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FEATURES
From greenbacks to green bonds
The world of property finance is choosing the sustainable path, as lenders and bondholders back firms that align with ESG goals, Isobel Lee reports
If European property investors had any doubts about the importance of their buildings meeting environmental, social and governance (ESG) targets, a tsunami of recent EU regulations may have convinced them otherwise.
Today, both ESG and investment officers in real estate firms must crosscheck their assets’ compliance with the EU’s
Sustainable Finance Disclosure
Regulation (SFDR), follow the recommendations issued by the international Task Force on
Climate-related Financial Disclosures (TCFD), and take into account the decarbonisation pathways set by the Carbon Risk Real Estate Monitor (CRREM). Meanwhile, the EU’s Corporate Sustainability Reporting Directive (CSRD), due in 2023, should take this to the next level by placing the onus on occupiers to provide further key metrics. While heightened health and environmental concerns post-pandemic and the fall-out from last year’s COP26 climate summit in Glasgow made these matters of public debate, the vast majority of the consequences are likely to impact company bottom lines. Today, ESG-compliant assets and behaviours not only attract a ‘greenium’ — a value premium for property companies — but increasingly dictate a firm’s access to finance. According to Sophie van Oosterom, global head of real estate at Schroders Capital, investors who are surprised by this turn of events really haven’t been paying attention. “Banks have always offered lower margins for less risky buildings. Lenders recognise when property owners are doing the necessary work to de-risk their assets, and create more sustainable income from tenants going forward. A green premium implies a brown discount, so the act of green lending will become the norm,” she says. A quick snapshot of the real estate lending scene backs up this thesis. Bloomberg data reveals that over $700bn (€622bn) of sustainable and green debt was issued globally in 2020, up from $250m in 2018. Meanwhile, the intelligence firm forecasts that investment products tailored for ESG factors could reach more than $53trn of assets by 2025. Green bonds — fixed-income instruments that raise capital to finance sustainable projects — are not a new invention, dating back to 2008. But the year 2021 saw their issuance move centre stage in the property world as a more than viable alternative to traditional, secured bank finance. Just as the appetite of banks for big ticket exposures to real estate — a hangover from the global financial crisis — has continued to wane, access to debt capital markets has become easier for real estate funds.
Green is good for real estate firms like Patrizia seeking to raise long-term capital
Stephane Villemain, vicepresident of corporate social responsibility, Ivanhoe Cambridge
Sophie van Oosterom, global head of real estate, Schroders Capital
An €800m green bond issuance from AXA IM Alts last year for its Logistics Europe fund was notable both for its sustainable credentials, and for the fact that these kinds of resources would have been raised via secured bank debt in the past. Meanwhile, sustainable logistics specialist CTP established its euro medium-term note (EMTN) programme in 2020 flanked by a green framework, issuing its first green bond in October of that year. It has now issued some €3.5bn in green bonds, €2.5bn in 2021 alone, all of which were at least three times oversubscribed. Going forward, the firm says it will only issue green bonds. “Why can we do that? Because since 2019 we have obtained BREEAM building certificates which are Very Good or better for our whole portfolio,” says Jan-Evert Post, CTP’s managing director. “For new build, our standard is BREEAM Excellent certification.” Global real estate investor Ivanhoe Cambridge also unveiled plans to convert its corporate programme of term loans and lines of credit last year by indexing them to its ESG performance. The corporate financings represent some C$8.5bn (€5.92bn) to date. The announcement came after the firm revealed a new strategy to make its portfolio carbon-neutral by 2040, in line with the Paris Agreement. Stephane Villemain, vice-president of corporate social responsibility (CSR) at Ivanhoe Cambridge, says: “The conversion of our term loans and lines of credit into ‘sustainability-linked loans’ (SLL) is in line with our global CSR strategy and aims to align our sustainability performance with our financial performance. “As you may know, we have made CSR a priority in our strategic plan, and we consider it integral to our vision and mission. As a long-term investor, we systematically take ESG criteria into account throughout our investment process.” Through the new initiative, Ivanhoe Cambridge said it also intended to play an active role in promoting new financial practices that respect the environment and promote sustainable investment. “Similar to our integration of ESG factors into our real estate equity investments, we believe it is also important to integrate ESG considerations in our debt programmes,” Villemain adds. “This direct alignment between our ESG performance and our financing programme shows that we are committed to walking the talk on achieving our ESG targets. For example, if we achieve our carbon targets then our cost of debt will be lower. This gives us an additional incentive.”
