14 Dec 2023

M7 EREIP IV completes pay down of €520m financing package following successful sales programme

M7 Real Estate (“M7”), the pan-European investor and asset manager, announces that M7 European Real Estate Investment Partners IV (“M7 EREIP IV” or the “Fund”) has completed the repayment of its €520.0m financing package, which was originally drawn in March 2019, four months ahead of the loan maturity. The Fund continues to hold an unincumbered portfolio of 49 assets in the Netherlands which generates a passing rent of €19.58 million.

Morgan Stanley originated the financing, comprising a €416.0m senior loan and €104.0m mezzanine loan, which was subsequently sold to controlled affiliates of Starwood Capital Group, a repeat mezzanine lender to M7 Real Estate funds.

Morgan Stanley securitised 70% of the senior loan via EOS (European Loan Conduit No. 35) DAC, which issued €291.0m of notes rated AAA to A-. During the loan term, all classes of notes issued by EOS (European Loan Conduit No. 35) DAC were upgraded to AAA. It is understood that Morgan Stanley retained a €125.0m interest that ranked pari passu with the securitized loan.

At origination of the loans, the portfolio consisted of 165 offices (47.3% by market value), light industrial and warehouse buildings (29.1%), and retail assets (23.6%) located in The Netherlands (62.9%), Germany (25.2%) and Finland (11.9%). The LTV of the senior securitised loan was 58.70%, with the mezzanine reflecting an overall LTV of 73.38%.

During 2023, M7 successfully sold 21 assets, including 10 offices, from the M7 EREIP IV portfolio for a total sales price of €66.62m, above the latest valuation. 

Remko Dickhaut, Managing Director of M7 in the Netherlands, said: “The appetite for smaller regional offices in The Netherlands continues to be very strong. Local private investors, family offices and developers are seeing the potential of this asset class due to historic low vacancy rates and the lack of future competitive office developments. In many cases, developers continue to see future possibilities for residential conversions due to the structural miss match in demand and supply.”

Hugh Fraser, Head of Capital Markets at M7, added: “Notwithstanding the headwinds facing the US office sector, and the impact this has on financing for European offices, this milestone for M7 EREIP IV demonstrates how lenders shouldn’t shy away from financing well managed regional offices. The performance of the regional office market in the Netherlands continues to be very robust and supports the case that not all offices are the same.”