spanish Islazul financing would be a good example of my perfect loan,’ said Shields, who is based in London.

ING Real Estate Finance prefers strong performing retail assets in Spain and Italy with a diverse tenant base, said Shields. ‘Lending in Southern Europe gives ING a chance to deliver for our clients and enhance relationships where many of our competitors can’t or won’t follow,’ he added.

New loan business
In the first nine months of 2014, ING Real Estate Finance originated around €6 bn of loans, of which around €2 bn was new business. It will consider offices, retail and logistics, as well as multi-family properties to rent. However, it no longer lends on hotels, as it views the sector as more of an operating business. In general, Shields is looking for high quality assets but ING will also consider lending on ‘average to good portfolios’, as well as pan-European portfolios. LTVs are typically between 50% and 70%.

ING Real Estate Finance is actively lending where it has a local real estate lending team including the Netherlands – its home market – as well as in Germany, the UK, Italy, Spain, France and Poland. Around half of its €25 bn loan book globally is in the Netherlands, with the balance evenly distributed between the other countries. ‘We’re not looking to enter any new markets next year,’ said Shields. ‘Unlike some lenders, we are not looking at Greece. We don’t have a local deposit base or the local real estate knowledge to lend there.’

Shields’ aim is to maintain ING Real Estate Finance’s €25 bn loan book which has been built up in the past decade since various ING divisions merged to create the real estate finance unit. ‘This can be hard because we’ve had a lot of repayments this year, even in Spain. Competition in Spain has increased substantially in the past six to nine months. We used to be one of three potential lenders bidding – now we’re more likely to be one of 12!’

Paris deal
ING Real Estate Finance has also underwritten some substantial loans outside Southern Europe this year. The biggest loan that it has underwritten since the financial crisis was in Paris in July this year - as part of a club deal - when it underwrote a €750 mln loan to the Saudi conglomerate Olayan Group to finance its acquisition of eight properties in Paris from Risanamento, the Italian publicly listed real estate company. The portfolio - which totalled 70,000 m2 - included office, retail and residential space.

The debt financing was provided by ING, BNP Paribas, CACIB and Société Générale. (ING Real Estate Finance had approval to underwrite the full amount but did not need to due to interest from other lenders.) ‘It was a high quality asset with a good sponsor,’ said Shields. ‘Typically, our minimum loan size is around €25 mln. For the right client, asset and location we could step in and underwrite a loan of €1 bn – on our own – if the credit story was strong enough.’

And despite the uncertain economic climate in Europe and the growing prospect of quantitative easing to keep the eurozone afloat, Shields remains optimistic: ‘We are keeping a close eye on the macro-economic picture, but generally equity investors are prepared to invest high percentages of equity in deals which gives us comfort in this uncertain environment.’ Shields is also cheered by the general lack of construction across Europe today, because ‘that controls the supply side’: ‘We haven’t yet seen lenders become too aggressive on structure which has led to past excess. The market was pretty stressed two-to-three years ago, although it’s better now.’

By Sara Seddon Kilbinger
Correspondent German-speaking countries & UK