The combined deals, funded by the 3-year revolving credit line from Credit Suisse, will be the biggest of their kind seen in Europe to date
Credit Suisse Group is financing a foray into a niche corner of the debt markets used to fund real estate at a time when UK property is feeling the strain from rising interest rates.
The Swiss lender will furnish Aeon Investments with up to 900 million euros to help bundle up loans and issue bonds secured against them known as commercial real estate collateralised loan obligations (CRE CLOs), said Aeon’s co-founders Oumar Diallo and Ben Churchill.
The combined deals, funded by the 3-year revolving credit line from Credit Suisse, will be the biggest of their kind seen in Europe to date.
Aeon said it is counting on strong demand for newer office space with top environmental credentials as UK firms appraise their workspace needs in the aftermath of the pandemic.
The batch of 3 CRE CLOs the firm plans to issue from 2023 will fund mid-market projects across England and Wales, including offices, industrial units, warehouses and also some retail properties, as well as buildings in need of an upgrade, said Diallo and Churchill.
For all of those pockets of value, we thought it was an opportune moment where we could capture a premium on the revenue side, while not increasing risk if both the loan selection and underwriting was prudent, said Diallo.
While credit market returns have fallen across the board this year, European high-grade bonds for asset-back securities are down about 1.6 per cent for the period, data compiled by Bloomberg showed. By contrast, investment grade corporate bonds have plunged more than 12 per cent, according to a Bank of America index.
With European real estate getting squeezed, the CRE CLO structure offers more flexibility than commercial mortgage-backed securities (CMBS), a more traditional funding tool, said Iain Balkwill, partner at law firm Reed Smith, who worked on Europe’s first CRE CLO last year.
While a CRE CLO bundles up a bunch of loans, a CMBS can have as few as one large mortgage backing a deal. The structure of the securities also gives managers more control because they can make capital injections and trade in and out of the loans in response to market conditions.