Tower of strength: financing a sustainability landmark
Torre Espacio is an iconic building in Madrid with world-leading design and environmental credentials. When it came to refinancing his acquisition, Andrew Tan, majority owner of the Philippines-listed AGI Group, chose to work with a bank that prioritises sustainability.
As Spain’s economy has returned to growth following the economic crisis, its real estate sector has also sprung back to life, with rents stabilising, vacancy rates falling and liquidity flowing into the market. But while transaction volumes have steadily increased, opportunities to acquire a landmark building are limited given the modest scale of the market. When one of the most iconic office buildings in Spain became available it was clear that there would be significant interest from both private and institutional investors.
The prime class-A Torre Espacio in the Cuatro Torres Business Area in central Madrid was completed in 2008. It is one of four towers that, as the tallest skyscrapers in Madrid (and among the 10 highest in Europe), have reshaped the city’s skyline. Designed by the architectural firm Pei Cobb Freed & Partners – perhaps most famous for the Louvre Pyramid – Torre Espacio was immediately feted for its spectacular and unusual design, which has an elegant twist at the base. The 62 floor building, which has a total area of 60,142m2, has a number of high profile tenants, including the British, Canadian, Dutch and Australian embassies and companies such as Grupo Villar Mir, Red Bull and British American Tobacco. However, what is most groundbreaking about Torre Espacio is its commitment to environmental protection.
Significant investments were made to ensure Torre Espacio’s sustainability. As a result, its energy efficiency and environment standards exceed both current legal requirements and anticipated future environmental regulations. Design features such as active facades on the building’s glass curtain wall help to reduce energy use while a water recycling system from the building’s carwash ensures water efficiency. Torre Espacio’s sustainability is further bolstered by the excellent mass transit options available to building end users, parking for bicycles, electric vehicle charging stations and a carpool service that operates through the building’s intranet. Torre Espacio’s high technical standards ensured it became the first office building in Spain to obtain an ‘Excellent’ BREEAM Sustainability Certificate as well as an AA rated Building Upgrading Certificate. With an A Energy Performance Certificate and compliance with ISO14001 and ISO9001, Torre Espacio is a benchmark for efficiency and sustainability in Spain.
One party interested in acquiring Torre Espacio was Andrew Tan, majority owner of the Philippines-listed AGI Group, which spans alcoholic beverages, real estate, casinos, hotels and fast food. AGI Group has recently acquired Spain’s oldest brandy brand Fundador but Tan was interested in Torre Espacio as a personal investment. “There are few opportunities to invest a large amount of capital into a single asset and given its attractive qualities – and Andrew Tan’s increased focus on Spain – it was a good fit,” says Wouter Mijnen, Head of Real Estate Finance, Spain and Portugal at ING Wholesale Banking.
Initially Tan financed Torre Espacio’s purchase price solely with equity but he wanted to refinance part of the acquisition cost with €280 million of debt and began talking to a group of local banks. However, ING’s Real Estate Finance team in Madrid had followed the deal closely and spotted an opportunity. “We contacted our colleagues in the Philippines who have services AGI as a key target client for many years. They presented our credentials and demonstrated our ability to close the deal,” says Mijnen. “The approach was welcomed and we became a contender to finance the deal.”
ING quickly set up a team drawn from Amsterdam, London, Madrid and Manila to manage the transaction. Legal and other due diligence was completed rapidly and a binding offer was put together in just 15 days, which is quicker than usual – thanks to close coordination and planning. “Crucially, we were the only bank that offered to underwrite the full deal size,” says Mijnen. ING’s ability to take the deal onto its balance sheet before syndicating it at its own risk gave it greater flexibility than other banks, which were part of club deals. In the event, ING executed the €280 million seven-year term loan in February 2016 as sole bookrunner and underwriter before syndicating the deal in April.
Refinancing Tan’s acquisition of Torre Espacio was attractive to ING for a number of reasons. “The environmental credentials of the asset are impeccable and given ING’s commitment to sustainability that is important,” says Mijnen. Indeed, as a ‘green building’ the project meets ING’s green bond criteria allowing it to be financed from the proceeds of the bank’s recent green bond issue (see below).
As well as helping to improve the environment – and lower energy costs – Torre Espacio’s sustainability makes it more attractive to potential tenants who welcome the opportunity to promote their own sustainability efforts. As a result, Torre Espacio is a more attractive asset and risks associated with the loan are reduced, according to Mijnen.
A commitment to sustainability
ING’s strength in renewables is just one example of its commitment to sustainability, which is reflected in its portfolio of sustainable transactions valued at around €24 billion. ING has been at the forefront of industry efforts to promote projects associated with the environment and social development for decades – being an early signatory to the Equator Principles signed by banks worldwide to manage environmental risks – and began publishing a sustainability report in the early 1990s, before many other banks.
Most recently, in November 2015 ING successfully issued a five-year €500 million and a three-year $800 million green bond. The money raised will go to projects in six categories eligible under ING’s newly established green bond framework, including renewable energy, green buildings, public transport, waste, water, and energy efficiency. By singling out the use of proceeds from the bond, ING is highlighting that its approach is broader than other green bond issuers, which reflects its ambition to support sustainability across all industries and sectors.