In November, Deutsche Bank’s European Commercial Real Estate (CRE) Group completed its first compound SONIA-based loan for real estate group Kennedy Wilson, to refinance its €46.5m acquisition last summer of Ditton Park, a 200-acre office park located near Heathrow Airport and the M25 motorway.
“We knew for some time that Libor would go at the end of 2021, which meant opening up an economic discussion with borrowers,” says CRE Director Clive Bull. “That creates a burden in terms of resources – time that could be spent negotiating a new loan must be directed to renegotiating an existing one instead. It’s also expensive, as it requires paying for counsel.”
Bull explains that rolling into 2021 with a number of Libor loans was “unappetising, to say the least”. In late 2018, his team began reviewing the possibility of SONIA transitions – although they expected the clearing banks, “which have by far the biggest problem”, to be the first to make the move.
“But it soon became clear that no one was keen to be the pioneer,” says Bull. By mid-2019, with little sign of action, the CRE team bit the bullet from Q3 and started making the switch to SONIA where possible for UK lending.