RETURN

2 CASHFLOW ASSET EXAMPLE:

REAL ESTATE DEBT

BNPP AM's Commercial Real Estate Debt team was created to enable institutional investors to generate attractive risk adjusted returns via investment in loans secured against underlying commercial real estate. Loans of this nature typically have a defensive credit profile generating stable and secure cashflows while offering an illiquidity premium to equivalently rated corporate debt.

The highly structured and covenanted nature of transactions also affords lower default rates and higher recovery rates offering further downside protection to investors.

The Commercial Real Estate Debt team is currently comprised of four individuals with complementary experience across asset management and banking leveraging a 45-strong proprietary origination channel offered by the BNP Paribas Group.

In addition, our relationship with the Real Estate Financing team also allows us to be flexible in the nature of the loans that are brought to BNPP AM clients.

We are able to offer long-dated, fixed rate tranches where the market standard would typically be floating rate, across a number of geographies.

PHYSICAL ASSETS INCLUDE:

1
Office

Office campus, tower, CBD, single/multilet

2
Retail

Shopping centre, high street, out-of-town retail, outlet centre

3
Logistics

Light industrial, logistics platform

4
Hotels

High end, mid scale, budget hotels, hostels

5
Operating assets

Student housing, nursing homes

6
Non standard

Datacentre, parking, leisure

The team’s origination capabilities are two-fold:

  • Proprietary extensive sourcing capability established thanks to a working practice with main commercial real estate players such as financial and industrial sponsors, financial advisors and banks’ origination and syndication teams
  • Privileged access to BNP Paribas Group’s origination capabilities. It is a unique opportunity to benefit from a leading bank active in the European Real Estate market offering access to a privileged pipeline

Commercial Real Estate Debt is similarly an ideal source of potential CDI assets as the asset class benefits from the following characteristics:

  • Highly secure, covenanted, contractual long-term cashflows (WAL of 5 years)
  • Prepayment protection and modified spens protection
  • Lower default rates and higher recovery rates than equivalently rated investment grade credit
  • Floating rate and fixed rate tranches available, particularly as assets can be structured via the BNP Paribas Group

BNP Paribas Group participated in €11.1bn of mortgage financing facilities in 2017 across Europe

BNPP AM, June 2020

Features:
  • Commercial Real Estate Debt to finance several real estate projects diversified across different sectors and geographies
  • Participation in limited number of projects in various countries with risk profile of investments Core+/Value add
  • Coupon is defined as spread over Libor therefore bond participation in yield rise
  • Low default probability, high recovery rate resulting in stable cashflows (Core+)
Methodology:
  • Spread and Weighted Average Life based on fund manager targets. Cashflows based on characteristics of actual and potential future projects
  • Typical ramp-up period of 2-3 years with largest capital calls in the first two years
  • Expected return based on our long term views on yield curves and funds outperformance target. Expected risk based on propriety factor model and Sharpe ratio assumption (link with return target)
  • SCR based on unrated qualified infrastructure investments with spread duration of approx. 6 years and Loan-to-Value a maximum of 75%
Metrics:
Spread over Libor 2.4%
Effective duration (interest rate sensitivity) 0.25
Weighted Average Life (WAL) 5.0
Expected return (ER) 3.4%
Expected risk (standard deviation) 3.0%
ER / Stdev 1.13
SCR (solvency capital ratio) 8.4%
ER / SCR 42.5%

BNPP AM, June 2020

No assurance can be given that any forecast, target or opinion will materialise.