The largest project financing in the history of 6B47

Interview with Michael Weitersberger, Executive Director, Raiffeisen Bank International AG, and Elke Plazeriano, Head of Corporate Finance & Investment at 6B47

At the end of February this year, 6B47 announced the start of construction work on the Althan Quarter. This was made possible not least due to successfully closing finance of half a billion euros together with a bank consortium led by Raiffeisen Bank International AG and an institutional mezzanine lender. In a joint interview, Elke Plazeriano, Head of Corporate Finance & Investment at 6B47, and Michael Weitersberger, Executive Director at Raiffeisen Bank International AG (RBI), explain how this was possible - in the midst of the coronavirus pandemic.

 

Ms Plazeriano, with the new finance for the Althan Quarter, 6B47 Real Estate Investors AG has secured its largest finance deal. How did this come about?


Plazeriano: With the gradual purchase of our Althan Quarter from 2015 to 2017, we took over the existing financing but also concluded traditional acquisition finance. Such planning finance comprises a significantly smaller volume than building construction finance. As a result, the building construction finance had to be completed on receipt of the building permit at the end of 2020. After more than a year of preparatory work, we were finally able to achieve closure on the reference date of 18.02.2022. I am glad that we accomplished this to our complete satisfaction even at the height of the pandemic thanks to our cooperative relationship with and the extraordinary team performance at 6B47.

 

Mr Weitersberger, how did your bank come to collaborate with 6B47 on financing the Althan Quarter?

Weitersberger: We first encountered the Althan Quarter project in 2015. This was the first year that 6B47 approached us for financing, for the acquisition of the FRANCIS property at the time. However, this did not come to fruition. Since we were enamoured of the location and we found the Althan quarter as a whole and its asset class mix interesting, it was clear to us in 2020 that we wanted to make an attractive offer. We were aware from the outset that, due to the size of the project, overall funding could only be secured through a consortium. The Althan Quarter is not an everyday project, and putting together such a consortium while at the same time addressing many complex issues, does take time. To get such a large project off the ground requires very close coordination between all parties involved, i.e. RBI as the agent, bookrunner and Mandated Lead Arranger, 6B47 and the other lenders. From our point of view, the whole operation proceeded perfectly.

What were the challenges that had to be overcome before the financing was secured?

Weitersberger: In a nutshell, the overall complexity of the project represented a challenge. Among other things, 6B47 had already purchased the first properties in 2015 and consequently had already had a lot of time for preparations. We, on the other hand, only got to grips with the project on the financing side several years later. There were many issues we had to first familiarise ourselves with. Due to the size of the overall project with total investment costs of 525 million euros, it was necessary, as already mentioned, to put together a financing consortium. It should also be taken into account that part of the total investment cost is financed by a mezzanine capital provider. This necessitated the preparation of an intercreditor agreement and ongoing liaison with the mezzanine capital provider. Distribution of the financing amount across individual projects and lenders also constituted a challenge. And of course, the aspect of time also played a role. Under the leadership of Arnold Czabaun, Director Real Estate Finance, all the appropriate levers were pulled to ensure the finance was correctly allocated.

 

Plazeriano: There were also some key challenges for 6B47. In fact, our preliminary work was conducted in the middle of a period when office and commercial real estate projects were coming in for critical scrutiny. After all, the majority of companies had been obliged to introduce working from home and the retail sector was in lockdown. Accordingly, there was fundamental scepticism in the industry regarding FRANCIS as the centrepiece of the Althan Quarter. This was a tough starting point, but we were nevertheless able to communicate the unique selling points of the Althan Quarter confidently and transparently: its unique location in the heart of Vienna, the forward-looking mixed-use concept in which retail and leisure uses enhance the office space - and, last but not least, the mix of spaces, where one type of use complements the other. Together with the 6B47 team, we were able to distil this information in the form of a memorandum and pitch it to the major Austrian banks. RBI quickly proved to be the ideal cooperation partner, taking the lead in the financing bank consortium.

"We are deeply ensconced in the institutional segment: facts, figures and data have to be correct."

Elke Plazeriano - Head of Corporate Finance at 6B47

 

What was more important in the communication with RBI, Ms Plazeriano - the big picture or the details?