The other side of the industry coin is the increasing prevalence of impact investment vehicles — funds designed to generate positive, measurable social and environmental impact alongside a financial return. In February, Patrizia Global Partners, part of the Patrizia Group, launched the first ever Patrizia product dedicated wholly to impact investing, dubbed the Patrizia Sustainable Communities I SCSp-RAIF impact investment fund. To date, the vehicle has already attracted €125m in seed equity as part of its target to raise around €500m in capital, and has unveiled its first investment in Dublin. “It’s very exciting from the outset to have very clear goals around creating affordable and green real estate with a social infrastructure dimension,” says Marleen Bikker-Bekkers, fund manager of Patrizia Sustainable Communities. Among the fund’s goals are the provision of thousands of affordable homes, including social housing, and social infrastructure such as childcare centres, libraries and healthcare facilities. It is targeting underserved communities in some 25 locations in and around major European cities. The first investors to sign up have been two Danish pension funds, AP Pension and PKA. Adds Mathieu Elshout, the fund chairman and Patrizia head of sustainability and impact investing: “Patrizia’s ambition is to become a leading global impact investor in the real assets sector with a meaningful part of its assets under management in impact investments by 2035.”
Stephane Villemain
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Diversity in action
As diversity, equity and inclusion measures become increasingly important for the real estate industry, a few key firms are standing out for their leadership in the topic, reports Isobel Lee
Matters of diversity, equity and inclusion (DEI) in commercial real estate have never been higher on the corporate agenda, but signi cant e ort is still required to achieve change, according to the latest ndings.
A recent study to benchmark the issue, dubbed e Global Real
Estate DEI Survey, found that less than half of commercial real estate rms have a formal DEI programme, or initiatives and policies to improve the issue in the workplace. Senior roles in the industry are still overwhelmingly lled by men, although there are some regional di erences, with both Asia and the US employing more women at the top than rms in Europe.
Yet despite this disappointing data set, something is changing. e recent survey authored by Ferguson Partners in conjunction with the world’s major real estate associations, found that 92% of global rms surveyed have introduced some form of DEI initiatives. Meanwhile, even rms which have shown reluctance to evolve are signalling awareness that change is no longer optional. “For some rms in our industry, DEI has been a “check the box” matter historically; now it has greater implications,” says Erin Green, managing director at Ferguson Partners. “Investors are requiring it. ey are asking a lot more questions around ESG and workforce demographics, and want to see tougher due diligence around DEI.” For many experts, the momentum around recent e orts started in the wake of 2020’s protests in support of the Black Lives Matter movement. Meanwhile, greater awareness of female issues in the workplace sparked by #metoo and a focus on growing social inequities during the pandemic also reignited debate. On top of this, the broader movement around ESG compliance — where the S encompasses questions of DEI — is also driving the issue up the corporate agenda. “Diversity and inclusion are essential for the sustainability of businesses, and equity is a fundamental human right,” says Margaret Sweeney, CEO of private residential landlord IRES. “ is has always been the case, but I think the pandemic has put a particular spotlight on the topic right now — our ‘re-emergence’ from this turbulent time, as we face up to societal and environmental challenges, must be designed with DEI in mind.” And it’s not just about “doing the right thing” — companies which fail to act now risk nancial penalties, according to Sweeney. “Underestimating DEI can a ect our investment metrics. is is particularly important for us when making signi cant long-term investments and costly decisions on t outs — it is essential to make those decisions considering all angles and re ecting our diverse customer base.” IRES was recently recognised as a best practice leader in the European Women on Boards Gender Equality Index report. As well as considering aspects such as age, gender, social and ethnic background, educational and professional background, cognitive skills, personal strengths and ESG expertise in its hiring policy, IRES endeavours to support its local communities by sponsoring sports clubs and other initiatives. Global property services rm JLL is another business showing leadership in DEI. In 2018, it committed to a goal to improve the representation of females in senior leadership over the three successive years, while building a more diverse tal-
The Peebles Corporation’s Affirmation Tower will seek to concretely represent equity in development
