TIAA Henderson Real Estate is to target regional cities in the UK as it forges ahead with plans to grow its newly-formed debt business

TIAA Henderson Real Estate is to target regional cities in the UK as it forges ahead with plans to grow its newly-formed debt business

UK-based real estate group is casting its net widely for its newly-formed debt business, according to Shawn Kaufman, director of debt strategies at TIAA Henderson Real Estate in London. ‘In addition to targeting London, we have a significant interest in the UK regions,’ he said. ‘We’ll lend on almost any real estate asset, with the exception of hospitality, which is too volatile. We’ll look at “shiny” assets in the city centres but the funding gap for those is nil; it’s very competitive and such assets yield low numbers. Besides, a lot of those buyers aren’t borrowing. That’s why we’re also interested in the regions,’ he said.

TIAA Henderson Real Estate is a joint real estate venture between US national financial services organisation TIAA-CREF’s non-US real estate business and Henderson’s Real Estate business. Launched in April 2014, it has offices across Asia and Europe, managing around $25.5 bn (€19.3 bn) of real estate assets across 50 funds and mandates. Its alliance with TIAA-CREF in North America increases its global AUM to $77.1 bn. It is both an equity and debt investor.

For the first 18 months, TIAA Henderson will focus on the UK debt market, said Christian Janssen, head of debt at the company. ‘We could have gone into continental Europe from the onset but we wanted to be very disciplined with a focused investment strategy,’ he said. ‘In addition, TIAA Henderson Real Estate already has around £8 bn (€10.05 bn) of direct assets under management in the UK and the UK is a very large, liquid and transparent market.’

TIAA Henderson does not have a fixed lending target for the year, but Janssen acknowledges that the company would ‘like to lend and originate as much as possible’. ‘Real estate debt is a steady, defensive asset. We made our first loan in July. We have a large balance sheet which can be deployed for quality assets and quality sponsors. While we focus on mid-size loans, we also have a remit to underwrite larger loans. For office, retail and logistics assets we are prepared to make loans of between £100 mln and £200 mln. In particular, we’d like to fill the lending void left by some of the corporate and investment banks in the UK. For the right client, asset or story, we will also offer LTVs of as much as 75%,’ he
added.

LONG-TERM LOANS
Unlike conventional lenders, who typically offer loan terms of between four and six years, TIAA Henderson is also prepared to underwrite loans of between 10 and 25 years for a long-term asset on a fixed interest rate basis. ‘Historically, there’s never been a better time to borrow for a longer duration because interest rates are so low,’ said Janssen. ‘On a 25-year loan, borrowers can lock in long-term financing of between 4% and 4.5%. They view it almost as permanent capital and focus on what they do best: managing and maximising the value of their property portfolios,’ he added.

TIAA Henderson is now in the process of setting up a new debt fund, although regulatory restraints prevented them from disclosing further details. However, according to analysts, it is likely to be a UK-focused fund and is expected to launch by the year-end.

Debt funds are playing an increasingly important role in Europe’s rapidly shifting lending market: ‘Debt funds and alternative lenders are massively important in the current debt space. They form a significant part of getting Europe back on track. In fact, debt funds and alternative account for between 10% and 15% of the current lending market. There’s no reason why a debt business shouldn’t have a number of debt funds, and the same goes for us,’ said Janssen.

Much like other lenders, TIAA Henderson follows its sponsors into the markets and locations in which they are investing. Its debt platform also mirrors the investment footprint of its direct real estate platform, leveraging in-house research. ‘We won’t finance our equity investments but we certainly can use their expertise to predict where the next hot market will be for providing real estate debt finance,’ Kaufmann said.

The company is also hoping to entice borrowers with a range of other services less widely offered by traditional lenders, namely the transferability of loans and the substitution of assets. ‘Transferability is basically when a borrower sells an asset a few years after they buy it and the existing low interest loan is sold along with the asset, avoiding pre-payment penalties, fees and the cost of new documentation and retaining the low fixed rate cost of funds from when the loan was originated – not all lenders will let you do that,’ said Kaufman. Similarly, the firm’s substitution policy means that if a borrower has a portfolio of, for example, 20 assets and decides to sell two of those assets, he or she can fold that capital back into the existing loan by reinvesting the proceeds into new assets – thereby retaining the benefit of the low cost of funds from the start.

Sara Seddon Kilbinger
Correspondent German-speaking countries & the UK