Although the pandemic delivered a significant shock to the commercial real estate sector, some areas have proven more resilient than others. The trend towards working from home was more short-lived and less widespread in the Nordic nations compared with elsewhere in Europe.
This was one of the factors that led the Commercial Real Estate Debt team to invest in a portfolio of more than 70 flexible office buildings in Finland, Norway and Sweden at the end of 2021. The offices, which are spread across 13 campuses and cover more than 550,000m2, were initially valued at €1.44 billion, or €2,590 per square metre.
An investment opportunity that ‘ticked all the boxes’
As investors in senior debt, the Commercial Real Estate Debt team aims to finance large portfolios with detailed data on assets and tenants, explains Christophe Montcerisier, Head of Real Estate Debt at BNP Paribas Asset Management. This generates reliable cash flows for investors.
The identity of the sponsor and asset manager also plays a crucial role in investment decisions. In this case, the portfolio offered a high degree of diversification and resilient cash flows. And, Montcerisier adds, “the sponsor and asset manager were an ideal fit for us: the offices were attractive and run in a very proactive way, with managers on each site marketing the properties as well as meeting tenants’ ongoing needs.”
The deal was introduced by an American bank in mid-2021, standing out due to its combination of risk diversification and attractive returns. “It really fit the bill in terms of what we were trying to do and, at that point in time, it was probably one of the best transactions we were looking at,” says Romain Linot, Investment Director, Corporate Real Estate Debt. The Nordics region is especially attractive for real estate investors because the legal framework tends to favour lenders and property owners more than borrowers and tenants.
During the Covid pandemic, the vacancy rate for this portfolio saw only a marginal increase compared to other parts of Europe. The fact that remote work had not become as popular as it had elsewhere in the continent was an important factor for the team. Additionally, the cost of debt to the borrower and the debt yield indicated strong financial health, ensuring extra cash flow to secure interest payments. The presence of multiple tenants further bolstered the security of the investment.
Strong environmental credentials
Each investment made by the Commercial Real Estate Debt team has a specific target in terms of its environmental performance and energy efficiency. This is measured by third-party analysis that provides assets with a “net environmental contribution” (NEC) score. This is a metric that rates economic activity in line with its environmental impact, on a scale from -100% to +100%.
The NEC rating for the Nordics offices is +12%, surpassing the strategy’s commitment to maintaining an average of +10%. “We have sustainability goals because we strongly believe that the preservation of value in properties over time is directly linked to their energy efficiency,” Montcerisier adds.
“The way the market is evolving, you don’t necessarily get a premium for very efficient properties in terms of pricing. But what we are seeing is that properties that are not efficient simply are not able to find buyers or tenants. As a result, their value is going to go down.”
How the deal has evolved
The Commercial Real Estate Debt strategy’s initial loan reached maturity in May 2024, leading to a decision to take a stake in the portfolio’s refinancing. With several years of borrower history available, refinancing was secured on improved terms due to favourable market conditions. A lower loan-to-value ratio further enhanced the investment’s attractiveness compared to other potential transactions at the time.
Key figures
total capital deployed to date by the Commercial Real Estate Debt strategy
office buildings in the Nordics portfolio, across 13 campuses
total floor area of the Nordics office portfolio
value of the Nordics office portfolio
debt yield on loan to portfolio
loan-to-value ratio on original 2021 deal
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Marketing communication. For Wholesale Investors only.
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