Barings agrees its first sustainability-linked loans against European real estate

The Brewery retail and leisure park in Romford

Barings, one of the world’s largest diversified real estate investment managers, has agreed two sustainability-linked loans against assets in the UK and the Netherlands. The loans mark Barings Real Estate’s first sustainability-linked lending in Europe, a key area of growth for the portfolio.

Barings has provided a seven-year fixed-rate loan worth £48.6 million (€56.4 million) under its separate account with investor Phoenix Group, the UK’s largest long-term savings and retirement business, which as part of its investment strategy actively seeks opportunities to invest in sustainability-linked debt. The loan is to finance the acquisition of The Brewery, a retail and leisure park in Romford, east London, by a joint venture between Schroders Capital UK Real Estate Fund and Immobilien Europa Direkt.

With the asset almost fully let, the loan will be used to improve the ESG credentials of the scheme without ceasing day-to-day operations. This includes retrofitting existing buildings to increase asset EPC ratings, maintaining current BREEAM ‘Excellent’ certification (current ratings are Asset Performance: Good, and Building Management: Excellent), and investing in initiatives that enhance biodiversity net gain, health and wellbeing, and tenant and community engagement. The park will contribute to local renewable energy infrastructure through the installation of EV charging facilities powered by photovoltaics.

Barings has also provided a loan to a company managed by Round Hill Capital to finance the refurbishment of the Rembrandt Park One building in Amsterdam into a Grade A sustainable office building (25,000 sq m LFA) with two additional floors, an additional office pavilion and public realm connecting the park with the rest of the city.

The asset is located in the largest city park of Amsterdam an area with little office development activity over recent years, which, when coupled with the impact from recent Dutch BENG regulations for almost neutral energy performance coming into force from January 2021, will see a further shortage of the high-quality space that Rembrandt Park One will provide. Refurbishment will focus on maximising the ESG credentials of the asset, targeting Energy Performance Label rating of ‘A’ and BREEAM certification rating of ‘Excellent’, with on-site renewable energy generation by a thermal energy storage system and photovoltaics, as well as enhanced amenities including restaurant, on-site gym and 600 bicycle parking spaces. Rembrandt Park One connects the surrounding neighbourhood to the park with a passage under the building and a bridge over the water into the park. In addition to being a place where companies feel at home, Rembrandt Park will also become a place where neighbouring residents of Amsterdam can escape the hustle and bustle of the city.

Sam Mellor, Head of European and APAC Real Estate Debt at Barings, said: “These loans are not only substantial additions to our growing real estate debt offer, but also an example of our appetite to innovate in order to seek greater returns for investors and make a tangible environmental impact. Secured against strong assets, both of which have great potential to perform even more impressively amid Amsterdam’s Grade A office shortage and the arrival of the Elizabeth line and regeneration in Romford, these loans are valuable additions to our books.”

Charles Weeks, Head of European and APAC Real Estate at Barings, said: “Reflecting both the increasing importance to investors as well as our values as a business, Barings is increasingly seeking to apply strong ESG standards to our projects. While we’ve had many more opportunities to focus and shape our assets secured through equity up until now, we’ve been eager to find the right opportunities for sustainability-linked loans for some time. With a growing team, including new colleagues in real estate debt and ESG, we’re keen to explore further such loans across Europe.”

Prabjot Mann, Head of Property at Phoenix Group: “Phoenix is delighted to have provided £48.6 million of funding for Barings’ first sustainability-linked loan in the UK. This investment is closely aligned to Phoenix’s sustainability agenda; we have significant appetite for real estate loans which motivate borrowers to upgrade existing assets due to the dual benefits of improving the property’s environmental and social impact as well as supporting long term value.”