New lenders to bridge the funding gap
At MIPIM last week, there were again plenty of discussions about the prospects for renewed lending by banks to property developers. Natale Giostra, head of UK and EMEA debt advisory at CBRE, says the reality is that banks have already started to lend again – but they are still primarily focused on the refinancing of existing loans, however, as demand from borrowers seeking to refinance reaches a peak.
The doors have thus been opened for alternative lenders such as insurance companies and debt funds, which are set to play a significant role in bridging the funding gap this year. Insurers in particular are well positioned to take advantage, and can also be very choosy about the borrowers they pick. Giostra says their moves into the market have led the margins for prime assets to decrease gradually over the past year. US, Canadian, European and UK pension funds are all looking at the market, improving sentiment in European property finance circles.
Fund managers have also been seeking to raise equity in order to target opportunities with various strategies across asset classes and geographies, he notes. Some have already had their first close while others are still setting up lending platforms – it is too early to say how these lenders will stack up against the banks and institutional lenders, says Giostra at CBRE.
Cushman & Wakefield, which published its European Real Estate Lending Survey for 2013 last week, says the number of active European property lenders has risen by 29% over the past year. There were 10 new entrants to the market in the past 12 months, and 10 more lenders which had been active a year ago were now back in the market again.
The firm notes, however, that the lending criteria remain rigid and selective, as many of these active lenders are still focused on prime assets in core and/or domestic markets. The margins demanded by lenders that are willing to consider non-core markets and sectors are considerably higher. Nevertheless, the survey does show that a handful of cross-border lenders are showing an interest in the less liquid markets of Southern Europe. “Given the depth of opportunities expected to emerge in countries such as Spain, Portugal and Italy in the coming months, the level of lending within these markets has the potential to pick up as the year progresses,” it adds.
The survey by Cushman & Wakefield also showed that there will be an estimated 22% increase in the new debt available for European property lending in 2013, compared with the previous year, but like CBRE above it points out that much of this capital will be allocated to refinancing rather than new lending.
C&W notes that 28% of the respondents to its survey said they would be prepared to underwrite loans of €100m, compared with 18% in Q1 2012. Of these lenders, 70% are commercial and investment banks.
Michael Lindsay, head of EMEA corporate finance at Cushman & Wakefield, said: “The European real estate lending landscape remains dominated by the mainstream UK and German banks but more recent market entrants – especially those from the US – have started to make their mark. Q4 2012 and Q1 2013 witnessed a significant improvement in lending conditions; for the right assets, healthy competition exists amongst lenders, which is delivering pricing not seen since before the financial crisis.”