Plazeriano: Both. Of course, we had to convey the overarching conversion concept and our ideas for the district to make sure our funding partners gained a good impression of what we were actually trying to achieve. That, in turn, was our jumping off point for embarking on the detective work together. After all, financing on this scale requires a great deal of attention to, among other things, company law, tax law and not least, regulatory details. In addition, we also wanted to realise the bank financing and the equity capital allocation on the part of our investors on the same date. That was only feasible with minute attention to detail and teamwork, and – I'll say it quite openly – eight-hour days were not exactly common practice at the time.

Weitersberger:   For my part, I must add that the overall project was the real deal. On the one hand, due to its excellent location right by Franz-Josefs railway station, next to the U4 line and further tram lines on the doorstep. And on the other, through the mix of asset classes consisting of office, residential, retail, hotel and parking. It was clear to us that the entire project had to be financed from a single source. That is why we have always viewed and treated the project as a whole, although it actually consists of four individual projects. When looking at the properties individually, the decisive factor was that the hotel asset class, for example, which suffered more than others as a result of Covid, had already been pre-sold. The issue of "green financing" was also a very important factor for the Althan Quarter.

How can key financial figures, including loan values, be reliably determined for a large-scale conversion project?

Weitersberger: We follow an internal cash flow approach. This means, first and foremost, that it is important for us to understand whether the financing can be repaid from the cash flow generated by the project. Long-term rental or lease agreements with reputable tenants are more important to us as a first step than the market values of the projects. But of course, the market values and dependent LTV ratios are also key indicators. As the market values after completion are included in our ratings, we do not make any major distinction between construction projects and standing investments when preparing them. Except for property financing, where the fair values must be determined using the residual value method.

ESG issues play an important role in the development of the Althan Quarter - land sealing, CO2 savings and neighbourhood development. How important was that for both sides in the financing?

Plazeriano: No question, it’s always better to have an A4 page ready with a checklist for financiers showing an ÖGNI Gold or Platinum standard, for example. In the case of the Althan Quarter, however, this was only possible to a limited extent, as the certification systems do not yet have any criteria for developers’ methods relating to sustainability. Consequently, these  were rather soft factors but nevertheless very important for the overall perception of the project, as without the "big picture", RBI would hardly have got involved in such an enormous financing amount. At this point, however, I would also like to emphasise the "G" in ESG. Of course we are deeply ensconced in the institutional segment - facts, figures and data have to be correct. But without transparent cooperation on an equal footing, we would never have been able to shoulder this enormous project. After all, an in-depth, professional dialogue is only possible in the first place if the foundation of communication between the cooperation partners is fit for purpose.

Mr Weitersberger, what role does the topic of ESG in general play in your due diligence?

Weitersberger: In general, ESG is already applied in our ratings. We collect data by means of customer questionnaires, energy performance certificates and by applying for building and environmental certificates. These data are definitive for the rating of a project or client. The more project developers and clients can accomplish, the more positive the effect on ratings and profitability will be. By the way, I can only confirm the importance of collaboration based on trust, as Ms Plazeriano has already mentioned. When the market environment is subject to great fluctuations - as is currently the case - reliability, trust and shared experience are paramount.

Ms Plazeriano, how would you assess your communication with the investors of 6B47 during the initial stages of the financing?

Plazeriano: We maintained an ongoing dialogue with our shareholders, including regular advisory board meetings and similar formats where we provided updates. Of course, stakeholders also paid particularly close attention, as financing on this scale is an absolute novelty.

Mr Weitersberger, how do you as a lender generally adapt to the current uncertain real estate market?

Weitersberger: We concentrate on our strengths. Reliability - we stand by our word and coordinate the financing internally with departments involved (or to be involved in the future) to such an extent that there are no major surprises for the client after the permit has been obtained. Many years of expertise in financing projects - we address questions and problems openly, solicit suggestions for solutions and discuss them with our clients as equal partners. And our flexibility - we offer customised financing tailored to the needs of our clients.

"We have regarded the Althan Quarter at all times as one overall project, even though it is actually four individual projects.”

Michael Weitersberger - Executive Director Raiffeisen Bank International AG


What happens now after the close?

Plazeriano: Compared with conventional financing, a project of this size requires much more detailed reporting and a much tighter cycle of updates. Together with RBI, we have agreed to submit reports every two weeks, including the various budget comparisons. And this once again illustrates how important mutual trust is as a basis for cooperation. Personally, however, I would be delighted if we could expand our cooperation even further in the future if RBI decides to rent some of the office space still available at FRANCIS and thereby become even more involved in the largest district development in our company's history.