ING Real Estate Finance has begun 2016 in much the same way it attacked 2015 – doing big deals and grabbing the headlines.
In January and February the Dutch-owned lender extended more than €600m (£463.9m) on just three deals on the Continent and closed out the £400m refinance of Heron Tower, EC2, for Heron International.
This puts the firm well on target to match or exceed the €13bn put out by the bank’s real estate finance department in Europe in 2015, fast making the bank the go-to lender for financing trophy assets.
But the story was not always so rosy for the company and its parent. In 2008, at the height of the global financial crisis, ING Group was forced to take a €10bn capital injection from the Dutch state to shore up its credit lines.
Michael Shields, head of ING REF for western Europe, the UK and US, said that the real estate loans on the bank’s books at the time were fundamentally “high quality”, helping to spare it the blushes of some of its peers and allowing the bank to get on with full-time lending by 2014.
Its first major step back into the market was the headline- grabbing £365m loan that year to Safra Group for its purchase of the Gherkin, EC3, a deal that set the tone for the lender for the next 18 months.
“We tracked probably about five or six potential buyers, but all of them lost. So when we found out that Mr Safra won, all we did was make a call and that’s what got it going,” says Shields.
This landmark deal set off a stream of other prominent deals in the UK and across the Continent (see box).
Despite its reputation, the bank does not pursue trophy assets just for the sake of it. “We are primarily a core and core-plus lender, but we do a little value-add when it’s the right deal or the right asset or sponsor,” says Shields. ING’s average deal is likely to be between €100m and €200m with a maximum loan-to-value of 65%, although 50% to 55% is more common.
Aside from major investment banks, the pool of lenders that can write cheques of such scale are few and far between.
“We like the larger deals and the higher-quality deals because our syndications team has done a really great job of bringing international investors into our loans.”
This syndication, or the selling on of parts of loans to other banks and investors, spreads risk and can make lending cheaper, a factor that ING has exploited to win major deals. And ING’s deals have been very lowly priced. Refinancing on the Heron Tower, EC2, in January this year, for example, it was near 125bps over Euribor, much lower than its nearest rivals could achieve.
“If we have a close customer and it’s a high-quality asset in a specific market like, say, Germany, we can price it to win,” says Shields.
Despite being a balance sheet lender that distributes, the option of securitising is not one ING is pursuing. “We have to be able to successfully syndicate deals and I don’t see it happening through CMBS. It’s in disarray still, the regulatory and capital implications of all these regulations. It’s a really difficult market right now.”
There will, however, be subtle changes to the ING Real Estate finance model in the near future, says Shields. “I think we are just going to be a little bit more cautious on the pricing, making sure we are priced appropriately as markets become more nervous and syndicates become less easy to put together.”
Previously, “it was very difficult to make mistakes”, he says of a time when falling margins made early deals look like a good return for investors within weeks of completion.
“Now, with margins going up, you don’t want to be stuck with old paper that is mispriced,” he says, adding that recent fluctuations in the US have “opened our eyes a little bit on the risks of margin volatility, so I think we will be cautious on the big deals”.
But looking back on the past few months, Shields says he is happy with what the bank has done since its return to major lending. “I really am comfortable. I sleep at night knowing that the quality of our portfolio has never been better.”
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