ent pipeline. “Since 2018, we have made considerable progress in gender balance at the executive level, increasing our women in leadership by five points, from 12.9% to 18.1%,” says Anne-Sophie Curet, head of human resources, EMEA, JLL. “In 2020, women accounted for 50% of our promotions in the executive leadership roles.” She adds: “Companies that underestimate the importance of driving a proactive DEI agenda might pay a high price in terms of innovation capacity, resiliency and brand reputation and top talent; global clients and investors will move away from them.” While today JLL already has a highly diverse board across gender, ethnicity and experience, it had also kick-started development programmes to prepare the talent of the future. “In the last 24 months, five CEO positions across the globe have been filled with female leaders, including Italy, India, Central Europe, UK and Ireland and Greater China and women comprise 45% of our independent board members,” Curet says. Although progress is tangible at a number of firms, few can rival the concretely defiant monument to DEI which is about to break ground in New York. In a city which often lets its buildings do the talking, a new skyscraper is bidding to make a major statement about diversity, representing “equity in development”, according to its developer, entrepreneur and political activist Don Peebles. Developed by The Peebles Corporation and designed by Ghanaian-British architect Sir David Adjaye, the $3.6bn (€3.2bn) Affirmation Tower is being developed, built, and funded by Black- and female-owned businesses, while most of its tenants will be minority entrepreneurs. Rising at 35th and 36th Streets, 11th Avenue and Hudson Boulevard West, one block from the High Line and Hudson Yards, the project will sit on 1.2 acres (4,800 sq m) of land and include a 1,663-foot (507-metre) tower, two hotels, an observation deck and skating rink as well as commercial office space. While its roof height is set to exceed One World Trade, the building will be framed as Manhattan’s second tallest building by spire height out of respect for its neighbour’s origins. Peebles describes how the city of New York had always harnessed powerful real estate projects to overcome crises. “After the Great Depression, the Empire State Building and Rockefeller Center ignited growth and signalled it was back. After the terrorist attacks, One World Trade Center was about building back,” he says. The Affirmation Tower represents not only “America coming back from pandemic” but also “highlights the quest for economic and social reform in the wake of protests against systemic injustices ignited by the murder of George Floyd”. The Peebles Corporation has made repeated commitments to DEI in its real estate projects. Peebles himself served on the National Finance Committee of former president Barack Obama. Describing the difficulties facing black and female real estate professionals, Peebles says that the issue of access to capital has often dissuaded minority would-be developers over the years. “Real estate is different to tech. You can build an app in your bedroom and get it up and going, test the concept, prove it, get more capital, and raise funds as you go along.” He concludes: “With developing a building, you have to raise 100% of the capital before you can do anything: that means getting investors to believe in your vision from the very start.”
Margaret Sweeney, CEO, IRES Anne-Sophie Curet, head of human resources, EMEA, JLL
Developer Don Peebles (right) with Cedric Bobo, founder and CEO of Project Destined, at Propel by MIPIM in New York
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Readyrock to
The sale of the Hard Rock Madrid reflects the considerable interest in hotels and hospitality in Spain
After a turbulent period during the pandemic, the diverse Spanish market is now bouncing back in resilient and optimistic mood, reports Clive Bull
COVID-19 may have changed the shape of some sectors and accelerated pre-crisis trends, but Spain’s recovery looks set to be swi er and stronger than a er the 2008 crisis, with many predicting a record-breaking 2022. “I am really pleasantly surprised,” says Humphrey White, managing director, Knight Frank, Spain. “I think none us knew how the world and the markets were going to react when we were stuck at home in the lockdown, especially in Spain where it was really strict. e di erent sectors are all moving at di erent speeds. ey have generally bounced back really well and I think we are looking towards a record year with regard to investments.” Sergio Fernandes, JLL’s head of capital markets in Spain, is equally upbeat: “We had a start to the year like we’ve never seen before,” he says. “A lot of activity, a lot of investors trying to get their hands on di erent assets in Spain. So, I would say — in a nutshell — the market is back.” e hotels and hospitality sector has rebounded particularly strongly. Hotel investment in Spain last year exceeded pre-pandemic levels, reaching €3.2bn, 35% above 2019. is year, Fernandes expects volumes to surpass the 2021 gure as more assets come to market. “ ere were big question marks about distressed assets and what the e ect of COVID would be on the tourism industry, but Spain is a huge travel market and we have a huge hotel stock in Spain,” Fernandes says. “ e rst deals during lockdown were probably opportunistic and distressed, but with all the mechanisms that the state put in place to help companies to survive during the COVID
Concha Osacar, founding partner, Azora Sergio Fernandes, head of capital markets, JLL Spain
Humphrey White, managing director, Knight Frank, Spain period, that has disappeared and what we’re seeing right now is investors trying to get their hand on good assets.” e rejuvenated investment activity in 2021 included Arlaes Management, a privately-owned investment rm recently established in Madrid, acquiring the Hard Rock Madrid hotel for €65m. Says Arlaes’ Ilkim Schuster: “We are strong believers in Spain and it’s growth potential. e Hard Rock hotel Madrid acquisition is a further and a very signi cant step in our growth strategy in Europe and Spain, which enhances our position in Spain and ts perfectly into our hotel portfolio.”
