Senior debt funds to emerge on European lending landscape in 2012
6 Mar, 2012, London
London 6th March 2012: The arrival of senior debt funds in the European real estate market could provide welcome new sources of liquidity as the banks continue their retreat and focus on the ongoing need to deleverage; according to Cushman & Wakefield's latest European Real Estate Lending Survey 2012. For the survey, 78 leading global real estate finance providers were interviewed to assess the level of appetite for lending and to identify the trends that will shape the European finance market in 2012.
Active lenders fell by 33% in 2011
Only five lenders willing to underwrite more than €100 million
Senior Debt Funds and alternative finance providers to emerge in 2012
The emergence of alternative finance providers such as non-bank financial institutions and specialist managed debt funds is slow but improving, as real estate debt investment opportunities in Europe lure investors from across the globe. These finance providers are pursuing very different investment strategies, with managed debt funds to date seeking higher returns by focusing on mezzanine or stretch senior debt.
This year is expected to see some newly launched funds targeting senior debt only and senior plus stretch senior debt, which will consider both newly originated debt as well as the acquisition of performing and sub-performing loans.
Insurers have also become keener on the debt sector, given the attractive pricing in historic terms and the potentially advantageous capital treatment under Solvency II. Insurers are typically seeking lower-risk debt positions and are willing to underwrite loans or buy debt on the secondary and syndication markets.
Pension funds are also becoming increasingly interested in the property debt market, attracted by its higher relative returns when compared with traditional fixed-income investment opportunities.
Michael Lindsay, head of Corporate Finance EMEA at Cushman & Wakefield said: "The findings of our lender survey show the severity of bank withdrawal from the European commercial real estate debt market over the past year. Looking ahead, the bright star is the increased lending activity and intentions of non-bank financial institutions and the potential arrival of senior debt funds this year which will provide some welcome new sources of liquidity."
He continued: "With senior debt availability looking in tight supply mezzanine funds may face challenges in deploying capital in 2012."