FINANCE: The number of active European real estate lenders has jumped 47% since the first quarter of 2012.
According to analysis from Cushman & Wakefield’s corporate finance team ‘alternative’ non-bank financial institutions continue to take up a larger share of an increasingly diversified European market.
Alongside this, the firm’s European Real Estate Lending Update said the drive by lenders into ‘non-core’ markets including Spain, Portugal and Italy gathered pace in the first half of this year.
After reviewing the activity of 182 European lenders C&W found that alternative lenders, including insurance companies, property companies, private equity and debt funds now account for 40% of the total up from 16% in Q1 2012.
It tracked a total of €32.7bn (£25.8bn) of real estate lending during H1 2014, including €27.3bn of origination – which comprised new investment lending, new development lending and refinancing, and forecast that given the increasing risk appetite amongst lenders, the second half of the year will be just as active.
The core markets of Western Europe – UK, France and Germany remain the top targets for real estate lending with 60% of all tracked loans during H1 2014 secured by assets in these markets, according to the report.
Interest in non-core markets has increased however, driven by new opportunities and demand from lenders to move up the risk curve in search of superior returns.
Whole loan financing is becoming increasingly popular with many senior debt providers, while average LTVs across Western Europe and CEE markets are now more evenly aligned C&W said.
It added that while margins in the majority of markets have continued to compress, the pressure has eased during the second quarter.
According to C&W’s report, the all-in cost of financing in the UK for a 50% leveraged transaction, secured on a prime UK asset has fallen from 6.53% in H1 2008, to approximately 3.39% in Q2 2014.
European property debt funds continue to play a vital role, with C&W currently tracking 39 funds looking to raise €22.1bn to target real estate debt.
After a promising 2013, the European CMBS market has slowed in H1 2014. Despite this, investor demand remains strong and market commentators see further issuance in the near term.
The availability of loan-on-loan financing has grown rapidly during H1 2014, with CWCF recording over €5.5bn of debt being secured across nine transactions in the first half of 2014.
“Despite the supply of debt steadily increasing in most European markets, margins seem to have stabilised over the past quarter. This has helped accelerate the movement up the risk curve for many lenders,” said Frank Nickel, chairman & chief executive of Germany, EMEA Corporate Finance.
“Lenders are aggressively competing for the right assets with strong fundamentals. This profile has now extended to locations and sectors that would not have been attractive six to 12 months ago.
“This trend has been captured in the transactions we have been involved in so far this year”, said Mike Morrison, partner, EMEA Corporate Finance.
Bridget.O’Connell@estatesgazette.com