In the residential sector, White says he is expecting the highest number of residential unit sales in over 15 years. “At Knight Frank, we are having our best year in 31 years — which is the amount of time we have been in the country.” He says people have reassessed their living arrangements over the past two years and there have been major shi s. “Some people have gone downtown and others have gone to the outskirts with a garden for example, but there’s been a lot of movement. And then sectors that would previously be considered alternatives such as student, senior, healthcare, buildto-rent, are now very much the avour of the month. ey’ve become institutional.” e build-to-rent (BTR) sector in particular is on the rise. Azora, the Madrid-based private equity real estate manager and Spain’s largest BTR manager, recently teamed up with a global institutional investor to create BRISA, a new vehicle focussed on BTR residential developments across Spain. Including leverage, BRISA will have an implied total investment capacity of over €1bn. Concha Osacar, founding partner of Azora, says: “ ere is still an acute shortage of good quality rental housing in Spain, most notably for a ordable accommodation targeting middle income earners. BRISA aims to help alleviate that issue through the delivery of more than 8,000 sustainably developed new homes in the most supply constrained micro-locations across Spain over the coming years.” According to Fernandes, retail and logistics are back as well. “Retail was one of the asset classes that was under huge pressure — even before COVID. E-commerce grew a lot and that’s basically what is underpinning the logistics growth, but Spain remains a very robust country for physical retail spaces in high streets, shopping centres or retail parks. Probably the winner during the pandemic was the supermarket industry, but we are now seeing growing appetite for other asset classes within retail.” e gures also showcase the strength of the logistics market in Spain with take-up in Q4 2021 in Madrid reaching around 520,000 sq m, 90% more the Q4 2020, resulting in a record high takeup in Madrid of 1,400,000 sq m — almost 45% higher than 2020. In Barcelona, record gures were also registered: 140,000 sq m in Q4 and 810,000 sq m YTD, 95% more than 2020. e sector looks to be continuing its surge into 2022. In a major deal, EQT Exeter has bought Logicor’s logistics portfolio for around €300m. It comprises four logistics centres spanning around 300,000 sq m. e assets are between Madrid and Guadalajara along the A-2 highway.
Despite the impact of working from home in Spain, the o ce sector is rapidly rebounding. Cushman & Wake eld report striking growth in demand in both Madrid and Barcelona, particularly in the fourth quarter of 2021. “ e o ce sector is not dead,” says JLL’s Fernandes. “It has evolved and will continue to evolve. Outdated assets will need to be refurbished and this creates opportunities. ESG, sustainability, technology and the need for more social space are some of the trends that COVID has accelerated.” ere has also been a surge of interest in alternative asset classes, particularly data centres and life sciences. White believes investors are dabbling, and asking questions. “I think people are trying to understand where the money is to be made. ey’re asking for research, they’re trying to understand how much power the occupiers would require, how much space — so we haven’t seen many deals but we have seen a lot of inquisitive investors.” And where are Spain’s hotspots? It depends what you’re looking for. “In terms of big volumes, it’s Madrid and Barcelona, but it depends on asset classes,” Fernandes says. “If we talk about o ces, it will be Madrid, Barcelona for sure, but then we have new spots in the secondary cities also growing. Malaga, Valencia, Bilbao, Zaragoza are also attracting attention.” White says cities beyond Madrid and Barcelona are becoming very attractive to occupiers and investors, another trend accelerated by the pandemic. “Malaga seems to be unstoppable — there’s a very business-friendly mayor who is at MIPIM this year. When you turn up at the airport in Malaga there is a huge sign which says Investor O ce and gives you an address where you can speak to the local administrators about investing in their city. Bilbao in the Basque country also has a very forward-thinking administration. ere are certain areas that seem to have signi cant growth prospects and I would add Valencia to the list as well.”
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